IFSC Authority (Fund Management) Regulations, 2022

CHAPTER VI

OTHER FUND MANAGEMENT ACTIVITIES

PART A: PORTFOLIO MANAGEMENT SERVICES

Eligible FME and Clients

73. (1) A Registered FME may offer Portfolio Management Services to its clients in terms of these regulations.

(2) A FME in its capacity as a portfolio manager may have the following categories as clients:

(a) a person resident outside India;

(b) a non-resident Indian;

(c) a non-individual resident in India who is eligible under FEMA to invest funds offshore, to the extent of outward investment permitted; and

(d) an individual resident in India who is eligible under FEMA to invest funds offshore, to the extent allowed under the liberalised remittance scheme (LRS) of Reserve Bank of India.

(3) A FME operating as a portfolio manager in an IFSC shall be permitted to invest in securities and financial products in an IFSC, India or Foreign Jurisdiction:

Provided that in case of a discretionary portfolio management service, it shall invest in the securities listed or to be listed or traded on the stock exchanges, money market instruments, units of investment scheme and other financial products as specified by the Authority from time to time.

Disclosures

74. (1) The FME shall provide a disclosure document to the client, prior to entering into a portfolio management agreement with the client.

(2) The FME shall ensure that a copy of disclosure document is available on its website.

(3) The disclosure document referred to in sub-regulation (1) shall inter-alia contain details pertaining to the services offered, risk factors, client representation, financial performance, performance of portfolio manager, auditor observations, nature of expenses, taxation, investor grievance redressal mechanism and litigations by the regulatory authorities against the portfolio manager and its principal officers, directors/ partners/ designated partners and key managerial personnel.

Portfolio Management Agreement.

75. (1) A FME shall enter into a written agreement with the portfolio management client that clearly defines the inter se relationship and sets out their mutual rights, liabilities and obligations relating to management of portfolio including details pertaining to investment objectives, risk factors, terms of fees, period of the contract, etc.

(2) Notwithstanding anything contained in the agreement between the FME and the client, the funds or securities can be withdrawn by the client before the maturity of the contract under the following circumstances, namely-

(a) voluntary or compulsory termination of portfolio management services by the FME or the client;

(b) suspension or cancellation of the certificate of registration of the FME by the Authority; or

(c) bankruptcy or liquidation of the FME.

Report to the Client

76. (1) The FME shall periodically furnish a report to the portfolio management client in terms of the agreement between it and the client which shall inter-alia contain details relating to composition and value of the portfolio, transactions undertaken during the period of the report, beneficial interest received during the period of the report, expenses incurred in managing the portfolio and details of risk relating to the securities recommended by the portfolio manager for investment or disinvestment.

(2) The report referred to in sub-regulation (1) may be made available online with restricted access to each client.

Dealing with Client Funds

77. (1) A FME shall not accept from the client, funds or securities worth less than USD 150,000 in case of a portfolio management agreement:

Provided that the minimum investment threshold shall not apply to an accredited investor.

Provided further that the existing portfolio managers registered with the Authority and having clients with funds or securities worth less than USD 150,000 shall be grandfathered in the manner as may be specified by the Authority. 

(2) A portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Banking Unit.

(3) A FME shall segregate each portfolio management client‘s holding in securities in separate accounts:

Provided that this sub-regulation shall not apply if the investments of the clients are in jurisdictions permitting omnibus account structure. In such cases, FME shall ensure that the investment using omnibus structure is pursuant to prior consent of the clients; and adequate checks are in place to ensure that the clients‘ securities are earmarked separately.

(4) The funds received from the clients, investments or disinvestments, all the credits to the account of the client like interest, dividend, bonus or any other beneficial interest received on the investment and debit for expenses, if any, shall be properly reflected in the client‘s accounts.

(5) The FME shall act in a fiduciary capacity in respect of the client‘s funds and shall not derive any direct or indirect benefit out of the client‘s funds or securities.

(6) The FME shall not borrow funds or securities on behalf of the client.

Investment Restrictions

78. (1) The money or securities accepted by the FME shall be invested or managed in terms of the portfolio management agreement between the FME and the client.

(2) The FME shall not use the portfolio of its clients for investment in derivatives, unless express consent has been obtained from its clients.

(3) The FME shall not while dealing with clients‘ funds indulge in speculative transactions i.e., it shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.

(4) A FME shall, ordinarily purchase or sell securities separately for each portfolio management client. However, in the event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of the day’s transactions. The FME shall not keep any open position in respect of allocation of sales or purchases effected in a day.

(5) The FME shall segregate each clients’ funds and portfolio of securities and keep them separately from its own funds and securities and be responsible for safekeeping of clients’ funds and securities.

(6) The FME shall not hold the securities belonging to the portfolio account, in its own name on behalf of its clients either by virtue of contract with clients or otherwise:

Provided that this sub-regulation shall not apply if the investments of the clients are in jurisdictions permitting omnibus account structure. In such cases, FME shall ensure that the investment using omnibus structure is pursuant to prior consent of the clients; and adequate checks are in place to ensure that the clients‘ securities are earmarked separately.

(7) The FME operating as a portfolio manager (except those providing only advisory services) shall appoint a custodian in respect of securities managed or administered by it.

General Obligations

79. (1) The FME shall charge an agreed fee from the clients for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and the fee so charged may be a fixed fee or a return based fee or a combination of both.

(2) The FME in its capacity as a discretionary portfolio manager shall individually and independently manage the funds of the client in accordance with the needs of the client, in a manner which does not partake the character of a retail fund, whereas a non-discretionary portfolio manager shall manage the funds of the client in accordance with the directions of the client. 

(3) The FME shall ensure that any person or entity involved in the distribution of its services is carrying out the distribution activities is in compliance with these regulations and the circulars and directions issued thereunder by the Authority from time to time.

