Latest news with #AIFs
Mint
2 days ago
- Business
- Mint
Why India's AIFs are outpacing portfolio management services
Two of India's asset classes targeting the rich are growing at sharply different rates, with one growing thrice as fast as the other. Alternative investment funds (AIFs) far outpaced portfolio management services (PMS) in FY25, data on fund commitments and assets showed, thanks to a more efficient tax structure, operational ease, and the flexibility to invest in unlisted stocks. Also Read | Penny stock under Re 1: NBFC to foray into AIF biz with ₹50 crore initial investment Commitments raised by Category III AIFs grew 58% from a year earlier to ₹2.3 trillion at the end of March, as per data by the Securities and Exchange Board of India (Sebi). In the same period, assets under management (AUM) of the PMS industry grew 19% to ₹4.3 trillion, according to industry body Association of Portfolio Managers in India (APMI). Here, category III AIFs are compared with PMS schemes as both invest in listed stocks, while category I and category II AIFs invest in unlisted companies. The minimum investment for AIFs is ₹1 crore, while it is ₹50 lakh for PMS. Also Read | Bank, NBFC investments in AIFs may get smoother Pramod Gubbi, co-founder of Marcellus Investment Managers, said that AIFs are more cash-flow friendly for clients compared to PMS. Marcellus offers PMS for clients based in India, and has an AIF operating in GIFT IFSC for Indian clients wanting to invest in global equities. "Although the tax on portfolio churn is similar for both AIFs and PMS, the key difference is that in a PMS, the client has to arrange and pay the tax themselves. In an AIF, the tax is paid at the fund level, directly from the returns," Gubbi said. Also Read | Indian real estate attracts nearly ₹74K cr till Dec24 from AIFs, max among all sectors: Anarock This means clients receive post-tax returns in an AIF and don't need to worry about setting aside money for tax payments, unlike in a PMS, he added. A tax on churn means capital gains tax is paid every time a PMS or an AIF sells a stock. The capital gains tax is 12.5% for long-term and 20% for short-term investments. AIFs are also easier to operate, said experts. 'In PMS, investors are required to open a separate demat account and for NRI investors a separate custody and bank account too, and each transaction is done in separate account for each client," said Aniruddha Sarkar, chief investment officer at Quest Investment Advisors. In contrast, AIFs handle everything at the fund level, and investors simply receive fund units and net asset value (NAV) statements, much like mutual funds; there is no need for individual demat or custody accounts as units are allocated by registrar and transfer agents (RTAs), he added. Also, when most of the PMS and AIFs have similar strategies, investors would prefer an AIF because of the operational ease, said Sarkar. Others pointed to how the ability of AIFs to invest in unlisted shares gives them an edge over portfolio management services. Sushant Bhansali, chief executive of Ambit Asset Managers, said that AIFs allow investments in unlisted stocks, up to 25% of the portfolio. In comparison, PMS generally cannot invest in unlisted stocks. Only non-discretionary PMS can invest up to 25% in unlisted stocks, but this option is not popular, Bhansali added. 'That's because in a non-discretionary PMS, the client must approve every transaction before it is executed, making the process slower and less convenient. So, most investors prefer discretionary PMS, where the fund manager makes decisions without needing client approval," he added. According to APMI data, non-discretionary PMS accounts for just 18% ( ₹79,436 crore) of the total PMS industry AUM as of March. However, Bhansali added that the reason AIFs appear to be growing faster could also be because the data reflects commitments raised, not actual assets under management (AUM). 'So, comparing PMS AUM with commitments raised in Category III AIFs is not an apples-to-apples comparison," he explained. AUM means mark-to-market value of the funds invested, while commitments raised means only the initial value of the funds raised from investors, which does not reflect in the MTM value. That said, a true like-to-like comparison is not possible because Sebi does not publish AUM data for the AIF industry. Another reason AIFs are gaining popularity is that they can offer close-ended funds, which PMS funds cannot. 'Some investors prefer to commit their money for a fixed period, especially when they have a specific financial goal in mind. In such cases, a close-ended fund structure works well," said a fund manager on the condition of anonymity. This flexibility makes close-ended AIFs more attractive to certain investors.
