SEBI’s move to harmonize provisions governing investments by AIFs incorporated in IFSC with the provisions applicable to domestic AIFs
Existing Framework: SEBI (International Financial Services Centres) Guidelines, 2015 guidelines are a set of rules formulated to administer and regulate financial services pertaining to securities market in an International Financial Services Centre(IFSC). IFSC regulates overseas financial institutions and allow them to operate within India and also overlook the customers who fall outside the jurisdiction of Indian economy.
Legal Update: SEBI with its circular dated August 9, 2019, amended the Clause 22 (3) of SEBI (International Financial Services Centers) Guidelines, 2015 relating to securities in which Alternative Investment Funds (AIF) operating in IFSC can invest. The erstwhile provision categorically mentioned that any alternative investment fund or mutual fund operating in IFSC would be permitted to invest only in (i) Securities which are listed in IFSC; (ii) Securities issued by companies incorporated in IFSC and (iii) Securities issued by companies belonging to foreign jurisdiction. However, the current amendment allows AIFs incorporated in IFSC to make investments as per the provisions of the SEBI (Alternative Investment Fund) Regulations, 2012, and the guidelines and circulars issued thereunder. Thus, post the amendment the permissible investment limit has increases to limited liability partnerships, trusts etc.
Key Inference: This circular expands the scope for investment by AIFs operating in IFSC by relaxing the restrictive regulations. However IFSC-AIFs can still invest in India through Foreign Direct Investment route or the Foreign Venture Capital Investor route or through the Foreign Portfolio Investment route. While talking about investment restrictions, earlier, an AIF incorporated in IFSC had to face more restrictions in comparison to domestic AIFs. The circular can be considered as a step towards financial globalization by making India a bigger financial hub with more investment coming in.
August 9th, 2019