(4) The FME shall report its performance uniformly in the disclosures to the Authority, advertising material and reports to the clients and on its website.

(5) The portfolio accounts managed and administered by the FME in its capacity as a portfolio manager shall be audited annually and a copy of the certificate shall be given to the client.

Advisory Services

80. A FME as part of its portfolio management services shall enter into an agreement with prospective clients for providing advisory services, provided:

(a) it complies with the Regulation 43 to 50 of the IFSCA (Capital Market Intermediaries) Regulations, 2021.

(b) It complies with the code of conduct under the IFSCA (Capital Market Intermediaries) Regulations, 2021; and

(c) Advisory services are for a portfolio not less than USD 150,000.

Multi-Family Office

81. (1) A FME may also provide services to multi-family office under a portfolio management agreement as detailed in this Chapter.

(2) The Authority may prescribe additional conditions, additional permissible investment, etc., for FMEs providing services to multi-family office under a portfolio management agreement.

PART B: INVESTMENT TRUST

Investment Trust in IFSCs

82. (1) Any person from IFSC or India or a foreign jurisdiction desirous to operate an Investment Trust in the IFSCs shall obtain registration with the Authority.

(2) An Investment Trust is permitted to raise funds through:

(a) Public issue with units listed on a recognised stock exchange in IFSC;

(b) Private placement with units listed on a recognised stock exchange in IFSC; or

(c) Private placement whose units are not proposed to be listed on any recognised stock exchange.

(3) The recognised stock exchange(s) in IFSC shall specify the detailed framework including on initial disclosure requirements in the offer document, continuous obligations and disclosure requirements, trading, clearing and settlement etc. for Investment Trust whose units are listed or proposed to be listed on a recognised stock exchange(s). The Investment Trust shall comply with the requirements specified by the recognised stock exchange(s).

Definitions

83. (1) For the purpose of this Part of Chapter VI:-

(a) “eligible infrastructure project” means an infrastructure project which, prior to the date of its acquisition by, or transfer to, the InvIT, satisfies the following conditions,–

(i) For PPP projects,– 

(a) the Infrastructure Project is a completed and revenue generating project;

(b) the Infrastructure Project, which has achieved commercial operations date (COD) and does not have the track record of revenue from operations for a period of not less than one year; or

(c) the Infrastructure Project is a pre-COD project;

(ii) In non-PPP projects, the infrastructure project has received all the requisite approvals and certifications for commencing construction of the project; 

(b) “governing board‖ shall mean a group of members appointed or nominated by the LLP to act in a manner similar to the board of directors in case of a company;

(c) ―holdco or holding company means a company or LLP or any other structure as approved by the Authority:-

(i) in which Investment Trusts holds or proposes to hold controlling interest and not less than fifty one per cent of the equity share capital or interest and which in turn has made investments in other SPV(s), which ultimately hold the infrastructure assets or property(ies), as the case may be;

(ii) which is not engaged in any other activity other than holding of the underlying SPV(s), real estate/properties or infrastructure projects, as the case may be, and any other activities pertaining to and incidental to such holdings;

(d) ―Investment Trust shall mean a REIT or an InvIT, as the case may be;

(e) ―investment management agreement means an agreement between the trustee and the investment manager which lays down the roles and responsibilities of the investment manager towards the Investment Trust;

(f) ―investment manager means a Fund Management Entity registered under these regulations which manages assets and investments of the Investment Trust and undertakes activities of the Investment Trust;

(g) ―InvIT or ‘Infrastructure Investment Trust’ shall mean the trust registered as such under these regulations;

(h) “InvIT assets means assets owned by the InvIT, whether directly or through a holdco and/ or SPV, and includes all rights, interests and benefits arising from and incidental to ownership of such assets; 

(i) ―parties to the Investment Trust shall include the sponsor(s), fund management entity, trustee and project manager(s), if applicable;

(j) ―PPP project means an infrastructure project undertaken on a Public- Private Partnership basis;

(k) ―pre-COD project‖ means an infrastructure project which:

i. has not achieved commercial operation date as defined under the relevant project agreements including the concession agreement, power purchase agreement or any other agreement of a similar nature entered into in relation to the operation of a project or any agreement entered into with the lenders; and

ii. has,–

a. achieved completion of at least fifty percent of the construction of the infrastructure project as certified by an independent engineer of such project; or

b. expended not less than fifty percent of the total capital cost set forth in the financial package of the relevant project agreement;

(l) ―project implementation agreement” or “project management agreement means an agreement between the project manager, the concessionaire SPV and the trustee which sets out obligations of the project manager with respect to execution of the project and/or management:

Provided that in case of PPP projects, such obligations shall be in addition to the responsibilities as under the concession agreement or any such agreement entered into with the concessioning authority;

(m) ―project manager means a company or LLP or a body corporate designated as the project manager by the InvIT, responsible for achieving execution /management of the project and in case of PPP projects, shall mean the entity responsible for such execution and achievement of project milestones in accordance with the concession agreement or any other relevant project document;

(n) ―real estate related assets shall mean listed or unlisted debt securities and listed shares of or issued by property corporations, mortgage-backed securities, other property funds, and assets incidental to the ownership of real estate;

(o) ―REIT or “Real Estate Investment Trust” means a trust registered as such under these regulations;

(p) ―REIT assets means real estate assets and any other assets held by the REIT, on a freehold or leasehold basis, whether directly or through a holdco and/or a special purpose vehicle;

(q) “special purpose vehicle ” or “SPV ” means any company or LLP or any other structure as approved by the Authority, –

(i) in which either the Investment Trust or the holdco holds or proposes to hold controlling interest and not less than fifty one percent of the equity share capital or interest:

Provided that in case of PPP projects where such acquiring or holding is disallowed by government or regulatory provisions under the concession agreement or such other agreement, this clause shall not apply and shall be subject to provisions under proviso to clause 12(3);

(ii) which holds not less than eighty percent of its assets directly in infrastructure projects or properties and does not invest in other SPVs; and

(iv)  which is not engaged in any other activity other than activities pertaining to and incidental to the underlying infrastructure projects or holding or development of the property, as the case may be;

(r) ―sponsor‖ means any company or LLP or body corporate which sets up the Investment Trust and is designated as such at the time of application made;

(s) ―sponsor group includes:

(i) the sponsor(s);

(ii) in case the sponsor is a body corporate:

(a) entities or person(s) which are controlled by such body corporate;

(b) entities or person(s) who control such body corporate;

(c) entities or person(s) which are controlled by person(s) as referred at clause b.

