Domestic AIFs and GIFT Funds

Under the AIF Regulations, a Domestic AIF may be set up in the form of a trust, a company, a limited liability partnership (LLP) or a body corporate.

Under the FM Regulations, a GIFT Fund intending to operate as a “venture capital scheme” or a “restricted scheme” may be set up in the form of a trust, a company or an LLP, while “retail schemes” can be set up in the form of a trust or a company.

Trust structures have been consistently adopted by the industry as the default standard for both Domestic AIFs and GIFT Funds due to their operational flexibility, for confidentiality reasons and because regulatory compliance requirements are less stringent versus those for structures such as an LLP or a company.

Domestic AIFs and GIFT Funds set up as trusts would be governed by the Indian Trusts Act, 1882, would be governed by the Companies Act, 2013 (“Companies Act”) if set up as companies, and would be governed by the Limited Liability Partnership Act, 2008 (“LLP Act”) if set up as LLPs, in addition to the AIF Regulations and the FM Regulations, respectively.

On making an investment, “units” are issued to the investors, evidencing beneficial interest in a particular scheme of a Domestic AIF or a GIFT Fund.

Choice of structure for managers

The managers of both Domestic AIFs and GIFT Funds are mostly structured in the form of an LLP or a company. For GIFT Funds, the manager may be structured as the branch of an entity which is already registered and/or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities.

LLPs have relatively fewer compliance and regulatory requirements compared to companies. The costs incurred setting up and maintaining an LLP are also lower. LLPs are beneficial in cases where stakeholders wish to regularly withdraw profits since, once the LLP has discharged tax on its income, the distributions received by partners from the LLP are free of tax. However, LLPs are subject to a higher tax rate than companies. Companies may be preferred if the stakeholders do not intend to regularly withdraw profits as dividends, as tax on the distribution of dividends additionally applies to the recipients.

Domestic AIFs

To begin the process of registration, the entity to be registered as a Domestic AIF must be set up under the applicable law.

• For private trusts, the trust deed is entered into between the settlor and the trustee, and is registered in accordance with the Registration Act, 1908.
• For companies and LLPs, incorporation is required under the Companies Act and LLP Act, respectively. The typical timeline for incorporation of a company or an LLP is three to six weeks.

Thereafter, the applicant is required to obtain a Permanent Account Number (PAN) and make an application via the SEBI Intermediary Portal (SI Portal) along with necessary documents and information. Some of the key requirements are as follows:

• AIF Regulations specify that an entity or an individual must be designated as a sponsor; the manager entity can also act as a sponsor.
• The manager entity would need to have a key investment team that meets the criteria of educational qualification and certification, as prescribed under the AIF Regulations.
• The manager/sponsor entity should be able to demonstrate adequate net worth to maintain the continuing interest specified (for Category I Domestic AIF – Angel Funds: 2.5% of the corpus or INR50 lakhs, whichever is lower; for any other Category I or II Domestic AIFs: 2.5% of the corpus or INR5 lakh crore, whichever is lower; for Category III Domestic AIFs: 5% of the corpus or INR10 lakh crore, whichever is lower).
• A private placement memorandum (PPM), along with a merchant banker’s certificate and the Domestic AIF’s constitutive documents;
• KYC documents, financial documents, fulfilment of fit and proper criteria for a Domestic AIF, manager, sponsor, trustee, and their respective directors/partners, key investment team members and disclosure of any prior regulatory actions and such other related declarations as mandated under the AIF Regulations.

The approval process generally takes two to three months, and, after authorisation, the fund must pay the fee applicable to its Domestic AIF category. The SEBI takes a record of the PPM for the first scheme under the Domestic AIF at the time of registration itself, and the Domestic AIF can launch further schemes by filing a PPM and requisite information along with the required fees.

GIFT Funds

The Fund Management Entity or FME must identify office space with adequate infrastructure at GIFT City for the purposes of incorporation. Thereafter, an application may be made to IFSCA via the Single Window IT System (SWITS) for registration. Based on the type of funds to be managed, the FME may decide to apply as an Authorised FME, Registered FME (Non-Retail) or Registered FME (Retail).

Key requirements for all FMEs include the following.

