The finance ministry has permitted private retirement funds to invest up to 5% of their total size in pick categories of option investment funds (AIFs), topic to specific circumstances. The move is aimed at providing the funds more possibilities to widen their portfolio and, at the similar time, enhancing fund flows to vital sectors, such as infrastructure.

In a notification, the division of financial affairs has mentioned non-government provident funds, superannuation funds and gratuity funds can now invest in units issued by pick Category I and Category II AIFs regulated by the Securities and Exchange Board of India (Sebi). The DEA has tweaked norms governing the investment pattern for such funds.

The permitted Category-1 AIF involves infrastructure funds, SME Funds, venture capital funds, such as social venture funds, according to the notification. The Category-2 involves these funds, in which at least 51% of the corpus are invested in either of the infrastructure entities or SMEs, or venture capital or social welfare entities.

At present, private retirement funds are expected to invest mostly in low-danger papers such as government securities, and only a modest portion of their corpus can be invested in riskier assets, such as equity. They are also permitted to invest up to 5% in asset-backed and trust-structured investments (REITS, InvITs, and so forth). The most recent notification will give them more possibilities to widen their portfolio, albeit to a restricted extent, and, at the similar time, boost fund flows to infrastructure and SMEs.

However, the DEA has laid out specific circumstances for these investments. Funds will invest in only these AIFs whose corpus is equal to or more than Rs one hundred crore. The exposure to a single AIF will not exceed 10% of the size of the AIF. “However, this limit would not apply to a government-sponsored AIF,” it mentioned.

The funds have to guarantee that their investments ought to not be created straight or indirectly in securities of the providers or funds incorporated and/or operated outdoors India.

Rajesh Gandhi, companion, Deloitte India, mentioned, the sponsor of the AIF will have to be a non-promoter. Also, the AIF will not be managed by manager controlled by the promoter group.


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