(iii) in case sponsor is an individual: 

(a) an immediate relative of such individual (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and

(b) entities or person(s) which are controlled by such individual;

(t) ―trustee means a person who holds the assets of Investment Trust in trust for the benefit of the investors;

(u) ―valuer means a person who is authorised to practise as a valuer under the law of the state or country where the valuation takes place;

Registration

84. (1) An application for grant of certificate of registration as Investment Trust shall be made, by the sponsor on behalf of the trust in the format specified by the recognised stock exchange(s) to the Authority, and shall be accompanied by a non-refundable fee as may be specified by the Authority.

(2) The Authority may, in order to protect the interests of investors, appoint any person to take charge of records, documents of the Investment Trust and for this purpose, also determine the terms and conditions of such an appointment.  

Trust

85. The following are the eligibility conditions for the Investment trust:

(a) The trust should be created under the laws of India (IFSC or outside IFSC) or foreign jurisdiction;

(b) The trust deed has its main objective as undertaking activity of Investment Trust (REIT or InvIT, as the case may be) and includes responsibilities of the Trustee in accordance with the requirements specified in these regulations;

(c) persons have been designated as sponsor(s), investment manager and trustee and all such persons are separate entities.

Sponsor

86. The following are the eligibility conditions for a sponsor of an Investment Trust:

(a) Each sponsor shall hold or propose to hold not less than five percent of the number of units of the Investment Trust on post-initial offer basis:

Provided that in case the holding goes below five percent, the sponsor shall comply with the requirement within a time period of one year; 

(b) Each sponsor has a net worth of not less than USD 15 million if it is a body corporate or a company or net tangible assets of value not less than USD 15 million in case it is a limited liability partnership:

Provided that in case of REIT  each sponsor has a net worth of not less than USD 3 million and the sponsor(s), on a collective basis, have a net worth of not less than USD 15 million;

(c) The sponsor or its associate shall have a sound track record in development of real estate or infrastructure or fund management in the infrastructure / real estate sector.

Explanation.- For the purpose of this sub-regulation, ‗sound track record‘ means relevant experience of at least five (5) years and where the sponsor is a developer, at least two projects of the sponsor have been completed.

Investment Manager

87. (1) In case of private placement, any Registered FME shall be eligible to be appointed as Investment Manager.

(2) In case of a public issues, a Registered FME (Retail) shall only be eligible to be appointed as an Investment Manager.

Trustee

88. The following are the eligibility conditions for a trustee of an Investment Trust:

(a) The entity shall be authorised / registered as a trustee with the Authority or any other securities regulator and shall not be an associate of the sponsor(s) or investment manager;

(b) The trustee has such wherewithal with respect to infrastructure, personnel, etc. to the satisfaction of the Authority and the recognised stock exchange(s).

Fit and Proper

89. The registration shall be granted only if the Investment Trust and parties to the Investment Trust are fit and proper persons as specified under these regulations.

Currency

90. The units of the Investment Trust shall be in a freely convertible foreign currency other than Indian Rupee.

Offer of units of Investment Trust

91. (1) No initial offer of units by an Investment Trust shall be made unless,–

(a) the Investment Trust is registered with the Authority;

(b) the value of assets of Investment Trust is not less than USD 75 million; and

(c) the offer size is not less than USD 35 million.

(2) The minimum offer and allotment to public through an offer document / placement memorandum in respect of Investment Trust listed on a recognised stock exchange shall be as per the below table:

Provided that any units offered to sponsor or the investment manager or the project manager or their related parties or their associates shall not be counted towards units offered to the public.

Private Placement with listing

92. (1) The fund raising by an Investment Trust by way of private placement whose units are proposed to be listed on the recognised stock exchange(s) shall be subject to compliance with the following:

(a) The Investment Trust is required to obtain in-principle approval from the recognised stock exchange(s):

Provided that the validity of the in-principle approval shall not be greater than six (6) months from the date of in-principle approval from the recognised stock exchange. 

(b) The Investment Trust, through the Investment Manager or Investment Banker, shall file a placement memorandum with the Authority along-with the applicable fee at least five (5) working days prior to opening of the issue:

Provided that such opening of the issue shall not be at a date later than three (3) months from the receipt of in-principle approval for listing, from exchange(s).

(c) The Investment Trust shall raise funds from accredited investor or from investors investing not less than USD 150,000.

Notwithstanding the above, if a privately placed Investment Trust invests or proposes to invest less than eighty per cent of the value of the assets of Investment Trust in completed and revenue generating assets, the minimum investment from an investor shall be USD 1 million.

(d) The Investment Trust shall raise funds from not less than two (2) and not more than one thousand (1000) investors.

(e) The Investment Trust, through the Investment Manager shall file the final placement memorandum with the Authority within a period of ten (10)working days from the date of listing of the units issued therein.

Private Placement without listing

93. (1) The fund raising by an Investment Trust by way of private placement whose units are not proposed to be listed on the recognised stock exchange(s) shall be subject to compliance with the following:

(a) The Investment Trust shall file a draft placement memorandum with the Authority along with the applicable fee at least five (5) working days prior to opening of the issue:

Provided that such opening of the issue shall not be at a date later than three (3) months from the receipt of in-principle approval.