• The appointment of key management personnel with experience required, based on the category of the FME. Key management personnel must be physically based out of GIFT City in order to demonstrate substance.
• Compliance with minimum net worth requirements of the FME:
• Authorised FME: USD75,000;
• Registered FME (Non-Retail): USD500,000; and
• Registered FME (Retail): USD1 million.
• Disclosures of any prior regulatory actions and declarations as mandated under the FM Regulations, etc.

The approval process generally takes two to two and a half months, and, after it has been approved, the FME can launch schemes based on the category of FME registration obtained. Also, an annual fee for renewal of FME registration is payable by the FME to the IFSCA. 

Based on the FME category, Venture Capital Schemes, Restricted Schemes and Retail Schemes can all be launched in accordance with the FM Regulations.

For companies and LLPs, there are statutory limits on the liability of shareholders and partners, respectively. For trusts, there is no statutory liability. Irrespective of the structure, fund managers ensure that the liability of investors is contractually limited for Domestic AIFs and GIFT Funds.

Domestic AIFs

The following disclosures must be made to investors.

• SEBI-mandated disclosures based on a detailed PPM template.
• An annual report including the financial details of investee companies, and other material information to be provided from time to time.
• Reports on changes to the PPM, fees and expenses, disciplinary history, contractual or regulatory breaches, etc.

The following disclosures must be made to the SEBI.

• Quarterly and annual compliance reports.
• Annual audit requirement of compliance with the PPM.
• Any material change in the information previously submitted.

On receipt of any foreign investment, or when the investments of the Domestic AIF are to be treated as indirect foreign investments due to the ownership of the manager or sponsor, additional reporting under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”) may be applicable.

GIFT Funds

While the IFSCA does not prescribe a template for PPMs, it mandates minimum disclosures similar to the template PPM for Domestic AIFs.

Finally, FM Regulations prescribe certain reporting requirements to the IFSCA and investors that are less stringent than those prescribed for Domestic AIFs.

For the quarter ending 30 September 2024, total funds raised from domestic investors in Domestic AIFs in India amounted to around Rs. 3,37,526 crore and 2,21,353 crore from foreign investors as per the statistics published by SEBI. Similar statistics released by the IFSCA as of 30 June 2024 suggest that commitments to the tune of USD11,693,910,000 have been raised by GIFT Funds. A diverse set of investors have shown interest in Domestic AIFs and GIFT Funds including high-net-worth individuals, family offices and institutional investors, as well as overseas development financial institutions, sovereign wealth funds and pension funds.

Please see 2.1.1. Fund Structures.

Domestic AIFs

Domestic investors

Most investors can freely invest in Domestic AIFs, with certain specific limitations:

• Insurance companies: Insurers are permitted to invest in Category I and Category II Domestic AIFs that make investments in specified sectors. The insurers must not invest in Domestic AIFs that invest in securities of companies outside India.
• RBI regulated entities: Indian banks are limited to investing a maximum of 10% in the paid-up or unit capital of Category I or Category II Domestic AIFs. Banks are prohibited from investing in Category III Domestic AIFs. Indian banks, non-banking financial companies (NBFCs) and other entities regulated by the RBI are barred from investing in Domestic AIFs that have downstream investments in debtor companies (excluding equity investments).

Foreign investors

Foreign entities from Financial Action Task Force (FATF)-compliant jurisdictions are generally permitted to invest in Domestic AIFs under the automatic route under the Non-Debt Instruments Rules. Investors from countries sharing a land border with India or those with beneficial owners from these countries can invest through the government approval route. Foreign investors may prefer to invest via a feeder vehicle into Domestic AIFs to avoid the requirement of a permanent account number, or PAN.

Category III Domestic AIFs accepting foreign investment can only make portfolio investments in those securities authorised for a foreign portfolio investor.

GIFT funds

There are no specific restrictions on types of investors that can invest in GIFT Funds. Participation by Indian investors in GIFT Funds would be subject to Indian overseas investment laws.

Domestic AIFs

The main features of Domestic AIFs are as follows.

