According to industry participants, one possible way out of this would be to maintain the present Rs 1 crore threshold while introducing a new Rs 2-5 crore bucket with light-touch control.
According to sources, the Securities and Exchange Board of India (Sebi) is considering raising the minimum ticket size for alternative investment funds (AIFs) from Rs 1 crore to up to Rs 5 crore.
According to industry authorities, the current barrier was set in 2012, and the growth in disposable incomes may warrant a modification. The number of high-net-worth individuals investing in alternatives has also increased dramatically.
Given the industry’s rapid expansion, the market regulator has gradually increased its control of AIFs, which were subject to light-touch restrictions until approximately a year ago.
“The client who allocates Rs 20 crore vs one who invests Rs 1 crore thinks very differently and is far more suited to evaluate his investment choices. “The industry must evolve to the point where legal duties in terms of fund structure and commercial sectors remain light touch but governance and reporting standards are respected,” said Blume Ventures partner Ashish Fafadia.
Divaspati Singh, partner at law firm Khaitan & Co, believes that now is the time to reconsider the AIF framework or revise the bar for AIF investment.
“The regulations have been extremely stringent in recent years, hindering the spread of the AIF system. “Maybe the sector would be prepared to embrace a greater investment requirement of Rs 2-4 crore if the government loosened regulations and implemented a lighter-touch approach,” he added.
However, experts warn that asset managers may struggle to raise Rs 2-4 crore per investment. This might have an impact on small and mid-sized funds raising Rs 300-600 crore, making it harder for first-time managers to get capital.
According to industry participants, one possible way out of this would be to maintain the present Rs 1 crore threshold while introducing a new Rs 2-5 crore bucket with light-touch control.
In 2021, the regulator will establish the idea of substantial value funds for certified investors. The goal was to establish a light-touch regime for investors with a higher risk tolerance and the capacity to adequately analyse hazards. Such investors were required to contribute at least Rs 70 crore to the fund. The benefits for such funds included the reduction of concentration restrictions, some offer document filing requirements, and flexibility on close-ended fund tenure requirements.
These funds, however, are yet to achieve any major momentum among domestic investors due to the high ticket size, challenges with accreditation and the necessity to diversify assets among funds. “Most major and mid-sized institutions give only Rs 25 crore or less, which prevents funds from benefiting.”