Untapped Potential or Unforeseen Peril? A Critical Look at AIFs In GIFT City

Abstract

The Indian government promulgated comprehensive regulations in 2015 aimed at nurturing and regulating the securities market within Gujarat International Finance Tec-City (“GIFT City”), India's premier IFSC, to strengthen the fund regime therein. These regulations laid the foundation for Alternative Investment Funds (“AIFs”), delineating terms such as eligible investors, qualified investments, and organizational structures encompassing corporate, trust, or body corporate forms. Specialized tax regimes and pass-through mechanisms for AIFs have augmented the attractiveness of the jurisdiction. However, alongside these advancements, certain considerations have arisen concerning uncertainties in licensing requirements for diverse investment routes, regulatory inconsistencies pertaining to investments in foreign securities, mandatory incorporation of new investment managers within GIFT City’s jurisdiction, and other related issues.
This paper aims to introduce readers to the extant regulatory regime for AIFs in GIFT City by meticulously examining the SEBI Operating Guidelines for AIFs in IFSCs. It will also shed light on prevailing tax considerations contributing to the growth of AIFs in GIFT City while addressing operational and structural barriers within the existing legal framework that hinder further AIF growth. Unlike conventional analyses, this paper adopts a perspective focused on investors willing to operate an AIF within GIFT City, employing qualitative research methodologies and analyzing primary and secondary sources, including all SEBI Guidelines to date, along with academic literature to propose solutions to identified challenges.