• Diversification norms: Categories I and II Domestic AIFs cannot invest more than 25% (or 50% in the case of Large Value Fund for Accredited Investors (LVF)), and Category III Domestic AIFs cannot invest more than 10% (or 20% in the case of LVFs) of their investable funds in a single portfolio entity, whether directly or through investment in the units of other Domestic AIFs. The SEBI allows Category III Domestic AIFs to calculate their 10% (or 20% in the case of LVFs) investment concentration limit in one investee company either based on their investable funds or the net asset value of the fund if such Domestic AIFs are investing in listed equity.
• Tenure:Category I and II Domestic AIFs are closed-ended in nature, while Category III Domestic AIFs may be open-ended or closed-ended. Closed-ended Domestic AIFs must have a minimum tenure of three years.
• Type of investment:
• Category I Domestic AIFs generally invest in the securities of start-up or early-stage ventures, social ventures, SMEs, infrastructure or social impact funds, infrastructure funds, or special situation funds.
• Category II Domestic AIFs are required to invest primarily in the securities of unlisted companies, either directly or through investment in units of other Domestic AIFs.
• Category III Domestic AIFs may invest in the securities of listed or unlisted investee companies, derivatives, units of other Domestic AIFs, or complex/structured products.
• Overseas investment: Domestic AIFs must obtain prior approval from the SEBI to make overseas investments. These cannot exceed 25% of their investable funds and are subject to specified limits for Domestic AIFs in aggregate.
• Minimum ticket size:
• The minimum investment per investor for Domestic AIFs is INR10,000,000. Lower thresholds are available for employees and directors of the manager of the Domestic AIF, “accredited investors” and angel funds.
• For LVFs, the minimum commitment is INR700 million (about USD8.3 million).
• For angel funds, the minimum commitment by an angel investor is INR2.5 million (about USD30,000). The minimum corpus for Angel Domestic AIFs is INR5 crore.
• Safe keeping of securities: appointment of custodians is mandated under the AIF Regulations for the protection and safe keeping of the securities. Also, as mentioned, a manager must ensure the separation of assets and liabilities, and that the bank accounts and securities accounts of each scheme floated under the AIF are segregated and ring-fenced.

GIFT Funds

There are no concentration norms applicable as such, although other conditions apply for investments that can be made by Venture Capital Schemes and Restricted Schemes. However, these are not as comprehensive as those applicable to Domestic AIFs.

Retail Schemes also have certain investment restrictions which are not as stringent as those applicable to mutual funds. 

An overview of the various categories of GIFT Funds are as follows. 

• Venture Capital Schemes: the minimum investment is USD250,000, and there can be no more than 50 investors. The minimum corpus raised must be USD5 million and the maximum can go up to USD200 million.
• Restricted Schemes (Category I, II and III AIFs): the investment commitment must be more than USD150,000, and there can be a maximum of 1,000 investors. The minimum corpus to be raised is USD5 million.
• Retail Schemes and Closed-Ended Retail Schemes: a minimum commitment of USD10,000 from each investor if the scheme is investing 15% or more in unlisted securities. There is no minimum for open-ended schemes or closed-ended schemes investing less than 15% in unlisted securities. They need to have at least 20 investors with no single investor holding more than 25% of the scheme. They must raise a minimum corpus of USD5 minimum.
• Accredited Investors: these are exempt from any minimum investment requirements for Venture Capital Schemes and Restricted Schemes.

Domestic AIFs

Service providers for Domestic AIFs primarily include custodians, merchant bankers, issue registrars and/or share transfer agents (to be appointed for the collection of stamp duty upon issuance and transfer of AIF units). These service providers must be registered with the SEBI and must have a presence in India. Certain local services providers, including trustees and benchmarking agencies, may not require SEBI registration to provide services to Domestic AIFs.

GIFT Funds

Custodians, distributors and depository participants offering services at GIFT City may be required to secure registration under the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 (“CMI Regulations”). Other service providers at GIFT City may also require registration with the IFSCA.

Domestic AIFs

The manager entity of a Domestic AIF must be incorporated in India under the country’s applicable laws. Foreign investment in the manager of a Domestic AIF may be made via the automatic route in accordance with NDI Rules.

If ownership and control of both the manager and sponsor of a Domestic AIF does not lie with Indian resident citizens, investments made by the Domestic AIF in equity instruments – equities, compulsorily convertible preference shares or debentures, or warrants – of an Indian entity will be considered to be indirect foreign investment for the investee Indian entity, and would be subject to the sectoral caps, pricing guidelines and other conditions applicable for foreign investments set out under the NDI Rules.

