Mumbai, January 6, 2017
Amendments to the SEBI (Portfolio Managers) Regulations, 1993 to provide a framework for registration of fund managers for overseas funds, pursuant to introduction of Section 9A in the Income Tax Act, 1961
SEBI (Portfolio Managers) Regulations, 1993 have been amended to provide an enabling framework for registration of fund managers desirous of providing their services to overseas funds.
In the Union Budget 2015-16, the Hon’ble Finance Minister announced amendments in Income Tax Act, 1961. These changes were aimed at developing and promoting fund management industry in India. Section 9A was inserted in the Income Tax Act, 1961 to provide a ‘safe harbour’ to overseas funds availing fund management services from Indian based managers, provided the fund and the manager comply with the requirements specified in the section. Such overseas funds and fund managers were designated as ‘Eligible Investment Funds’ and ‘Eligible Fund Managers’ respectively.
One of the requirements for a fund manager to become ‘Eligible Fund Manager’ is to be registered with SEBI under specified regulations.
In pursuance to this, SEBI has notified amendments to SEBI (Portfolio Managers) Regulations, 1993 (PMS Regulations). These amendments provide a separate Chapter II-A for ‘Eligible Fund Managers’ and permit existing portfolio managers as well as new applicants, compliant with requirements specified under Section 9A of Income Tax Act, 1961, to act as ‘Eligible Fund Managers’.
Existing portfolio managers desirous of providing fund management services to overseas funds, if compliant with requirements specified in Section 9A of Income Tax Act, 1961, may pursue this activity on intimation and submission of declarations to SEBI.
A new applicant desirous of providing fund management services to overseas funds, and compliant with the requirements specified in Section 9A of Income Tax Act, 1961, may seek registration with SEBI, as laid out in the Chapter II-A.
Further, Chapter II-A also defines the obligations and responsibilities of such fund managers. Recognizing the different business requirements of such fund managers, as compared to the existing Portfolio Managers, SEBI has also identified certain provisions of the PMS Regulations which would not be applicable to Eligible Fund Managers pertaining to their activities as fund manager to Eligible Investment Funds. Some of the provisions are listed below:
High Water Mark Principle regarding calculation of fees, disclosure of fees;
Obligation to act in a fiduciary capacity;
Audit of overseas fund;
Entering into agreement between the portfolio manager and overseas fund;
Reporting requirements in respect of overseas fund;
Minimum investment requirements (i.e. INR 25 Lakhs), etc.
The amendments have been notified vide notification dated January 02, 2017. For any further information, Investment Management Department, Division of Funds-I may be contacted.