AIFs – Empowering Indian Economy

As India ushers into the Amrit Kaal, ‘ease of doing business’ whilst ensuring good governance has become the central theme of the regulatory framework surrounding the Alternative Investment Funds (AIFs).

The AIF industry in India is experiencing significant growth, and institutions such as the International Monetary Fund and the World Bank have acknowledged India as an economic bright spot amidst global challenges. With just over a decade of regulatory existence, the AIF fraternity has grown to 1275+ strong and has raised in excess of INR 11 trillion in commitments.

Keeping up with the pace of growth of AIFs, the Sebi (AIF) Regulations 2012 have also undergone significant changes since inception of the regulatory regime. Most of the recent regulatory requirements viz. transparency and trail mode of payment of distributor commission, dematerialization and simplification of the process for accreditation, permitting further extension of the term of the fund beyond the original period with regulatory safeguards etc. have been welcomed by the industry as these would be leading to long-term sustainable growth. At the same time, industry is also looking for more regulatory guidance on priority distributions, permissibility of encumbrance of assets of investee companies, some relaxation in the overall regulatory framework to cut on certain overlapping compliances and measures for promoting ease of doing business.

SEBI has been notifying various possible relaxations for the deepening of the domestic institutional investor base in the AIFs. For instance, permitting excuse clauses for investors wherein certain underlying exposures cannot be directly/indirectly undertaken by an investor, is a welcome move and, inter alia, provides regulatory assurance to the likes of insurance companies and pension funds that their investments in AIFs will not result in any prohibited overseas exposures for such class of investors.

Industry expects the Regulators like SEBI, RBI, IRDAI, PFRDA to take all possible measures for strengthening of the domestic funds industry by ensuring maximum participation from domestic institutions in this asset class so that the quality long term capital can timely get channelised to Indian portfolio entities. Hence one of the major regulatory support that the industry is looking forward to, is a collaborative effort between regulatory authorities and market participants to ensure a robust growth of the entire investment eco-system. This is also critical for the success of important Government themes like “Make in India” and “Self-Reliant India”. Industry associations like IVCA also have been playing an important role in the orderly development of the AIF industry through its several innovative initiatives.

With the various steps taken over the past several years ensuring investor protection and transparency in day to day conduct of the AIFs, the industry is hopeful that these measures will continue bringing in and even accelerate the flow of global capital in AIFs as the Indian regulatory regime is at par or even better than what’s prevailing in developed jurisdictions. The AIF industry is poised to grow significantly, has matured over the past decade and is ready to act as a significant contributor to the success and further rise of the Indian Economy.