GIFT Funds

GIFT does not have any specific requirements for non-local fund managers.

Please see 2.3.2 Requirements for Non-Local Service Providers.

Domestic AIFs

Domestic AIFs are only permitted to raise funds by way of private placement after receipt of approval from the SEBI. Managers cannot publicly advertise investment offers.

Pre-marketing is not recognised as a concept under the AIF Regulations. In practice, pre-marketing is carried out in India by incorporating suitable disclaimers in pre-marketing pitchbooks and presentations so that it is distinguishable from any kind of (disallowed) public offer to subscribe to the units of a Domestic AIF.

GIFT Funds

Pre-marketing is not specifically recognised as a concept under the FM Regulations and/or other regulatory frameworks managed by the IFSCA. Pre-marketing at GIFT City is carried out by incorporating suitable disclaimers in pre-marketing pitchbooks and presentations so that it is distinguishable from any kind of general offer to subscribe to the units of GIFT Funds.

Please refer to the requirements for distributors in 2.3.6. Rules Concerning Marketing of Alternative Funds.

Domestic AIFs

There is no specific regulatory framework for distributors, although the AIF Regulations govern the commission payable to distributors for marketing of units of Domestic AIFs on a private placement basis, as follows:

• AIFs must disclose the distribution/placement fee, if any applicable, to the investors;
• for Category III Domestic AIFs, any distribution/placement fees must be charged to investors on an equal trail basis, with no upfront fees, and any fees paid must come solely from the management fee received; and
• for Category I and II Domestic AIFs, up to one-third of the total distribution/placement fee may be paid to distributors upfront, with the remainder to be paid on an equal trail basis over the fund’s tenure.

GIFT Funds

Distributors who wish to set-up operations in GIFT City and engage with an issuer or a service provider to facilitate investment or subscription in GIFT Funds, India funds or funds of any foreign jurisdiction must register with the IFSCA under the CMI Regulations prior to the commencement of operations. Distributors (registered or otherwise) would need to ensure compliance with the Code of Conduct prescribed by the IFSCA to distribute GIFT Funds on an ongoing basis.

See 2.2.3 Restrictions on Investors.

Domestic AIFs

Please see 2.1.2 Common Process for Setting Up Investment Funds;2.3.5 Rules Concerning Pre-Marketing of Alternative Funds;and 2.3.6 Rules Concerning Marketing of Alternative Funds.

GIFT Funds

Please see 2.1.2 Common Process for Setting Up Investment Funds; 2.3.5 Rules Concerning Pre-Marketing of Alternative Funds;and 2.3.6 Rules Concerning Marketing of Alternative Funds.

See 2.3.5 Rules Concerning Pre-Marketing of Alternative Funds and 2.3.6 Rules Concerning Marketing of Alternative Funds.

Domestic AIFs

Each manager of a Domestic AIF must designate a staff member to address investor grievances.

SCORES (SEBI Complaints Redressal System)

If the investor remains dissatisfied with the response or resolution provided by the AIF, they can file a complaint on SCORES, the SEBI’s online grievance redress platform.

ODR (Online Dispute Resolution) Portal

The ODR platform was set up to allow online conciliation and arbitration for resolution of disputes in the Indian Securities Market. Any investor may raise a dispute on this portal to seek online dispute resolution.

To ensure investor protection, the AIF Regulations require that approval be sought from a specified percentage of investors for certain decisions such as, among others, in specie distributions, early wind-up, term extension, transactions with associates and change of investment strategy.

AIF Regulations also lay down a strict code of conduct for Domestic AIFs, trustees, managers, key management personnel, and members of investment committees, ensuring high standards of governance and further protecting investor interests.

GIFT Funds

Investor protection norms similar to those applicable to Domestic AIFs have been established under the FM Regulations and circulars issued by the IFSCA for GIFT Funds.

Domestic AIFs

The SEBI has developed the SI Portal, which can be accessed for all relevant registration and post-registration activities under the AIF Regulations. The SEBI also offers an Informal Guidance Scheme under which investors, market intermediaries or other entities can seek guidance on any regulatory matters for a fee.

