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If your business is related to money, bonds or Investment – How Gift City can help you grow tremendously

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Fund Management Entities (FMEs) in IFSC

Based on the comprehensive report submitted in January 2022 by the Expert Committee on Investment Funds, draft regulations were issued by IFSCA for public comments. On April 2022, the IFSCA issued IFSCA (Fund Management) Regulations, 2022.

Journey of Fund regime in IFSC –

March2015 SEBI issues IFSC regulations including Fund regime January 2018AIPAC report submitted to the August 2019Permissibleinvestmentsby IFSC AIFs expanded And aligned with domestic AIFs September 2020Newtaxframeworkfor Category IIIAIFs in IFSC December2020 June2021 AIFs permitted to invest in mutual funds, Continuing Interest requirement voluntary for relocated AIFs August2021 Rules prescribed for computation of income of a Category III IFSCAIF attributable to units held by non-resident investors October2021 Exemption from filing return of income in India to Non-resident investors in Category III AIFs June2021 SEBI permits off-market transfer of securities by FPI SEBI with recommendations for AIFs in IFSC November 2018 Operating Guidelines for Alternative Investment Funds (AIFs) in IFSC Issued. July2019 Exemption from filing income-tax return for NR investors in Category I or IIAIF July2019 Income from offshore investments by non-resident investors through Category I or II AIF, not taxable Permitting Segregated portfolio, relaxation in investment diversification and leverage March 2021Favourable tax regime for relocation of offshore funds to IFSC Relocating to IFSC May2021 • Exemption from obtaining PAN to NR investing in Category III AI Fin IFSC • Sponsor contribution by Indian party to IFSC AIF under automatic route April 2022 Issuance of the IFSCA (Fund Management) Regulations, 2022 is a critical milestone in development of IFSC as a global financial hub

Cornerstone of the regulations

A paradigm shift in exercise of regulatory oversight through regulation of Fund Managers as compared to regulation of Funds under the earlier regime Fund Manager to obtain registration from IFSCA and requirement for launching of Funds/ Schemes to be fine-tuned based upon the investor classes Three categories of FME have been notified: • With least regulatory oversight • With moderate regulatory oversight • With high regulatory oversight
• Authorized FME • Registered FME(Non– Retail) • Registered FME(Retail) IFSCA (Fund Management) Regulations,2022 • Venture Capital Schemes • Restricted schemes(non- retail schemes) • Retail Schemes Focus Areas • Special Situation Funds • ETFs • ESG Other Fund Management Activities • Portfolio Management Services • Investment Trusts • Family Investment Funds
Authorized FME • Pooling of money from accredited investors or investors investing above USD 250,000 • Investinstart-uporearly-stageventuresthroughVentureCapitalScheme • Family Investment Funds • Minimumnetworth:USD75,000 Registered FME (Non-Retail) • Poolingofmoneyfromaccreditedinvestorsorinvestorsmakingcapitalcommitment above USD 150,000 • PortfolioManagementservices,MultiFamilyOffices,InvestmentManagerfor private placement of REITs and Inv ITs • Minimumnetworth:USD500,000 • Allowed to undertake all activities of Authorized FMEs Registered FME (Retail) • Pooling of money from all investors or including retail investors • Public offer of Investment Trusts (REITs and Inv ITs),Launch of ETFs • Minimumnetworth:USD1,000,000 • AllowedtoundertakeallactivitiesofAuthorisedFMEsandRegisteredFME(Non- retail) Restricted Scheme • Offeredonlytorelevantpersonsonaprivateplacementbasis(includingaccredited investors) and shall have less than 1,000 investors • ‘Greenchannel’ifsubscriptionistoberaisedonlyfromaccreditedinvestors • Launched by Registered FME
Venture Capital Scheme • Launched by FMEs – schemes that invest primarily in start-ups, early-stage VC undertakingsinvolvedinnewproducts,services,technologyetc.Alsoincludesan Angel Fund • Offeredonlyonaprivateplacementbasis(includingaccreditedinvestors)andshall have less than 50 investors • ‘Green channel ’for subscription by investors
Venture Capital Scheme • Launched by FMEs – schemes that invest primarily in start-ups, early-stage VC undertakingsinvolvedinnewproducts,services,technologyetc.Alsoincludesan Angel Fund • Offeredonlyonaprivateplacementbasis(includingaccreditedinvestors)andshall have less than 50 investors • ‘Green channel ’for subscription by investors Restricted Scheme • Offeredonlytorelevantpersonsonaprivateplacementbasis(includingaccredited investors) and shall have less than 1,000 investors • ‘Greenchannel’ifsubscriptionistoberaisedonlyfromaccreditedinvestors • Launched by Registered FME Retail Scheme • Schemes offered to all investors including retail investors • Schemes can be: - Filed with regulator only after approval from fiduciaries; Launched only after incorporating all comments from the regulator into the offer document. • Launched by Registered FME (Retail)
Categories of FME Authorized FME Registered FME (Non- Retail) Registered FME (Retail) Types of schemes managed Legal structure of FME Minimum no. of employees (based out of IFSC) FME Experience Experience and professional qualification of Key Managerial Personnel Minimum number of Directors/Partners in the FME • Venture Capital Schemes offered on a private placement basis • Venture Capital Schemes and Restricted Schemes offered on a private placement basis • All schemes including Retail Schemes offered to all investors including retail investors • Company, Limited Liability Partnership (LLP) or branch thereof • Company 1 (1 Principal Officer for Overall Activities) 2 (1 Principal Officer for overall activities + 1 Compliance and Risk Manager) 3 (1 Principal Officer for overall activities+1ComplianceandRisk Manager + 1 Additional Key Managerial Personnel for fund management) • FME to employ such employees who shall have relevant experience• FME/holding company to have> 5 years of experience in managing AUM of at least USD 200mn with more than 25,000 investors ;or • At least 1 person in control holding more than 25% share holding in the FME to have at least 5 years of experience in financial services • FME to employ such employees who shall have relevant experience • Professional Qualification : A professional qualification or post-graduate degree or post graduatediploma(minimum2years)infinance,law,accountancy,businessmanagement, commerce, economics, capital market, banking, insurance or actuarial science from a recognized university/ institution or a certification from any organization/ institution/ association/stock exchange which is recognized/accredited by Authority or a regulator in India or Foreign Jurisdiction • Experience: At least 5 years in related activities in the securities market or financial productsincludinginaportfoliomanager,brokerdealer,investmentadvisor,wealth manager, research analyst or fund management 4 (At least 50% to be independent and not associated with FME)
OF scheme investing in a scheme which has similar such requirements (applicable in case of Retail schemes) -        In case of relocation of funds/schemes established or incorporated or registered outside India to IFSC
• Stressed loans available for acquisition. • Security receipts (SRs) issued by an Asset Reconstruction Company (ARC) registered with the RBI. • Securities of investee companies whose: • Stressed loans are available for acquisition. • Borrowings are secured by security receipts (SRs) issued by an ARC registered with the RBI. • Borrowings are subject to the corporate insolvency resolution process. (etc. can be added here if there are more conditions)
Category of FME to launch a Special Situation FundRegistered FME
Type of FundClose-ended fund
Legal structure of the FundCompany or LLP or Trust
Permissible InvestmentsOnly in special situation assets
LeverageNot permissible other than to meet day-to-day operational requirements
Scheme corpus, eligible investors, investment conditionsAs may be specified by IFSCA from time to time
Computation of NAV, contribution by FME in the Fund/ scheme and other disclosure/ valuation normsTo apply as applicable to close-ended Restricted schemes