(b) The Investment Trust shall raise funds from accredited investor or from investors investing not less than USD 250,000.

(c) The Investment Trust shall raise funds from not more than fifty (50) investors.

(d) The Investment Trust shall file the final placement memorandum with the Authority within a period of ten (10) working days from the date of allotment of the units to the investors.

Public Issues

94. The fund raising by an Investment Trust by way of public issue shall be subject to compliance with the following:

(a) The Investment Trust shall raise funds by way of initial public offer and any subsequent issue of units after initial public offer may be by way of follow-on offer, preferential allotment, qualified institutional placement, rights issue, bonus issue, offer for sale or any other mechanism and in the manner as may be specified by the Authority.

(b) The Investment Trust, through the Investment Manager or a Registered investment banker appointed by it, shall file a draft offer document along with the fee, with the recognised stock exchange(s) and the Authority, not less than thirty working days before filing the offer document with the recognised stock exchange and the Authority.

(c) The draft offer document filed with the Authority shall be made public, for comments, if any, by hosting it on the websites of the Authority, recognised stock exchange(s) and Investment Manager, investment bankers associated with the issue, for a period of not less than fourteen (14) days.

(d) The draft offer document and/ or offer document shall be accompanied by a due diligence certificate signed by the lead investment manager or investment banker as the case may be.

(e) The Authority may communicate its comments to the investment manager or investment banker within twenty one (21) working days from the date of receipt of satisfactory reply from the investment manager or investment banker.

(f) The investment manager or investment banker shall ensure that all comments received from the Authority on the draft offer document are suitably taken into account prior to the filing of the offer document with the recognised stock exchanges.

(g) The offer document shall be filed with the recognised stock exchange(s) and the Authority not less than five (5) working days before opening of the offer.

(h) The initial offer or follow-on offer or rights issue shall be made by the Investment Trust within a period of not more than one (1) year from the date of issuance of observations by the Authority:

Provided that if the initial offer or follow-on offer or rights issue is not made within the specified time period, a fresh draft offer document shall be filed.

(i) The Investment Trust may invite for subscriptions and allot units to an investor, subject to the applicable investment guidelines and permissions issued by regulators at home jurisdiction, if any.

(j) The initial offer and follow-on offer shall not be open for subscription for a period of more than thirty (30) days.

(k) In case of over-subscriptions, the Investment Trust shall allot units to the applicants on a proportionate basis rounded off to the nearest integer subject to minimum subscription amount per subscriber.

(l) The Investment Trust shall allot units or refund application money, as the case may be, within twelve (12) working days from the date of closing of the issue.

(m) The Investment Trust shall issue units only in dematerialized form to all the applicants.

(n) The price of Investment Trust units issued by way of public issue shall be determined through the book building process or any other process in accordance with the circulars or guidelines issued by the Authority or the recognised stock exchange(s).

(o) The Investment Trust shall refund money, –

i. to all applicants in case it fails to collect subscription amount of exceeding ninety percent (90%) of the fresh issue size as specified in the offer document;

ii. to applicants to the extent of oversubscription in case the money received is in excess of the extent of over-subscription as specified in the offer document:

Provided that right to retain such over subscription cannot exceed twenty five percent (25%) of the issue size:

Provided further that the offer document shall contain adequate disclosures towards the utilisation of such oversubscription proceeds, if any, and such proceeds retained on account of oversubscription shall not be utilised towards general purposes.

(p) Units may be offered for sale to public if such units have been held by the existing unitholders for a period of at least one (1) year prior to the filing of draft offer document with the Authority:

Provided that the holding period for the equity shares, compulsorily convertible securities (from the date such securities are fully paid-up) or partnership interest in the holdco and/or SPV against which such units have been received shall be considered for the purpose of calculation of one (1) year period referred in this regulation:

Provided further that the compulsorily convertible securities, whose holding period has been included for the purpose of calculation for offer for sale, shall be converted to equity shares of the holdco or SPV, prior to filing of offer document.

(q) The amount for general purposes, as mentioned in objects of the issue in the draft offer document filed with the Authority, shall not exceed ten percent (10%) of the amount raised by the Investment Trust by issuance of units.

Offer Document or Placement Memorandum

95. (1) The offer document or the placement memorandum of an Investment Trust shall contain material, true, correct and adequate disclosures to enable the investors to make an informed decision.

(2) The offer document or placement memorandum shall include all information as required by the recognised stock exchange(s) and in the format provided by the recognised stock exchange(s), including:

• Introduction;
• Details of sponsor(s), Investment Manager, Project Manager, Trustee and other relevant parties;
• Brief background of the Investment Trust;
• Description of the assets under the Investment Trust;
• Business Details and Strategy;
• Leverage;
• Conflict of Interest and Related party transactions;
• Valuation;
• Financials;
• Rights of Unit Holders;
• Title disclosures, litigations and regulatory actions;
• Risk Factors; (m)

(3) The following documents shall be submitted to the Authority:

(a) Full valuation report along with the offer document/ placement memorandum;

(b) Project implementation/management agreement, along-with draft offer document or the placement memorandum;

(c) Due diligence certificate along with the draft offer document and offer document/ placement memorandum; and

(d) In principle approval from the recognised stock exchange(s).

(4) The placement memorandum of an Investment Trust whose units are not proposed to be listed on a recognised stock exchange shall contain all information, to the extent applicable, as specified for an Investment Trust whose units are proposed to be listed on a recognised stock exchange.

Continuous obligations and Disclosure Requirements

96. (1) The Investment Trust listed on a recognised stock exchange shall comply with the continuous obligations and disclosure requirements specified by the recognised stock exchange(s).