Meetings may be possible, depending on context.

GIFT Funds

An approach to that of the SEBI has been adopted by IFSCA officials. Meetings with IFSCA officials are possible.

Domestic Mutual Funds

Structure of mutual funds

Mutual funds are trusts set up under the Indian Trusts Act, 1882, which must be in the form of a registered trust deed. The trust is established by one or more sponsors, who are similar to the promoters of a company. It is registered with the SEBI under the MF Regulations as a mutual fund, and this fund can launch multiple schemes, each with assets and liabilities that are segregated and ring-fenced from other schemes of the mutual fund. The investors contributing to the schemes of a mutual fund are the beneficial owners of that scheme.

In addition, the sponsor establishes a trustee company in India which holds the property of the mutual fund for the benefit of the investors.

The trustee company of the mutual fund in turn appoints an Asset Management Company (AMC), a limited liability company incorporated in India, which is approved by the SEBI, for management of the mutual fund.

The decentralised structure of mutual funds in India ensures that a system of checks and balances is maintained. No party can unilaterally take a decision which may not be in the interests of the investors. However, a decentralised – versus leaner – structure also leads to increased reporting requirements and higher set-up and administration costs.

Retail Schemes under GIFT Funds

Please see 2.1.1 Fund Structures.

Domestic Mutual Funds

A mutual fund in India can initiate its operations and collect monies from investors and issue units to them only after obtaining prior approval from the SEBI, which is a two-step process.

• In-principle approval to sponsor – the sponsor must apply, filing Form A via an online portal, so that the SEBI can establish its eligibility to act as the sponsor of a mutual fund. The SEBI analyses the application to ensure that the sponsor has a sound track record and a general reputation of fairness and integrity in all business transactions, meets all criteria as a fit and proper person, has at least five years’ experience in financial services, and has a solid financial position. The SEBI also analyses a business plan submitted by the sponsor to assess the reasons why the latter wishes to enter into the mutual fund business. Any queries are raised by the SEBI during its evaluation and an on-site visit to the office of the sponsor is carried out. The process generally takes six to 12 months.
• Final approval for registration as a mutual fund – after receipt of in-principle approval, the sponsor is given six months to file a final application. During this period, the sponsor is required to either incorporate a new AMC or create a clearly demarcated division for mutual fund business in an existing business and infuse it with necessary capital. This can be INR50 crore or INR150 crore, depending upon the conditions of past financial performance and business experience. The sponsor will incur the cost of setting up infrastructure, such as IT architecture, Business Continuity Planning and Disaster Recovery Sites, as well as expenses incurred hiring personnel and engaging vendors and intermediaries in accordance with the MF Regulations. The sponsor is also required to incorporate a new trustee company with at least two-thirds independent directors. A final application in the prescribed format is then filed with the SEBI providing the relevant details on the AMC and the trustee company. These details cover various write-ups from the AMC, including the business plan, details of their physical and information technology systems, details about their directors and personnel and strategy to sustain operations during the start-up phase if the AMC does not make a profit. The SEBI evaluates the sponsor’s eligibility based on the application filed, responses made to the SEBI’s questions and an on-site visit to evaluate the preparedness of the AMC to undertake mutual fund business. Final approval from the SEBI for registration of the mutual fund can take another four to six months.

The sponsor is also required to pay INR5 lakhs plus taxes at the time of filing the application for in-principal approval, and a fee of INR25 lakhs plus taxes after final approval is granted.

To sum up, it generally takes 15 to 20 months for the SEBI to analyse and satisfy itself that a sponsor, AMC and trustee company are fit to launch and manage a mutual fund, and for the entire mutual fund application to be approved.

Launch of mutual fund Schemes:

After seeking registration as a mutual fund, the AMC can launch mutual fund schemes by filing the relevant documents – ie, a SID, or Scheme Information Document, providing the key features of the scheme of a mutual fund; an SAI, or Statement of Additional Information, which provides standard terms of engagement of the AMC with respect to mutual funds, as well as other terms and conditions with respect to investments, redemptions and restrictions; and a KIM, or Key Information Memorandum, which provides a brief snapshot of the scheme, and the details for various entities, fund managers and key investment personnel involved in the operations of the mutual fund.

