The Sebi-appointed committee on dedicated infrastructure funds (DIFs) to be launched by asset management companies, has proposed that DIFs should have the flexibility to invest its entire corpus in unlisted companies, including equity and debt instruments.
The committee has also proposed that these funds should be allowed to own the 100% paid-up capital of a company, if they so desire. However DIFs’ exposure to listed companies should not exceed 10% of the net asset value (NAV) at the time of investments.
The product, once approved, will allow retail investors an exposure to unlisted companies in the infrastructure space. So far, it is the deep-pocketed venture capital funds who have been buying stakes in unlisted companies in the infrastructure sector.
Retail investors on most occasions are unable to meet the minimum investment requirements of these funds, thus missing out on a portion of the company’s growth phase prior to the listing. With this product, retail investors can buy units of this product from mutual funds, which will invest the proceeds in shares or debt of unlisted companies.
Emphasising the need to structure this product differently from existing mutual fund schemes, the committee proposes that DIFs should operate as close-ended schemes, with a maturity of seven years.
On taxation, the committee has proposed tax incentives to motivate retail investors to invest in DIF, adding that the benefits should be available only to the ‘original investors’. With regards to fees and expenses for managing such funds, the Committee suggested that their fee structure will have to be different from existing mutual fund schemes, in line with global practices.
“The Committee suggested that maximum overall permissible expense ratio for DIFs including investment management fees be additional 1% over and above that specified in the Mutual Fund Regulations. Additionally, the DIFs should also be allowed to charge a performance fee after providing a certain minimum return to the unit holders, as per global practice,” the Sebi release said.
On valuations, the committee proposed that DIFs should report the fund NAV at the time of each asset valuation and also at quarterly intervals.
“The Committee believes that current Sebi guidelines to value unlisted equity shares will need to be suitably amended for the proposed asset class. The proposed DIFs should engage an approved consultant to value the assets semi-annually. Such an approved list can be drawn up by the SEBI registered rating agencies,” the release said.
In addition to retail investors, entities such as companies and financial institutions have been permitted to invest in such schemes. The market regulator has invited public comments for these proposals.
Source : Economic Times