Seeking to further strengthen the ecosystem for retail schemes and to eliminate the challenges in the application of Regulation 47 (Investment Restrictions and Scheme Corpus) of International Financial Services Centres Authority (Fund Management) Regulations, 2022 (FM Regulations) to fund of fund schemes, the International Financial Services Centres Authority (IFSCA) announced certain relaxations in investment restrictions for retail fund of fund schemes based in the International Financial Services Centre (IFSC).
In its circular dated October 29, 2024, the IFSCA clarifies that in respect of investments made by retail fund of fund schemes in unlisted securities issued by investment funds which are open-ended in nature, regulated by the relevant regulatory authority of their home jurisdiction and permitted to make offerings to retail investors in their home jurisdictions, the following investment limits as set out under Regulation 47 of FM Regulations (which lists out investments restrictions on retail schemes, both open-ended and close-ended) are not applicable:
- ceiling of 15% investment of the total Assets Under Management (AUM) of a retail scheme in unlisted securities in the case of an open-ended scheme;
- minimum investment amount of USD 10,000 per investor for close-ended schemes investing more than 15% of AUM in unlisted securities;
- ceiling of 50% investment of AUM in unlisted securities in the case of a close-ended scheme; and
- ceiling of 25% investments of AUM of a retail scheme in its associates.
Further, the fund management entity of a retail scheme in the nature of a fund of fund scheme, is required to disclose the details of the underlying scheme(s) wherein the investments are proposed to be made and the nature of its association, if any, with the manager of the underlying scheme(s), in the offer document for such retail scheme.
Conclusion:
The aforesaid investment related relaxations granted by IFSCA have the potential of making IFSC-based retail schemes more attractive while ensuring transparency and investor protection by prescribing disclosure requirements for retail fund of fund schemes. The circular, however, does not offer relaxations from ceilings on investments to be made in a single company and sectoral caps to retail fund of fund schemes.