The first mutual fund scheme must be launched within six months of the date of receipt of mutual fund registration.

Any subsequent schemes, on which SEBI observation letter has been issued, can be launched by filing a draft SID with the SEBI at least 8 working days prior to launch of the new mutual fund schemes for public comments. During this period, the SEBI will examine the SID and, if there are any inaccuracies, will request that the AMC appropriately carry out changes and file a final SID before it is issued for circulation to the investors.

Retail Schemes under GIFT Funds

See 2.1.2 Common Process for Setting Up Investment Funds

Domestic Mutual Funds

Liability of the investors is limited to the number of units they hold in the schemes of the Mutual Fund, and they do not have any personal liability.

Retail Schemes under GIFT Funds

See 2.1.3 Limited Liability.

Domestic Mutual Funds

Disclosures made under fund documents

Mutual funds are required to make disclosures through various fund documents such as the aforementioned SID, SAI and KIM which should be filed with the SEBI and circulated among investors.

Periodic reporting

The mutual fund’s AMC is required to make various disclosures on daily, monthly, quarterly, half-yearly and yearly basis to the investors, trustees of the mutual fund and SEBI, such as daily disclosure of net asset value, a quarterly report to the trustee on operations of the mutual fund, an annual report to the SEBI and investors, intimations of any deviations from the scheme’s objective, etc.

Retail Schemes under GIFT Funds

See 2.1.4 Disclosure Requirements.

Domestic Mutual Funds

The Indian retail market has seen a remarkable surge in activity among several investor categories, including individual retail investors, institutional investors, domestic and foreign investors, high-net-worth investors and non-resident investors. This is reflected in the exponential increase in the mutual fund segment’s AUM from INR27.05 trillion as on 30 November 2019 to INR68.08 trillion on 30 November 2024, according to the AMFI.

Retail Schemes under GIFT Funds

See 2.2.3 Types of Investors in Alternative Funds

Domestic Mutual Funds

Mutual Funds are managed by an asset management company (AMC) which is structured as a limited liability company under the Companies Act, 2013.

Retail Schemes Under GIFT Funds

Please refer to 3.2.2 Legal Structures Used by Fund Managers.

Domestic Mutual Funds

There are no restrictions on investors making investments in mutual funds. However, they must meet the conditions of the Prevention of Money Laundering Act, 2002, and adhere to the SEBI’s “Guidelines on Anti-Money Laundering (AML) Standards and CFT/Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules Framed Thereunder” (“AML/CFT Guidelines”) setting down the AML KYC guidelines. Further, under these guidelines, the mutual fund is required to ensure that the investor is from a competent jurisdiction, is not a Politically Exposed Person (PEP) and is not undertaking any dubious or unusual transactions.

With respect to investment in mutual funds by persons resident outside India, certain jurisdictions restrict solicitation of foreign funds and accordingly, mutual funds may impose conditions on such investors at the time of onboarding them.

Retail Schemes under GIFT Funds

See 2.2.3 Restrictions on Investors

Domestic Mutual Funds

Investment restrictions

Various restrictions on investments by a mutual fund scheme are covered by Regulation 44(1) with Schedule VII of the MF Regulations. These include limits with respect to exposure in various instruments, issuer company, and group-level restrictions. They are presented in order to ensure that, while investment decisions are made by the AMC, a balanced view is taken given the exposure inherent in certain instruments. For instance, the scheme must not invest more than 10% of its NAV in debt instruments rated investment grade (ie, BBB-) and above and issued by a single issuer, comprising money market instruments and non-money market instruments. A mutual fund should also not own more than 10% of any company’s paid-up capital carrying voting rights.

Further, an industry-wide limit of USD7 billion has been set for overseas investments, with a USD1 billion cap per individual mutual fund.

Retail Schemes Under GIFT Funds

See 2.3.1 Regulatory Regime

Under MF Regulations, a mutual fund can only engage with SEBI-registered intermediaries. If any entity is not required to be registered with the SEBI, it can be engaged only in terms of compliance, with outsourcing conditions laid down by the SEBI. Further, AMCs are restricted from carrying out operations relating to including trading, investor servicing and investor operations outside India.

