The Hindu : Business : DIFs should have close-ended schemes: SEBI panel

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Tuesday, Aug 07, 2007
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DIFs should have close-ended schemes: SEBI panel

Special Correspondent

Report is available on SEBI website for comments

MUMBAI: The Securities Exchange Board of India (SEBI) appointed committee on the launch of Dedicated Infrastructure Funds (DIFs) by mutual funds on Monday submitted its report to M. Damodaran, Chairman, SEBI, here. The report was made available on the SEBI website for public comments.

The committee recommended that DIFs should operate as closed-ended schemes with a maturity of seven years and a possibility of one or two extensions, subject to adequate disclosures in the offer documents and approval of trustees. The committee has also recommended that DIFs should be given a listing option to provide liquidity to retail investors. The committee was headed by U. K. Sinha, Chairman and Managing Director, UTI AMC.

Presenting the report, the committee observed that the proposed DIFs will need to be structured differently from the current mutual fund schemes, as these will largely invest in unlisted companies, with longer gestation periods. “Venture capital funds have the ability to invest in such unlisted and longer tenure projects, but have minimum contribution requirements, thus leaving out the retail investors. DIFs can be structured to fill this gap and can be uniquely positioned to benefit both the ongoing infrastructure initiatives and potential retail investors,” the committee said.

It has recommended some tax incentives to retail investors for investment in DIF. It has, however, added that such tax benefits should be available only to the original investors.

In terms of investments, the committee has suggested that the DIFs may be allowed to invest up to 100 per cent of its funds into unlisted securities, including equity and debt instruments. Its exposure to listed companies, however, should be limited to 10 per cent of the NAV (net asset value) at the time of making the investments. Further, the DIFs may be allowed to take control of the asset, if they so desire, and own up to 100 per cent of the paid-up capital of a company. The committee has suggested several safeguards to protect the interests of investors.

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