Mint
5 days ago
- Business
- Mint
Alternative funds plead for a review as RBI's rules threaten to squeeze capital
Alternative investment funds have urged the banking regulator to ease rules after the central bank capped combined investment by banks, non-bank lenders and other regulated entities into such vehicles, according to four people with knowledge of the development. The Reserve Bank of India (RBI) last week issued a circular introducing an overall cap, barring entities regulated by it from investing more than 15% in alternative investment funds (AIFs). In case of a ₹100 crore fund, banks, cooperative banks, financial institutions and non-bank financial companies (NBFCs) put together cannot invest more than ₹15 crore. That's a setback for the ecosystem, which has so far depended on domestic financial institutions to raise the bulk of its capital. AIFs include private equity, venture capital, hedge funds, and other vehicles that invest in alternative assets, such as real estate, startups, and infrastructure. Also read: Why AIFs need regulatory innovation for next phase of growth Ceiling review The AIF industry has asked the RBI to either make it a group-wise ceiling or to relax it to 25%, the people said on the condition of anonymity. Apart from reviewing the ceiling, the industry has also urged the RBI to relook 'applying this circular retrospectively", said Siddarth Pai, cofounder 3one4 Capital, an early-stage venture capital firm. 'We hope to see some relaxations being made to this." The Indian AIF industry had capital commitments worth around ₹13.5 trillion as of 31 March. It aims to at least double it to ₹30 trillion by 2030. Most of these venture capital, venture debt and private equity firms raise capital from domestic high-net-worth individuals, family offices, banks and other financial institutions, mutual funds, insurance companies and corporates. 'The aggregate ceiling of 15% being too low… would severely impact the access that the domestic fund management industry has to an important stream of institutional capital," said Swapneil Akut, partner-investment funds & securities law at S&R Associates, a law firm. 'If one RE (regulated entity) invests up to its entitlement of 10%, then only 5% is left for other REs." On 19 May, however, RBI said banks, non-bank lenders and financial institutions may get to invest up to 10% in the corpus of AIFs, in a relief for the sector that faced a central bank clampdown in December 2023. There will be no restriction on regulated entities such as banks for investing up to 5% in the AIF scheme's corpus, RBI proposed. However, if the AIF scheme invests in a company that has borrowed from the bank, then the regulated entities must make full provision to the extent of its proportionate exposure, the draft circular said. Also Read: Managing market volatility: How AIFs turn risk into opportunity Gift City beckons Fund managers are also looking at ways to raise capital outside of the domestic institutions to mitigate the regulatory risks. 'We hope to shift the bulk of our fund-raise focus overseas and hope to work under GIFT City jurisdiction. Indian regulations have sadly not been conducive to ease of business for AIFs," said Anand Lunia, founding partner, India Quotient, a homegrown early-stage venture capital firm. 'The government reduced capital gains tax, which is such a positive step. But there are sections in regulations that perhaps intrinsically believe AIFs are out to scam." India Quotient is currently raising its fifth $130 million ( ₹1,000 crore) VC fund. Regulatory scrutiny Investments by banks, NBFCs and other financial services companies in AIFs have been under the banking regulator's scrutiny. On 19 December 2023, RBI asked lenders not to invest in AIFs that have direct or indirect downstream investments in companies that were borrowers in the last 12 months. Such existing investments were required to be liquidated or fully provided for within 30 days. This prompted several large private banks to make significant provisions against these investments in their financials for the last two quarters of FY24. These guidelines were aimed at preventing instances of evergreening by using the AIF route to repay existing, potentially distressed loans. In March this year, however, the regulator clarified that these investments would exclude equity shares, compulsorily convertible preference shares and compulsorily convertible debentures. It also said the provisioning will be required only to the extent of investment by the regulated entity in the AIF scheme, which is further invested by the AIF in the debtor company, and not on the entire investment of the entity in the AIF scheme. In Monday's circular, RBI said the regulatory measures have brought 'financial discipline among the REs regarding their investment in AIFs". Also Read: Do AIF investors need easier accreditation?
