India's market watchdog has approved a new set of regulations for hedge funds and private equity firms.
The Securities and Exchange Board of India's new scheme requires hedge funds, previously unregulated in the country, to register. It also imposes a range of other requirements, including a 1,000-investor limit, a 10 million rupee (US$194,000) minimum investment requirement and a minimum size of 200 million rupees (US$3.9 million).
The new regulations also bring India's private equity funds under SEBI's ambit for the first time, repealing the 1996 law that governs the asset class.
Under the new system, SEBI recognizes three categories of alternative investment fund. The first includes venture capital funds and infrastructure funds, the second private equity funds, debt funds and funds of funds, and the third hedge funds and other more flexible vehicles.
Category three funds, "considered to have negative externalities, such as exacerbating systemic risk through leverage or complex strategies," will, despite those words, be allowed to employ leverage. SEBI may limit the use of leverage, however. Hedge funds will be permitted as both open-ended and close-ended vehicles, while private equity funds must by close-ended.
P.E. funds are also barred from using leverage and must have a minimum lifespan of three years.
All alternatives funds can list on Indian stock exchanges, with a minimum tradeable lot of 10 million rupees. And all must have at least a 2.5% contribution from the fund sponsor.