Fund Management Entity (FME) In GIFT City, IFSC - ADI

Fund Management Entity (FME) In GIFT City, IFSC

Global Overview:

The concept of pooled investments can be traced back to the 19th century when investment trusts were established. Investment trusts were closed end funds that issued a fixed number of shares, and they became popular in the United Kingdom and the United States.

The modern mutual fund era began in the 1920s in the United States. The Massachusetts Investors Trust, established in 1924, is often considered the first open-end mutual fund. Investors could buy or sell shares at the net asset value (NAV) at the end of each trading day.

As financial markets globalized, fund management entities expanded their reach internationally. Investors sought diversification by investing in funds that held a mix of domestic and international securities

The 21st century saw increased reliance on technology in fund management. Algorithmic trading, quantitative strategies, and robo-advisors became more prevalent, offering new ways to manage and invest funds.

Fund Management History in India:

The 1990s saw a boom in private sector mutual funds, with various financial institutions and asset management companies entering the market. This period marked the diversification of fund offerings and investment strategies

In the early 2000s, mutual funds in India introduced Systematic Investment Plans (SIPs), allowing investors to invest small amounts regularly. SIPs became a popular way for retail investors to participate in the equity markets with a disciplined approach.

Legal forms / structures available for setting up a FME in IFSC:

A FME, other than a Registered FME (Retail), can be set up as either as;

Company or

Limited Liability Partnership (LLP) or

Branch thereof or

any other form as may be permitted by the IFSCA

A Registered FME (Retail) can be set up either as;

Company or

Branch of a Company or

Any other form as may be permitted by the IFSCA

However, the branch structure is permitted only for a FME which is already registered and/or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities.

Further, a FME operating in a branch structure in IFSC is required to comply with certain prescribed conditions as detailed in Regulation 5 (2).

Categories Under Which an Applicant Can seek Registration as a FME

Regulation 3(4) provides for the following categories of FMEs:

Authorised FME – permitted to launch Venture Capital Schemes (including Angel Schemes) to invest in unlisted securities of start-ups, emerging or early-stage companies, etc.

Registered FME (Non-Retail) – permitted to launch Restricted Schemes, offer Portfolio management Services, schemes permitted to Authorised FME, etc.

Registered FME (Retail) – permitted to launch Mutual Funds, Exchange Traded Funds, schemes and activities permitted to Registered FME (Non-Retail) and Authorised FME, etc.

Further details regarding different aspects related to the 3 categories of FMEs, such as their eligibility conditions, are covered in subsequent sections.

Different types of schemes available under the regulation

The Regulations provide for the following schemes:

Venture Capital Schemes (including Angel Schemes) – to facilitate investments by Accredited Investors / High Net worth investors in startups, emerging or early-stage venture capital undertakings.

Restricted Schemes (Non-Retail Scheme) – to facilitate investments by Accredited Investors / High Net worth investors in a variety of strategies, broadly classified as Category I Alternative Investment Funds (AIF), Category
II AIFs and Category III AIFs.

Retail Schemes – to facilitate investments of retail investors in Mutual Funds.

Which activities can be undertaken by an authorized FME:

An Authorised FME can pool money from accredited investors or investors investing USD 2,50,000 by way of private placement and invest in securities of start-ups, emerging or early- stage venture capital undertakings, which are mainly involved in new products, new services, technology or intellectual property right based activities or a new business model, through Venture Capital Schemes.

An Authorised FME can also manage Family Investment Funds which invest in securities, financial products, certain physical assets and such other asset classes as may be permitted by the Authority.

Which activities can be undertaken by registered FME (Non retail)?

The Registered FME (Non-Retail) can pool money from accredited investors or investors investing above USD 1,50,000 by way of private placement for investing in securities, financial products and such other permitted asset classes, through one or more Restricted Schemes.

The Registered FME (Non-Retail) can also offer Portfolio Management Services (including for multi-family office) and act as investment manager for private placement of Investment Trust (REITs and InvITs).

Such FMEs shall also be able to undertake all activities as permitted to Authorised FMEs.

Which activities can be undertaken by a Registered FME (Retail)?

The Registered FME (Retail) can pool money from all investors or a section of investors under one or more schemes for investing in securities, financial products and such other permitted asset classes through retail or Restricted Schemes.

Registered FME (Retail) may act as investment manager for public offer of Investment Trusts (REITs and InvITs). Such FMEs shall also be able to launch Exchange Traded Funds (ETFs).

Further, such FMEs shall also be able to undertake all activities as permitted to Authorised FMEs and Registered FMEs (Non-Retail).

Staffing and competency requirements as Regulation 7

Appointment of Principal Officer:

A KMP designated as “Principal Officer” who shall be responsible for overall activities of the FME (including but not limited to fund management, risk management and compliance) shall be appointed under all categories.

Appointment of other KMPs:

In case of Registered FME – Non-Retail and Retail an additional KMP designated as a “Compliance and Risk Manager” shall be responsible for compliance with the Regulations and ensuring suitable risk management policies and practices at the FME.

Further in case of Registered FME (Retail) an additional KMP shall be assigned with the responsibility of fund management.

Experience and professional qualification of Principal Officer & other KMPs:

Professional Qualification: A professional qualification or post- graduate degree or post graduate diploma (minimum 2 years) in finance, law, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a recognised university/ institution or a certification from any organization/ institution/ association/ stock exchange which is recognised/ accredited by the IFSCA or a regulator in India or Foreign Jurisdiction; and Experience: At least 5 years in related activities in the securities market or financial products including in a portfolio manager, broker dealer, investment advisor, wealth manager, research analyst or fund management.

The FME is required to appoint other personnel as commensurate to the size of its operations and activities.