Tighter regulations of Alternative Investment Fund have made managers cautious, prompting some to move their base outside India to avoid adverse regulatory changes.
SEBI is responsible for the regulation of Alternative Investment Fund.
Foreign investors are setting up AIFs with domestic investment managers or sponsors to invest in sectors prohibited for foreign direct investment, or to invest beyond the allowed FDI sectoral limits.
The Reserve Bank of India has recommended that investments by persons resident outside India exceeding 50 per cent of AIF units be treated as indirect foreign investment.
Earlier in 2015-16, regulations were amended to allow AIFs to take foreign capital through the automatic route.
Increased compliance requirements and tax uncertainties, particularly around carry and co-investments may deter investors.
The introduction of an online dispute resolution regime for global institutions adds to investor hesitancy.
AIFs in India remain necessary for raising funds from Indian investors.
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