Retail Schemes Under GIFT Funds

See 2.3.2 Requirements for Non-Local Service Providers.

Domestic Mutual Funds

Under the MF Regulations, a sponsor of a Mutual Fund shall be required to appoint or incorporate an AMC in India, which will undertake fund management activities for the Mutual Fund. However, an asset management company can be formed by a sponsor which is a non-resident Indian entity and the same is permissible under automatic route as per the Foreign Direct Investment Policy.

Retail Schemes Under GIFT Funds

See 2.3.3 Local Regulatory Requirements for Non-Local Managers.

Domestic Mutual Funds

See 3.1.2 Common Process for Setting Up Investment Funds.

Retail Schemes Under GIFT Funds

See 2.3.4. Regulatory Approval Process.

Domestic Mutual Funds

There is no pre-marketing of mutual fund schemes in India.

Retail Schemes Under GIFT Funds

See 2.3.5 Rules Concerning Pre-Marketing of Alternative Funds.

Domestic Mutual Funds

As mentioned, at the time of investor on-boarding, all fund documents – SID, SAI and KIM – must be made available to investors.

• Marketing by AMCs: under MF Regulations, the SEBI’s Advertisement Code lays down the conditions for all forms of communication issued, including any advertisements, with respect to the marketing of mutual fund schemes. However, any form of advertisement issued by a mutual fund must be submitted to the SEBI within seven days of the date of issuance, along with an undertaking by the compliance officer of the AMC that the advertisement adheres to the Advertisement Code prescribed under the MF Regulations.

• Selling of Mutual Fund Schemes by Distributors: a mutual fund may empanel a Mutual Fund Distributor (MFD) registered with the Association of Mutual Funds in India (AMFI), a non-profit body of the AMCs of all mutual funds registered with the SEBI that lays down best practices and standardised operational guidelines for uniformity among all AMCs. MFDs are required to comply with the Code of Conduct for MFDs prescribed by the AMFI. The mutual fund will also be liable in the event of misconduct (such as mis-selling, form splitting, etc) by MFDs empanelled by them.

Retail Schemes Under GIFT Funds

See 2.3.7 Marketing of Alternative Funds.

Domestic Mutual Funds

In India, there are no specific restrictions as to whom the mutual funds can be marketed. It can be marketed to the general public at large, subject to compliance with marketing rules as prescribed above.

Retail Schemes Under GIFT Funds

See 2.3.7 Marketing of Alternative Funds.

Domestic Mutual Funds

See 3.3.6 Rules Concerning Marketing of Retail Funds.

Retail Schemes Under GIFT Funds

See 2.3.8 Marketing Authorisation/Notification Process.

Domestic Mutual Funds

See 3.3.6 Rules Concerning Marketing of Retail Funds.

Retail Schemes Under GIFT Funds

See 2.3.9 Post-Marketing Ongoing Requirements.

Domestic Mutual Funds

The SEBI has introduced various structures and measures to safeguard investor interests, including the following.

• A Unitholder Protection Committee set up by the AMC to establish policies and systems for reviewing and addressing investor grievances in a timely manner and to help reduce investor complaints.
• The appointment of Investor Relations Officer by the AMC (whose details are generally presented in the SID and on the website of the relevant mutual fund) whom investors can approach should they have any grievances.
• SCORES, an online centralised grievance redressal system which allows investors to file complaints against the mutual fund and ensure timely treatment.
• An online Dispute Resolution Mechanism for conciliation and arbitration in the event of disputes arising between a mutual fund and its investors.

Retail Schemes Under GIFT Funds

See 2.3.10 Investor Protection Rules.

Domestic Mutual Funds

The SEBI is known for its approachability and proactive engagement with investors and market participants.

During the process of evaluating mutual fund applications, SEBI officials actively liaise with a designated contact from the applicant organisation to address queries, request additional information, and ensure a smooth application process. This approach reflects SEBI’s commitment to transparency and effective communication.

The SEBI also offers an Informal Guidance Scheme under which investors, market intermediaries, or other entities can seek its written guidance by paying a prescribed fee on any regulatory matters.

Retail Schemes Under GIFT Funds

See 2.3.11 Approach of the Regulator