Dear Editor,
I am a corporate transactional lawyer based in New Delhi. These days I am getting a lot of queries and concerns from hedge fund investors abroad about the lack of specific laws or guidelines regarding investments in hedge funds in India. I would therefore like to share with your readers the present legal implications relating to this subject.
In order to invest in a hedge fund in India, it has to be registered. However, Indian law is silent on the registration of hedge funds and their requirements. Moreover, it does not formally recognize hedge funds as a mode of investment.
As per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, the list of entities that can be registered as foreign institutional investors (FIIs) does not include hedge funds. Considering this issue, there are two alternative routes available: a) the investor can either invest in FIIs registered in India; or b) register as a FII and raise money for the fund. Generally, participatory notes are issued by FIIs as a tool for investing in hedge funds.
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What I comprehend from the present scenario is that it will be in the interest of investors if SEBI includes hedge funds in the list of entities that can be registered as a FII in India, thereby allowing investors to consider investing in hedge funds.
Because of the tectonic economic shift which the world is experiencing at present, investors worldwide are keen on the Brazil, Russia, India and China (BRIC) nations (which include hedge funds) and I think regulatory agencies should facilitate them by making the legal guidelines simpler and less ambiguous.
Aninda Jyoti Chowdhury
Advocate
KR Chawla & Co
New Delhi
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