A Review of “Investment Funds in India – A Legal Handbook”

[Ganesh Rao is a partner at Trilegal]

Alok Verma and Karan Trehan’s Investment Funds in India – A Legal Handbook focuses on the legal regime governing investment funds in India and, in doing so, is probably one of the first books to be published in this field.

The Securities and Exchange Board of India’s (“SEBI”) SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) are relatively new and supplanted the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”). A consequence of a new set of regulations governing a relatively new area of law is the lack of established and easily accessibly literature. This, coupled with the lack of case law, had restricted access and knowledge to professionals working in this field. This book aims to address that gap in academic knowledge, and in that, does a good job.

The first few chapters cover the basics of trust law and securitization of trusts – important to anyone studying, or working on, funds in India. Principles of trust citing appropriate case law explain to the reader the basic concepts of a trust – establishment, structuring, taxation.

The chapter on securitization of trusts deals more with the general corporate law aspect of securitization of securities, than funds law. It covers in detail the nature of securitization transactions, the parties to such transactions, taxation aspects, reporting practical guidelines and regulations to be kept in mind. Given that a large number of alternative investment funds (“AIFs”) in the country have been structured as trusts to grant investors exposure to securities via this process of securitization, this chapter does justice to the overall theme of the book.

The next couple of chapters focus on mutual funds, business trusts, infrastructure investment trusts (“InvITs”), and real estate investment trusts (“REITs”). The chapter on mutual funds explains structures and considerations accounted for at time of structuring mutual funds, such as investment objectives and maturity periods. It also provides an interesting view into the history of mutual funds in India, along with explaining taxation of mutual funds and the reporting requirements.

The chapter on business trusts briefly lays out the workings of REITs (trusts created exclusively to deal with real estate assets) and InvITs (trust created exclusively to deal with infrastructure), covering where such business trusts invest, how they are taxed, their pass-through status, parties to such trusts and distributions.

The chapter on alternative investment funds would serve as a good handbook to any of the private equity or funds lawyers in the country. Apart from covering the important aspects of the AIF Regulations, the chapter also discusses how the latest of funds regulations came into being.

The last chapter on offshore funds moves out from the Indian regulatory regime, and focuses on how funds set up offshore make investments into India. Hence, this chapter discusses the foreign exchange considerations kept in mind by fund managers. The chapter also provides a history of the development of foreign investment in India and hard numbers of foreign investment into India over the past few years. The chapter discusses considerations under the foreign direct investment, foreign portfolio investment and foreign venture capital investment routes, and how such investments are made into investment funds in India. The chapter also covers important questions concerning investment funds set up in international financial services centres (“IFSC”), which is especially important given the lack of clear precedent of workings of funds such as AIFs in IFSCs in India.

Verma and Trehan’s book is undoubtedly a welcome introduction to the practice and regime of investment funds in India. It serves its purpose as a lucid, structured and well-researched piece of literature in its field. In the author’s view (and hope), Verma and Trehan could write a book on each of their chapters, and the industry and law students will be all the better for it.

Ganesh Rao

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