(2) The following disclosure requirements shall be applicable on an Investment Trust whose units are not listed on a recognised stock exchange:

(a) The investment manager of the Investment Trust shall submit annual report, half-yearly report and valuation report to the trustee and unit holders of the Investment Trust, either electronically or through physical copies;

(b) The annual and half yearly reports shall contain disclosures as specified for a privately placed Investment Trusts listed on a recognised stock exchange;

(c) The investment manager shall disclose to the trustee and unit holders any information having bearing on the operation or performance of the Investment Trust which includes but is not restricted to the following:–

i. acquisition or disposal of any infrastructure projects or property, directly or through holdco or SPV, value of which exceeds five percent (5%) of value of the assets of Investment Trust; 

ii. additional issue of units by the Investment Trust;

iii. details of any credit rating obtained by the Investment Trust and any change in such rating;

iv. any issue which requires approval of the unit holders;

v. any legal proceedings which may have significant bearing on the functioning of the Investment Trust;

vi. notices and results of meetings of unit holders, 

vii. any instance of non-compliance with these regulations  and the circulars or guidelines issued thereunder including any breach of limits; and  viii. any material issue that in the opinion of the investment manager or trustee needs to be disclosed to the unit holders.

Investment Conditions

97. (1) The Investment Trust may invest in infrastructure projects or properties, as the case may be through SPVs subject to the following:-

(a) no other shareholder or partner of the SPV shall exercise any rights that prevents the Investment Trust from complying with the regulatory requirements specified by Authority and recognised stock exchange(s) and an agreement has been entered into with such shareholders or partners to that effect prior to investment in the SPV:

Provided that the shareholders‘ agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the Investment Trust and the other shareholders or partners in the SPV: 

Provided further that the provisions specified by Authority and recognised stock exchange(s) shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon an Investment Trust by Authority and recognised stock exchange(s). 

(b) in case the SPV is a company/LLP, the investment manager, in consultation with the trustee, shall appoint majority of the board of directors or governing board of such SPVs as applicable:

Provided that in case of REIT the investment manager, in consultation with the trustee, shall appoint at least such number of nominees on the board of directors or the governing board of such SPVs, as applicable, which are in proportion to the shareholding or holding interest of the REIT in the SPV;

(c) the investment manager shall ensure that in every meeting including annual general meeting of the SPV, the voting of the Investment Trust is exercised. 

(2) The Investment Trust may invest in infrastructure projects or properties, as the case may be through holdco subject to the following:

(a) the ultimate holding interest of the Investment Trust in the underlying SPV(s) is not less than twenty-six per cent (26%);

(b) no other shareholder or partner of the holdco or the SPV(s) shall exercise any rights that prevent the Investment Trust, the holdco or the SPV(s) from complying with the regulatory requirements specified by Authority and recognised stock exchange(s) and an agreement has been entered into with such shareholders or partners to that effect prior to investment in the holdco and/or SPVs:

Provided that the shareholders‘ agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the Investment Trust and the other shareholders or partners in the holdco and/or SPV;

Provided further that the provisions specified by Authority and recognised stock exchange(s) shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon an Investment Trust by Authority and recognised stock exchange.

(c) the investment manager, in consultation with the Trustee, shall appoint the majority of the Board of directors or governing board of the holdco and SPV(s):

Provided that in case of REIT the investment manager, in consultation with the trustee, shall appoint at least such number of nominees on the board of directors or the governing board of the holdco and/or the SPV, which are in proportion to the shareholding or holding interest of the REIT in the SPV: and 

(d) the investment manager shall ensure that in every meeting including annual general meeting of the Holdco and SPV(s), the voting of the Investment Trust is exercised.

(3) The investment can be in IFSC or India or in foreign jurisdiction:

Provided that where an investment is made in a foreign infrastructure project or real estate asset, as the case may be, the investment manager should ensure that the investment complies with all the applicable laws and requirements in that foreign country.

(4) An Investment Trust shall hold completed and rent generating property or an infrastructure asset, as the case may be, for a period of not less than three years from the date of purchase of such asset by the Investment Trust directly or through holdco and/or SPV:

Provided that this shall not apply to investment in securities of companies in infrastructure sector other than SPVs.

(5) For any sale of property, whether by the Investment Trust or holdco or the SPV or for sale of shares or interest in the SPV by the holdco or Investment Trust exceeding ten percent of the value of Investment Trust assets in a financial year, the Investment manager shall obtain prior approval from the unit holders.

(6) An Investment Trust shall not invest in units of other Investment Trust(s).

(7) An Investment Trust shall not undertake lending to any person other than the holdco/special purpose vehicle(s) in which the Investment Trust has invested in:

Provided that investment in debt securities shall not be considered as lending.

Additional conditions in case of InvIT

98. (1) The investment by an InvIT shall only be in holdco and/ or SPVs or infrastructure projects or securities in accordance with the requirements specified in these regulations and the investment strategy as detailed in the offer document:

Provided that in case of PPP projects, the InvIT shall mandatorily invest in the infrastructure projects through holdco and/ or SPV.

(2) In case of Public Issues of InvIT:-

(a) At least eighty percent (80%) of the value of the InvIT assets shall be invested, proportionate to the holding of the InvITs, in completed and revenue generating infrastructure projects.

Explanation.- If the investment has been made through a holdco and/ or SPV(s), only the portion of direct investments in completed and revenue generating projects by such holdco and/ or SPV(s) shall be considered under this clause and the remaining portion shall be included in clause (b) of this subregulation. If any project is implemented in stages, the part of the project which can be categorised as completed and revenue generating project shall be considered under this clause and the remaining portion shall be included under clause (b) of this sub-regulation;

(b) Not more than Twenty percent (20%) of value of the InvIT assets shall be invested in:

(i) under-construction infrastructure projects, whether directly or through holdco and/ or SPVs:

Provided that the investment in such assets shall not exceed ten percent (10%) of the value of the InvIT assets;

(ii) listed or unlisted debt of companies or body corporate in infrastructure sector;

Provided that the investment shall not include any investment made in debt of the holdco and/ or SPV(s);

(iii) equity shares of listed companies which derive not less than eighty percent (80%) of their operating income from infrastructure sector;

(iv) government securities;

(v) securities issued by a supranational agency; and

(vi) money market instruments, liquid mutual funds or cash equivalents.

