RBI allows Indian AIFs to invest overseas

Mumbai: In a bid to increase investment opportunities for Indian alternative investment funds (AIFs), the Reserve Bank of India (RBI) on Tuesday allowed these funds to invest overseas.

“On a review, it has been decided to permit an Indian Alternative Investment Fund (AIF), registered with Securities and Exchange Board of India (Sebi), to invest overseas,” the central bank said in a notification on its website.

Previously, such funds aiming to invest abroad had to set up a special purpose vehicle, which would then invest in opportunities abroad, said Prakash Nene, managing director and chief financial officer of Multiples Alternate Asset Management Pvt. Ltd.

“Now, the funds which aspired to be either a regional or a global fund can go ahead and do so, without entering any special structures,” Nene said.

While the move by RBI is aimed at opening up the field for local AIFs, it would also help them diversify their portfolio, said Arvind Nair, chairman of Carpediem Advisors Pvt. Ltd.

“Typical investment avenues in India have been debt and real estate. Now debt is not a very attractive instrument since interest rates are on a downward trend. Similarly, real estate is not giving the returns that it used to about 15 years ago. So, the funds that want to consider other avenues can now look at investing abroad,” said Nair.

In the January-September period, 445 private equity deals worth $8.5 billion took place in India, according to a report by Grant Thornton India Llp, dated 10 October. This can be compared with 322 deals worth $7.2 billion that happened in the same period last year.

Under Sebi guidelines, AIFs can operate broadly in three categories.

Category-I AIFs are those funds that get incentives from the government, Sebi or other regulators and include social venture funds, infrastructure funds, venture capital funds and SME funds.

The category-III AIFs are those trading with a view to making short-term returns and it includes hedge funds, among others. Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include private equity funds, debt funds or fund of funds, as also all others falling outside the ambit of above two other categories.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.