Mumbai: The N.R. Narayana Murthy panel on alternative investment funds (AIF) has suggested several measures in its second report to enhance investor confidence in AIFs, relax taxation norms for these funds to enhance the ease of doing business, and mobilise long-term capital for them from domestic pension funds and insurance companies.
In order to improve investor confidence, the 24-member Alternative Investment Policy Advisory Committee (AIPAC), suggested enhanced disclosures by AIFs while raising capital from retail investors with ticket sizes of less than Rs10 crore.
The panel said apart from regularly disclosing financial details, AIFs should reveal the details of their decision-making processes, track record of returns in previous funds, valuation, exit process for investors, investment objectives and so on. Additionally, the panel suggested that AIFs should disclose how liquidity issues will be dealt with at the end of the fund’s life if it has not been able to exit from all its investments.
The report was released by the Securities and Exchange Board of India (Sebi) on Thursday.
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The panel which was formed last year said in its 155-page report that every AIF should form an Investor Advisory Committee to address issues related to conflicts of interest, issues arising during the life of a fund and those relating to the overall functioning of the fund.
As on 30 June, there were 253 AIFs in the country, which have invested a total of around Rs25,000 crore during till 28 September 2016.
The committee suggested that Sebi amend rules to make it mandatory for AIFs to have a governance committee for funds which raise capital from retail investors with ticket size of less than Rs10 crore.
On taxation, the panel recommended that the government treat gains from transfer of unlisted shares held by AIFs as capital gains, irrespective of the transfer of control and management.
In order to attract foreign fund managers in the AIF space, the panel urged the government to align the fund management safe harbour provisions to prevailing practices of the global private equity and venture capital industry, so that the offshore funds are exposed to the risk of adverse tax consequences.
Further, the panel feels the government should extend the pass-through treatment in taxation to Category III AIFs too. At present, only category I and II AIFs get a pass-through treatment.
In order to promote angel investments in AIFs, the panel proposed that Sebi reduce the minimum holding period of angel investments to one year from the current three-year requirement. Additionally, the period for investing a minimum of Rs25 lakh per investor should be increased from three years to the life of the fund or at least to five years for angel investments, the panel suggested.
Also, the panel suggested Sebi lower the minimum investment in a portfolio company for angel investors to Rs25 lakh from the current minimum of Rs50 lakh and allow angel funds to have a maximum of 200 members.
Sebi has invited public comments on the recommendations till 22 December.