(3) In respect of InvITs having raised funding through public issue, if the investment conditions are breached on account of market movements of the price of the underlying assets or securities, the investment manager shall inform the same to the trustee and ensure that the investment conditions as specified in these regulations are satisfied within six (6) months of such breach: Provided that the period may be extended to one year subject to approval from investors.

(4) In case of private placement of InvIT:-

(a) At least eighty percent  (80%) of the value of the InvIT assets in eligible infrastructure projects either directly or through holdcos or through SPVs;

(b)  Un-invested funds may be invested in:

(i) listed or unlisted debt of companies or body corporate in infrastructure sector;

(ii) Provided that this shall not include any investment made in debt of the holdco and/ or SPV(s);

(iii) equity shares of listed companies which derive not less than eighty percent of their operating income from infrastructure sector;

(iv) government securities;

(v) securities issued by a supranational agency; and

(vi) money market instruments, liquid mutual funds or cash equivalents.

Additional conditions in case of REIT

99. (1) The investment by a REIT shall be either directly or through an SPV or through holdco.

(2) A REIT shall invest only in the following:-

(i) real estate, whether freehold or leasehold, in or outside IFSC;

(ii) real estate related assets;

(iii) listed or unlisted debt securities or listed shares of local or foreign non-property corporations;

(iv) government securities;

(v) securities issued by a supranational agency; and

(vi) cash and cash-equivalent items.

(3) The investments in case of public offer should be in compliance with the following requirements:

(a) at least seventy five percent (75%) of the REIT assets should be invested in income-producing real estate;

(b) should not undertake property development activities, unless it intends to hold the developed property upon completion;

(c) should not invest in vacant land and mortgages except for mortgage-backed securities:

Provided that these requirement shall not apply to any land which is contiguous and extension of an existing project being implemented in stages;   

(d) the total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed ten percent (10%) of the REIT assets:

Provided that the total contract value of property development activities may exceed ten percent (10%) subject to a maximum of twenty five percent (25%) of the REIT assets only if:

(i) the additional allowance of up to fifteen percent (15%) of the REIT assets is utilised solely for the redevelopment of an existing property that has been held by it for at least three (3) years and which the REIT will continue to hold for at least three (3) years after the completion of the redevelopment; and

(ii) it has obtained specific approval of the unit holders.

(e) for investments in debt securities or listed shares of local or foreign non-property corporations, or government securities or securities issued by a supranational agency, or cash or cash-equivalent items, not more than five percent (5%) of the REIT assets can be invested in any one issuer‘s securities or any one manager‘s funds; and

(f) should not derive more than ten percent (10%) of its revenue from sources other than:

i. rental payments from the tenants of the real estate held by it, or

Explanation.- rental payments include income that is ancillary or incidental to the leasing of real estate such as income from use of signage space and advertising contributions by tenants; 

ii. interest, dividends and other similar payments from permissible investments.

(4) The investment restrictions and requirements under clause (d) and (e) of sub-regulation (3) above are applicable at the time the transactions are entered into.

(5) If the investment conditions at in specified under clause (a) and (f) above are breached on account of market movements of the price of the underlying assets or securities or change in tenants or expiry of lease or sale of properties, the investment manager shall inform the same to the trustee and ensure that the conditions as specified in these regulations are satisfied within six (6) months of such breach:

Provided  that the period may be extended by another six (6) months subject to approval from unit holders.

(6) The investments in case of private placement should be in compliance with the following requirements:-

(a)  At least eighty percent (80%) of the value of the REIT assets should be invested in eligible real estate properties either directly or through holdcos or through SPVs;

(b)  Un-invested funds may be invested in:

(i) listed or unlisted debt of companies or body corporate in real estate sector

Provided that this shall not include any investment made in debt of the holdco and/ or SPV(s);

(ii) equity shares of listed companies which derive not less than eighty percent of their operating income from real estate sector;

(iii) government securities;

(iv) securities issued by a supranational agency; and

(v) money market instruments, liquid mutual funds or cash equivalents.

Distribution policy

100. (1) With respect to distributions made by the Investment Trust and the holdco and/or SPV,-

(a) not less than ninety percent (90%) of net distributable cash flows of the SPV shall be distributed to the Investment Trust /holdco in proportion of its holding in the SPV;

(b) not less than ninety percent of net distributable cash flows of the Investment Trust shall be distributed to the unit holders;

(c) with regard to distribution of net distributable cash flows by the holdco to the Investment Trust, the following shall be complied:

(i) with respect to the cash flows received by the holdco from underlying SPVs, hundred percent (100%) of such cash flows received by the holdco shall be distributed to the Investment Trust; and

(ii) with respect to the cash flows generated by the holdco on its own, not less than ninety percent (90%) of such net distributable cash flows shall be distributed by the holdco to the Investment Trust.

(d) such distributions shall be declared and made not less than once every six (6) months in every financial year in case of publicly offered InvITs and shall be made not later than fifteen (15) days from the date of such declaration.

(2) If any infrastructure asset or property, as the case may be, is sold by the Investment Trust or holdco or SPV or if the equity shares or interest in the holdco/ SPV are sold by the Investment Trust:

(a) If the Investment Trust proposes to re-invest the sale proceeds into infrastructure asset or another property, as the case may be, it shall not be required to distribute any sales proceeds to the investors; 

(b) If the Investment Trust proposes not to invest the sales proceeds into any other infrastructure asset or property, as the case may be, within a period of one (1) year, it shall be required to distribute the same in accordance with sub-regulation (1) above.

