Procedure for investment fund for availing benefit under section 9(12) read with Schedule I to Act

Procedure for investment fund for availing benefit under section 9(12) read with Schedule I to Act.

274. (1) Where the investment in a fund has been made directly by an institutional entity, the number of members and the participation interest in such fund shall be determined by looking through the said entity, if it, —

(a) independently satisfies the conditions mentioned in paragraphs 1(1)(c), (e), (f) and (g) of Schedule I to the Act;

(b) has been set up solely for the purpose of pooling funds and investment thereof; and

(c) is resident of a country or specified territory with which an agreement referred to in section 159 has been entered into or is established or incorporated, or registered in a country or a specified territory notified by the Central Government in this behalf.

(2) A fund shall not be denied the benefit of being an eligible fund for the purposes of Schedule I to the Act, if, —

(a) non-fulfilment of any of the conditions specified in paragraphs 1(1)(c), (d) and (e) of the Schedule I to the Act, —

(i) is for reasons beyond the control of the fund and it does not exceed a period of ninety days; or

(ii) does not exceed a period of eighteen months, beginning from the date on which the fund is setup or is not beyond the final closing of the fund, whichever is earlier, and bona fide efforts are made to satisfy the conditions specified in the paragraph 1(1)(c), (d) and (e) of Schedule I to the Act; or

(iii) is for the reason that the fund is in the process of being wound up and it does not exceed one year beginning from the date on which the process of winding up has begun; or

(b) there is delay in furnishing the statement referred to in paragraph 1(4) of Schedule I to the Act and such delay does not exceed a period of ninety days.

(3) For the purposes of paragraph 1(1)(k) of Schedule I to the Act, a fund shall be said to be controlling or managing a business carried out by any entity, if it directly or indirectly holds such rights which results in the fund holding more than 26% of the total share capital or voting power or interest in the entity, as the case may be.

(4) The amount of remuneration to be paid by the fund to a fund manager, referred to in paragraph 1(1)(m) of Schedule I to the Act, shall not be less than the amount calculated in the following manner: —

(a) where the fund is Category-I foreign portfolio investor referred to in item (i) or (ii) or (iii), and sub-item (III) of item (iv) of clause (a) of regulation of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), the amount of remuneration shall be 0.10% of the asset under management; and

(b) in other cases, the amount of remuneration, shall be —

(i) 0.30% of the asset under management; or

(ii) 10% of profits derived by the fund in excess of the specified hurdle rate from the fund management activity undertaken by the fund manager, where it is entitled only to remuneration linked to the income or profits derived by the fund; or

(iii) 50% of the management fee, whether in the nature of fixed charge or linked to the income or profits derived by the fund from the management activity undertaken by the fund manager, paid by such fund in respect of the fund management activity undertaken by the fund manager, as reduced by the amount incurred towards operational expenses including distribution expenses, if any, where the fund is also making payment of management fee to any other fund manager.

(5) Where the amount of remuneration is lower than the amount arrived at under sub-rule (4), the fund may apply to the Member, Central Board of Direct Taxes referred to in rule 275(2), seeking approval of the Board under said rule for that lower amount to be the amount of remuneration and, upon receipt of such application, the Board if satisfied, considering the relevant facts, may approve such lower amount to be the amount of remuneration.

(6) Where an application is made under sub-rule (5), the provisions of rule 275(3) to (12) shall, mutatis mutandis , apply to the said application as they apply to application made under sub-rule (2) of the said rule.

(7) The fund manager shall, in addition to any report required to be furnished by it under section 172, obtain a report from the accountant, as defined in section 515(3)(b), in respect of activity undertaken for the fund and furnish such report on or before the specified date in Form No. 172, duly verified by such accountant in the manner indicated therein and all the provisions of the Act shall apply as if it is a report to be furnished under section 172.

(8) For the purposes of paragraph 1(3)(a) of Schedule I to the Act, a fund manager shall not be considered to be a connected person of the fund merely for the reason that the fund manager is undertaking fund management activity of the said fund.

(9) For the purposes of paragraph 1(3)(d) of Schedule I to the Act, any remuneration paid to the fund manager, by the fund, which is in the nature of fixed charge and not dependent on the income or profits derived by the fund from the fund management activity undertaken by the fund manager, shall not be included in the profits referred to in the said clause, if —

(a) the conditions specified in paragraph 1(1)(m) of Schedule I to the Act are satisfied; and

(b) such fixed charge has been agreed by the fund manager in writing at the beginning of the relevant fund management activity.

(10) For the purposes of this rule, —

(a) "asset under management" means the annual average of the monthly average of the opening and closing balances of the value of such part of the fund as managed by the fund manager;

(b) "management fee" means the amount as mentioned in the certificate obtained from an accountant as defined in rule 10(a), for this purpose; and

(c) "specified hurdle rate" means a pre-defined threshold beyond which the fund agrees to pay a share of the profits earned by the fund from the fund management activity undertaken by the fund manager.