Fund management business is growing in gift city. Many PMS and AIF are starting their business in Gift City. However, on a close look, it is found that the growth of this segment is quite low. It also includes retail schemes of mutual funds. Currently Gift IFSC has 139 Fund Management Entities (FME). Of these, 123 are registered as non-retail scheme. There are only 8 retail schemes. The rest are authorized FME schemes.
Reasons for low interest in retail fund schemes
Experts believe that it may be due to regulatory uncertainty. NRI is prohibited from selling retail schemes. Apart from this, selecting the retail scheme in Gift City does not get much tax benefits. The Retail Scheme was allowed in IFSC in 2022 under the IFSC Fund Management Regulation. However, they are uncertain due to not getting the benefit of tax regime according to offshore funds. Due to this, fund managers do not show interest in retail scheme.
CBDT released circular in January
In January this year, the Central Board of Direct Taxes (CBDT) issued a circular. It included some conditions. Suresh Swamy, partner of Pricewaterhouse and Company, said that the conditions included in the circular were also a condition of the limit for investment in Anilisted Securities and Associate Enterities. This condition is quite difficult for retail scheme. Because of this, IFSC has not seen much interest in retail scheme.
The situation is not clear on many issues in circular
An official said that CBDT circular on some issues lacks clarity. Especially what is the meaning of passive breach, the situation is not clear. The timeline has not been told to fix this breech. The official said that this can be understood with the help of an example. The maximum weightage of a stock in a retail scheme can be 25 percent. But, if this limit crosses due to increased valuation, then in the circular it is not told how long the fund manager will have to bring it inside the limit.
Retail scheme operation is difficult due to difficult conditions
Similarly, a fund is required to have at least 20 clients. If 1 or 2 clients exit the funds, then the CBDT circular does not mention what the fund manager will have to do in such a situation. Due to the situation not clear on such issues, it is not beneficial to start the operation of retail scheme in Gift City.
FEMA rules also increased difficult
Vinod Joseph, partner of Economic Lodge Practice, said that the question is who would like to invest in a mutual fund in Gift City. He said, “If you start retail funds in Gifty City for the purpose of investment in India, then such retail funds cannot gather a particular part of your fund with more Indian investors. The reason for FEMA is due to this.”