Borrowings and deferred payments

101. (1) The following provisions shall apply to an Investment Trust listed on a recognised stock exchange:

(a) An Investment Trust whose units are listed on a recognised stock exchange may issue debt securities in the manner specified by the Authority:

Provided that such debt securities shall be listed on recognised stock exchange(s).

(b) The aggregate consolidated borrowings and deferred payments of the Investment Trust, holdco and the SPV(s), net of cash and cash equivalents shall not exceed: (i)  seventy percent (70%) of the value of the InvIT assets; or  (ii)  forty nine percent (49%) of the value of the REIT assets.

(c) If the aggregate consolidated borrowings and deferred payments of the Investment Trust, holdco and the SPV(s), net of cash and cash equivalents exceed twenty five percent of the value of the assets of Investment Trust, for any further borrowing,–

(i) upto forty nine percent (49%), the Investment Trust shall –

(a) obtain credit rating from a credit rating agency; and 

(b) seek approval of unitholders.

(ii) above forty nine percent (49%), an InvIT shall –

(a) obtain a credit rating of ―AAA‖ or equivalent for its consolidated borrowing and the proposed borrowing, from a credit rating agency.

(b) utilize the funds only for acquisition or development of infrastructure projects;

(c) have a track record of at least six distributions, on a continuous basis, post listing, in the years preceding the financial year in which the enhanced borrowings are proposed to be made; and

(d) obtain prior approval of unitholders.

(d) If the conditions specified in the above sub-clauses are breached on account of market movements of the price of the underlying assets or securities, the investment manager shall inform the same to the trustee and ensure that the conditions are satisfied within six months of such breach.

(2) An Investment Trust whose units are not listed on a recognised stock exchange may undertake borrowing to the extent permitted under the trust deed, after seeking approval from such number of investors as specified in the trust deed. 

Valuation of assets

102. (1) A full valuation shall be conducted by the valuer at least once in every financial year:

Provided that such full valuation shall be conducted at the end of the financial year ending March 31^st within two (2) months from the end of such year. 

(2) A half yearly valuation of the assets of Investment Trust shall be conducted by the valuer for the half-year ending on September 30 for incorporating any key changes in the previous six (6) months and such half yearly valuation report shall be prepared within one (1) month from the date of end of such half year:

Provided that in case the consolidated borrowings and deferred payments of an InvIT is above forty-nine percent (49%), the valuation of the assets of such InvIT shall be conducted by the valuer for quarter ending June, September and December, for incorporating any key changes in the previous quarter and such quarterly report shall be prepared within one month from the date of the end of such quarter.

(3) Valuation reports received by the investment manager shall be submitted to the recognised stock exchange(s) within fifteen (15) days from the receipt of such valuation reports, in respect of an InvIT whose units are listed on a recognised stock exchange.

(4) Prior to any issue of units by publicly offered Investment Trust other than bonus issue, the valuer shall undertake full valuation of all the assets and include the same in the Offer Document:

Provided that such valuation report shall not be more than six months old at the time of such offer:

Provided further that this shall not apply in cases where full valuation has been undertaken not more than six (6) months prior to such issue and no material changes have occurred thereafter.

(5) For any transaction of purchase or sale of infrastructure projects or properties, whether directly or through holdco and/or SPVs, for publicly offered Investment Trusts,–

(a) a full valuation of the specific project shall be undertaken by the valuer; if,– 

(i) in case of a purchase transaction, the asset is proposed to be purchased at a value greater than hundred ten percent (10%) of the value of the asset as assessed by the valuer;

(ii) in case of a sale transaction, the asset is proposed to be sold at a value less than ninety percent (90%) of the value of the asset as assessed by the valuer, approval of the unit holders shall be obtained.

(6) In case of any material development that may have an impact on the valuation of the assets under Investment Trust, then investment manager shall require the valuer to undertake full valuation of the infrastructure project or property under consideration within not more than two (2) months from the date of such event and disclose the same to the trustee and the recognised stock exchange(s) within fifteen (15) days of such valuation.

(7) The valuer shall not value any assets in which it has either been involved with the acquisition or disposal within the last twelve (12) months other than such cases where valuer was engaged by the Investment Trust for such acquisition or disposal.

Surrender of certificate by an Investment Trust whose units are not listed

103. (1) An Investment Trust whose units are not listed on a recognised stock exchange may choose to surrender its certificate of registration to the Authority and on acceptance of surrender of certificate of registration, it shall no longer undertake the activity of an Investment Trust.

(2) The Investment Trust and parties to the Investment Trust shall continue to be liable for all their acts of omissions and commissions with respect to activities of the Investment Trust notwithstanding surrender of registration to the Authority.

PART C: FAMILY INVESTMENT FUND

Eligibility Conditions

104. (1) Family Investment Fund could be set up in the IFSC as a Company, Trust (Contributory Trust only) or Limited Liability Partnership or any other form as may be permitted by the Authority from time to time.

Provided where the contributory vehicle is in the form of a Trust (i.e. a contributory Trust) it shall ensure that, –

(a) the beneficiaries are identifiable based on the provisions of the Trust deed, though not specifically named in the trust deed;

(b) the share of each beneficiary should be capable of being determined based on the provision/ formula mentioned in the trust deed and shall not be at the discretion of the trustee; and

(c) any addition of further contributors to the Trust in addition to the initial contributors, shall not make the existing beneficiaries unknown or their shares indeterminate.

(2) The requirements under Regulation 5 and 8 on Legal form and Net-worth of an FME shall not be applicable to a Family Investment Fund.

(3) A Family Investment Fund in IFSC should have and maintain a minimum corpus of USD 10 million within a period of three (3) years from the date of obtaining certificate of registration.

