How do I start an investment fund, like a hedge fund or VC fund, in India?
Any Indian fund that pools other people's money to invest privately must register with SEBI as an Alternative Investment Fund: a VC or angel fund is Category I, a private equity or debt fund Category II, and a hedge fund or any fund that borrows to invest Category III. Each scheme needs a minimum corpus of Rs 20 crore, each investor must put in at least Rs 1 crore (Rs 25 lakh for the fund's own employees and directors), and the sponsor or manager must keep the lower of 2.5% of the corpus or Rs 5 crore in the fund. You set it up as a trust with a manager company, file a private placement memorandum and apply on SEBI's intermediary portal. A fund raising mostly from overseas often sets up in GIFT City under IFSCA instead. Managing individual portfolios is a separate SEBI licence, and a quant firm trading only its own capital needs no fund licence. The hard part is a track record that makes people trust you with Rs 1 crore each, so many start with an angel fund or syndicate.
SEBI's own announcement of the rules every private fund in India is registered under: three categories of Alternative Investment Fund, a minimum investment of Rs 1 crore per investor and a minimum corpus of Rs 20 crore.
A law firm's question-by-question guide to forming a fund under SEBI's AIF rules: the categories, Rs 20 crore minimum corpus per scheme, Rs 1 crore minimum per investor (Rs 25 lakh for employees and directors), the manager's continuing interest of the lower of 2.5% or Rs 5 crore, trust structures, compliance, and the GIFT City option.
The regulator for GIFT City's international financial services centre, which registers fund management entities and funds aimed largely at overseas investors.
