To make it easier for foreign fund managers keen to enter India, Sebi has notified rules allowing them to act as Portfolio Managers under a relaxed regulatory regime.
The move assumes significance in the wake of the government’s announcement of taxation incentives for the offshore fund managers willing to relocate to India.
The regulator has made amendments to Sebi (Portfolio Managers) Regulations, 1993, to provide an enabling framework for registration of EFMs. The regulator had issued a consultation paper in this regard in June.
It has been amended to provide an enabling framework for registration of fund managers desirous of providing their services to overseas funds, Sebi said in a statement.
Under the new rules, Sebi has decided the procedure for registration of an existing foreign based fund manager desirous of relocating to India or a fresh applicant to function as an Eligible Fund Manager.
While listing out the obligations and responsibilities of Eligible Fund Managers, Sebi has specified non-applicability of certain provisions of Portfolio Managers Regulations.
These provisions include High Water Mark Principle regarding calculation of fees, disclosure of fees, obligation to act in a fiduciary capacity and audit of overseas fund.
Besides, the rules regarding mandatory agreement between the portfolio manager and overseas fund, reporting about overseas fund and minimum investment requirements (Rs 25 lakh) would not be applicable for such overseas funds.
After the announcement in the Union Budget, a new section was added to the Income Tax Act to provide that the fund management activity carried out through an Eligible Fund Manager (EFM) located in India and acting on behalf of an Eligible Investment Fund (EIF) would not constitute business connection in India of such a fund.
Following the issuance of notification by the tax department in this regard, Sebi held meetings with various stakeholders to discuss the registration framework for EFMs, during which several impediments were pointed out in the existing regulations for Investment Advisers and
Portfolio Managers. After that Sebi’s board in September allowed easier rules for fund managers to move to India.
Under the new norms, an existing Sebi-registered Portfolio Manager will also be allowed to act as EFM with prior intimation from Sebi and subject to certain conditions.
Sebi has also put in place a procedure for registration of an existing foreign-based fund manager desirous of relocating to India, or as a fresh applicant.
Such applicants would be granted registration as Portfolio Managers to act as an EFM, provided they meet existing eligibility norms of being a body corporate, having net worth of Rs 2 crore, appointment of a Principal Officer and minimum two employees with requisite credentials.
The EFMs would be required to segregate the funds and securities of the EIFs from that of other clients and provide information to Sebi on a quarterly basis.
However, EFMs would be exempted from several provisions of the PMS Regulations with respect to the EIF, and would have to comply with the applicable regulatory and disclosure requirements of the jurisdiction of the EIF.