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Business Standard
7 days ago
- Business
- Business Standard
Sebi eases norms for Category II AIFs on debt securities investments
The Securities and Exchange Board of India (Sebi) has relaxed norms for Category II Alternative Investments Funds (AIFs), allowing them a wider investable universe and opportunities in the debt securities. The new norms permit Cat II AIFs to invest in listed debt securities with a credit rating of 'A' or below. The market regulator had proposed the changes in a consultation paper in February and brought the amendments through a notification dated May 21. 'The amendment provides greater flexibility to the investment managers to determine their investment strategy. The regulator has kept the basis of investments as the placement memorandum instead of just listed, unlisted, and rating classifications. It shows that they don't want constraints till the time the investment strategy is mentioned in the PPM," said Nachiket Naik, head – Structured Credit at Axis AMC. "This increased flexibility demonstrates the maturity of the sector and the consequent growing confidence of the regulator,' he added. The AIF industry had sought relief after an earlier amendment to Listing Obligation and Disclosure Requirement Regulation (LODR), that could shrink the investment opportunities in unlisted debt securities for AIFs making fresh investments. Following the LODR amendments, the entities that had issued listed non-convertible debentures (NCDs) on or before January 1, 2024 would not be eligible to issue any unlisted NCDs till even one listed NCD is live. However, Category II AIFs are mandated to invest primarily in unlisted securities. Relaxing the norms for AIFs, the new notification states, 'Category II Alternative Investment Fund shall invest primarily in unlisted securities and/or listed debt securities (including securitised debt instruments) which are rated 'A' or below by a credit rating agency registered with the Board, directly or through investment in units of other Alternative Investment Funds, in the manner as may be specified by the Board.' Sebi's consultation paper had noted that there were around 192 category II AIF schemes which had invested more than 50 per cent of their investments in unlisted debt. By allowing investments in lower-credit paper, the regulatory framework will provide AIFs greater flexibility and diversification opportunities and also align with the high-risk appetite.
Business Recorder
22-05-2025
- Business
- Business Recorder
India central bank bought net $14.36 billion in spot forex market in March, bulletin shows
MUMBAI: The Reserve Bank of India (RBI) bought a net of $14.36 billion in the spot foreign exchange market in March, data released on Wednesday as part of the central bank's monthly bulletin showed. The RBI said it purchased $41.52 billion and sold $27.16 billion. In February, the central bank had sold a net of $1.6 billion in the spot market. The Indian rupee rallied more than 2% in March, aided by a fall in the U.S. dollar and foreign inflows, which prompted investors to unwind bearish bets. India central bank proposes easier rules for lenders' investments in AIFs The domestic unit traded in a wide range of 85.39 to 87.44 in March. The RBI's net outstanding forward sale stood at $84.35 billion as of end-March, compared with a net sale of $88.7 billion at the end of the previous month, the data showed. The central bank intervenes in the spot and forwards market to curb exchange rate volatility. The currency was at 85.6375 to the dollar on Wednesday.
Economic Times
20-05-2025
- Business
- Economic Times
Explainer: Why RBI took a U-turn on banks and NBFCs investing in AIFs
Eighteen months ago, the Reserve Bank of India (RBI) took a call to end the risk of banks and NBFCs (non-banking financial companies) investing in alternative investment funds (AIFs) and ensure that the regulated entities (REs) do not game the system by pushing their bad loans under the guise of investments in opaque structures. Now, it is proposing to ease those rules and permit. What made the RBI take a U-turn on this issue that has
