Who: Report of Narayan Murthy-panel on AIP
What: Released by the SEBI
When: 20 January 2016
The Securities and Exchange Board of India (SEBI) on 20 January 2016 released the first report of the Alternative Investment Policy Advisory Committee (AIPAC) for comments from the stakeholders.
The 21-member committee was constituted by the SEBI in March 2015, under the chairmanship of N R Narayan Murthy, to suggest measures for development of the alternative investment funds (AIFs) and startup eco-system in the country.
The recommendations of the committee are founded on the following principles
• Ease of doing business is important
• Fund managers have the role of “Prudent Men”
• Adopt global best practices, and where necessary, innovate the “next” (best) practice
• Clarity, consistency, and certainty in tax policies
• Harmonisation and consistency across different regulators
• AIFs should at least have parity with public market funds in tax policies
Key suggestions of the committee
• For creating a favourable tax environment the panel recommended that exempted income of AIFs should not suffer tax withholding of 10 percent.
• Overseas investors in India-centric fund vehicles should not be subject to the indirect transfer provisions of the IT Act when they transfer their investments in an India-centric vehicle to another investor.
• Provisions relating to investor diversification, control or management of portfolio companies, tax residence, arm’s length remuneration of fund managers and annual reporting requirements under the Section 9A of the Income Tax Act, 1961 should be amended.
• Make foreign direct investment in AIFs work efficiently by clarifying the rules for investment by non-resident Indian investors in AIFs on a non-repatriation basis.
• Security Transaction Tax (STT) should be introduced for private equity and venture capital investments, including SEBI-registered AIFs and has parity with the taxation of investments in listed securities.
• In relation to reforms in the AIF regulatory regime, the panel suggested for the focus on regulation of fund managers instead of fund per se.
About Alternate Investment Funds (AIFs)
• Anything alternate to traditional form of investments gets categorized as alternative investments.
• Generally, investments in stocks or bonds or fixed deposits or real estates are considered as traditional investments and AIF refers to private equity and hedge funds.
• In India, AIFs are defined in Regulation 2(1)(b) of SEBI (Alternative Investment Funds) Regulations, 2012.
• It refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).
• AIFs bring significant benefits to the Indian economy. If the regulatory issues are streamlined, AIFs can attract large capital flows to potentially reach a size of as much 2 percent of the GDP.