Port Folio management in Gift City
Eligible FME and clients Permitted Investments in Gift city Investment Restrictions • Person resident outside India/ NRI • Individual/non-individualresidentinIndia,eligibletoinvestoffshoreasperprescribed regulations and • Multi-family office • Minimum ticket size: USD150,000 - Minimum investment threshold shall not apply to an accredited investor • Securities/financial products in IFSC, India or foreign jurisdiction • Discretionary PMS: listed/to-be listed securities, money market instruments, units of investment scheme • Investment in derivatives, with express consent • Segregation of client’s funds/portfolios from FME’s funds/portfolios • Dealing with client’s funds - aligned with the existing Capital Market Intermediaries Regulations (CMI) • Provide advisory services subject to compliance with CMI
• Set-up inform of a Company, LLP or Contributory Trust • For Contributory Trusts: - The beneficiaries should be identifiable, though not specifically named in Trust deed - The share of each beneficiary should be capable of Being determined - Addition of further contributors shall not make existing beneficiaries unknown or their shares • Minimumcorpus-USD10millionwithin3years • Borrowing/leveraging permissible • Permissible activities - Activities related to managing Family Office as specified By IFSCA • Permissible investments: - Securities issued by unlisted entities; - Securities listed/to-be listed on stock exchanges(and other investment schemes), in IFSC, India or foreign jurisdictions; - Money market instruments/debt or derivatives; - Asset-backed or mortgage-backed securitized debt instruments; - Units of mutual funds and alternative investment funds In India and foreign jurisdiction; - Investment in Limited Liability Partnerships; - Physical assets like real estate, bullion, art, etc., or - Any other securities or financial products may be specified
• Tax pass through status for AIFs (except for business income) • Investors taxed as if investments directly made by them • Investors can claim losses (subject to condition- holding units for 12 months) • To the extent beneficial, investors can avail benefit under the Tax Treaty • Income from offshore investments earned by offshore investors through AIF, not taxable in India • PAN and Income-tax return filing exemption, subject to conditions • Tax paid at Fund level–FPI tax principles to apply • Exemption # from tax on income from - Transfer of securities (excl. shares of Indian company) including debt, derivatives, offshore securities, etc. - Securities issued by non-resident (not being a PE) with no accrual of income in India - Securitization trust chargeable Under the head ‘PGBP’ • Income on transfer of shares in an Indian company is taxable# at: - STCG-15%ifSTTpaid,else30%; - LTCG- 10% • Income in respect of securities(such as interest, dividend) is taxable# at 10% (5% in case of interest income referred to in section 194LD). • AMT not applicable • Investors exempt from tax on any income received from the Category III AIF or on transfer of its units • PAN and Income-tax return filing exemption,subjecttoconditions • 100%corporatetaxexemption for10consecutiveyearsoutof block of 15 years • MAT/AMT rate reduced to 9% - However, companies choosing new tax regime to be exempt from MAT • Dividend income - Dividend is taxable in the hands of the shareholders • No GST on Management fees
Taxneutralitytooffshorefundsandgrandfatheringofpastinvestments • TransferofassetsofOffshoreFundoritsWOStoResultantFund,uponrelocationtoIFSConorbefore31 March 2023 – not regarded as transfer • Considerationfortransfercanbedischargedtonon-residentshareholdersofOffshoreFundortoOffshore funditself,intheformofunits/beneficialinterestofResultantfund o Exemptionprovidedtonon-residentshareholdersofOffshoreFund/OffshoreFundonsuchtransfer • CapitalgainsexemptiononfuturesalebyResultantFund–Forexempted“grandfathered”investments • PeriodofholdingandcosttopreviousowneravailabletoResultantFund • Deemedincomeprovisionsnotapplicable • Carryforwardlossesofportfoliocompanynotimpacted

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