The International Financial Services Centres Authority (IFSCA) issued a circular clarifying certain investment restrictions applied to retail fund schemes in the International Financial Services Centres (IFSCs). This circular addresses specific provisions within the IFSCA (Fund Management) Regulations, 2022, to foster a more robust environment for retail investments in the IFSCs by addressing limitations associated with investments in unlisted securities and fund-of-fund structures.
Key Clarifications on Investment Ceilings and Limits
The circular provides specific clarifications for retail schemes structured as fund-of-fund schemes. It exempts these schemes from certain limitations under Regulation 47 of the Fund Management Regulations when they invest in unlisted securities issued by investment funds. To qualify for these exemptions, the underlying investment fund must meet the following conditions:
Open-ended Nature and Regulatory Compliance: The investment fund should be open-ended, regulated by an authority in its home jurisdiction, and permitted for retail offerings within that jurisdiction.
Exemptions on Investment Ceilings and Limits:
15% Investment Cap: Open-ended retail schemes are typically capped at a 15% investment limit of total Assets Under Management (AUM) in unlisted securities. The circular now removes this ceiling for eligible fund-of-fund schemes.
Minimum Investment Amount for Close-ended Schemes: For close-ended schemes investing over 15% of AUM in unlisted securities, the usual minimum investment amount requirement of USD 10,000 has been lifted.
50% Investment Ceiling for Close-ended Schemes: Close-ended schemes are generally restricted to a 50% AUM investment ceiling in unlisted securities, but eligible fund-of-fund schemes are now exempted from this limit.
25% Investment in Associates: Previously, retail schemes had a 25% AUM investment ceiling when investing in associated entities. The circular clarifies that this restriction will not apply to eligible fund-of-fund structures.
These changes are intended to provide fund managers with more flexibility, allowing them to diversify investments and enhance returns without being restricted by rigid caps on unlisted securities.
Enhanced Disclosure Requirements for Fund-of-funds: In line with increased flexibility, the circular mandates additional disclosure obligations for fund-of-fund schemes to promote transparency. Fund Management Entities (FMEs) managing these retail schemes must include the following in their offer documents:
Details of Underlying Schemes: This includes providing information on all underlying schemes in which the retail scheme intends to invest.
Nature of Associations: If the FME has any association with the managers of the underlying schemes, it must clearly disclose this information, ensuring that investors are informed of any potential conflicts of interest.
