Awaiting regulatory clarity: GIFT City-bound family offices on hold

Family offices, including those of Azim Premji and NRN Murthy, have filed application for registration in Gift city

Indian family offices may have to wait before they are able to set up family investment funds (FIFs) in the International Financial Services Centre (IFSC) because the regulatory authority is awaiting clarification on this from the Reserve Bank of India (RBI) and the government.

Among the key family offices eyeing the GIFT-IFSC route are Premji Invest and Catamaran Ventures, which had applied last year with the IFSC Authority to set up and start operations at the emerging financial hub.

Premji Invest represents the family office of industrialist Azim Premji while Catamaran Ventures is its equivalent of Infosys co-founder N R Narayana Murthy.

Both had applied for registration as FIFs in August last year. However, Premji Invest received in-principle approval this year in January.

Upon receiving final approval, it would have been the first family office to operate from GIFT-IFSC.  

“There are two kinds of family investment funds. One is those that look like moving funds from within India to invest in GIFT City and abroad. That is probably where the RBI and the government have to take a call (on) what policies should be brought about. That is under their regulatory purview,” said K Rajaraman, chairperson, IFSCA.

The second category includes foreign family offices. 

The chairperson added in cases where the source of the fund is overseas, such family offices can set up an FIF without any further clarification.

“If an Indian family or a foreign family has wealth situated in Singapore or Mauritius, it could still move part of it to either invest in India or abroad. That is open. Rules will apply depending on the direction of the fund flow. If the fund is coming from India, permission from the RBI is required,” said Rajaraman.

Once there is clarity on policy, which the IFSCA expects soon, it will take the final call.

However, till now no offshore family office has applied for registration in the IFSC.

The IFSCA (Fund Management) Regulations, 2022, have a framework to facilitate self-managed investment funds of a family office as FIF.

Family offices act as an important pool of funds for investment in startups and new-age companies.

“We believe that the OPI (overseas portfolio investment) route under the Overseas Investment Rules, coupled with the FIF regime in the IFSCA, allows Indian families to structure global investment under a flexible regime. We understand the RBI wants to be more cautious before permitting these remittances and would want to build guardrails around the end use of such remittances,” said Sahil Shah, partner, Khaitan & Co.

To facilitate FIFs, the IFSCA last year clarified matters on participation by family-controlled entities, sharing economic interests with employees, setting up additional pooling vehicles, declaration by family members, etc.

This was to remove ambiguity and difficulties family offices face in setting up operations at GIFT-IFSC.

Legal experts say an FIF would help family offices invest up to 50 per cent of their net worth through this vehicle, be more cost-effective than setting up an office abroad, and allow them to save on their own individual liberalised remittance scheme (LRS) limit.

The LRS is the individual global remittance limit of $250,000 allowed by the RBI.

Long wait

Family offices, including that of Azim Premji (left) and N R N Murthy, have filed application for registration in GIFT City
 

Policy clarity required in case the ‘source of fund’ for the family office is in India
 

GIFT-IFSC route open for family offices, which are moving wealth from overseas, like Singapore and Mauritius
 

Foreign family offices or such offices of Indian families moving funds from outside allowed under current regulations