(4) The Family Investment Fund could be open ended or close ended, depending upon the requirements of the family.

Permissible Activities

105. A Family Investment Fund may undertake all activities related to managing family investment fund and as may be specified by the Authority.

Permissible investments

106. Subject to other provisions of these regulations, a family investment fund may invest money only in:-

• Securities issued by the unlisted entities;
• Securities listed or to be listed or traded on stock exchanges in IFSC, India or foreign jurisdictions;
• Money market instruments;
• Debt securities;
• Securitised debt instruments, which are either asset backed or mortgage-backed securities;
• Other investment schemes set up in the IFSC, India and foreign jurisdiction;
• Derivatives including commodity derivatives;
• Units of mutual funds and alternative investment funds in India and foreign jurisdiction;
• Investment in Limited Liability Partnerships;
• Physical assets such as real estate, bullion, art, etc.; or
• Such other securities or financial product /assets or instruments as specified by the Authority.

Borrowing

107. A Family Investment Fund may borrow funds or engage in leveraging activities as per their risk management policy.

CHAPTER VII

LISTING 

Listing of open ended schemes

108. The FMEs may at its discretion list open ended schemes, as specified under Chapter III on the recognised stock exchanges.

Listing of close ended scheme

109. The FMEs may at its discretion list close ended schemes, as specified under Chapter III, on the recognised stock exchanges:

Provided that a close ended retail scheme shall be mandatorily listed on at least one of the recognised stock exchanges.

Listing of ETFs

110. Units of ETFs shall be mandatorily listed on at least one of the recognised stock exchanges.

Listing of Investment Trust

111. (1) The units of Investment Trust (except for private placement of Investment Trust whose units are neither listed nor proposed to be listed on a recognised stock exchange) as provided under Part B of Chapter VI shall be listed on a recognised stock exchange

(a) in case of initial public offer, within 12 working days from the date of closure of the initial public offer; 

(b) in case of private placement, within 30 working days from the date of allotment:

Provided that this sub-regulation shall not apply if the initial offer does not satisfy the minimum subscription amount specified in these regulations.

(2) The listing of the units of the Investment Trust shall be in accordance with the listing agreement entered into between the Investment Trust and the recognised stock exchange.

(3) The units of the Investment Trust listed in the recognised stock exchange(s) shall be traded, cleared and settled in accordance with the requirements specified by the recognised stock exchange(s) and such conditions as may be specified by the Authority.

(4) Any person other than the sponsor(s) holding units of the Investment Trust prior to initial offer shall hold the units for a period of not less than six (6) months from the date of listing of the units.

(5) An Investment Trust whose units are not listed on a recognised stock exchange may list such units on a recognised stock exchange, subject to it complying with the requirements specified for privately placed and listed Investment Trust under these regulations and in the manner specified by the Authority from time to time.

Approval by Recognised Stock Exchange for Listing 

112. (1) The FME which intends to list units of its scheme or ETFs or Investment Trust on the recognised stock exchange(s), shall obtain ‗in-principle‘ approval from recognised stock exchange(s) in accordance with the requirements of the recognised stock exchange(s) from time to time.

(2) The delisting of schemes or ETFs or Investment Trust shall be permitted subject to the terms and conditions as may be specified by the recognised stock exchanges.

Disclosures

113. Schemes or ETFs or Investment Trust listed on the recognized stock exchanges shall make such disclosures as may be specified by the Authority or the recognized stock exchanges.

Secondary Listing of an ETF or Investment Trust listed in India or Foreign Jurisdiction

114. (1) An ETF or Investment Trust (by whatever name it may be called outside IFSC) may be allowed to list and trade on a recognised stock exchange provided:

(a) The ETF or Investment Trust, as the case may be is listed in India (outside IFSC) or in a foreign jurisdiction; and

(b) The ETF or Investment Trust is in compliance with the law of its home jurisdiction.

(c) The application for listing of such ETF or Investment Trust shall be filed with the recognised stock exchange(s) in the format and manner provided by the recognised stock exchange(s).

(d) The recognised stock exchange(s) may exempt the continuous obligations and disclosure requirements for ETFs or Investment Trust listed on the recognised stock exchange(s), provided that the FME releases all information and documents in English to the recognised stock exchange(s) at the same time as they are released to the home exchange where it has a primary listing.

Suspension of Listing and Trading

115. (1) The Authority or the recognised stock exchange may suspend the listing and trading of units of an Investment Trust or schemes or ETF if:

(a) the Investment Trust or parties to the Investment Trust or the FME are in non-compliance with the regulatory provisions specified by Authority or the recognised stock exchange(s); (b) the Investment Trust or schemes or ETF is suspended in any other stock exchange; or (c) the suspension is required for ensuring orderly operation of market.

(2) The recognised stock exchange may restore the listing and trading of Investment Trust or schemes or ETF that have been suspended if it considers that the suspension is no longer required.

Delisting by Recognised Stock Exchange

116. The recognised stock exchange may delist Investment Trust or schemes or ETF if it is satisfied that –

(a) the Investment Trust / Scheme / ETF is suspended for trading for more than six months or parties to Investment Trust or FME are not taking adequate action to obtain restoration of listing and trading;

(b) the Investment Trust or parties to Investment Trust or FME is no longer eligible for listing or trading;

(c) the Investment Trust or schemes or ETF have been compulsorily delisted from another exchange;

(d) if the exchange is satisfied that there are special circumstances that require delisting of the Investment Trust or schemes or ETF; or

(e) it is directed to do so by the Authority or any other relevant authority or any court order of applicable jurisdiction.

Voluntary Delisting

117. The recognised stock exchange may delist Investment Trust or scheme or ETF, based on request received from the Investment Trust or FME, in the manner provided by the recognised stock exchange(s) or the Authority.