The Sebi appointed committee on the Dedicated Infrastructure Funds (DIFs) recommended that DIFs should operate as closed-ended schemes with a maturity of seven years and with a possibility of one or two extensions and also tax incentives for retail investors.
The extension of the tenure can be subject to adequate disclosures in the offer documents and approval of trustees. The DIFs will need to be structured differently from the current mutual funds schemes as these will be largely investing in unlisted companies with longer gestation period.
The DIFs should be given a listing option to provide liquidity to the retail investors. The committee has recommended some tax incentives to retail investors for investment in DIF.
The committee said ?Considering the long-term and closed-ended nature of the proposed DIFs, the committee believes that it will be extremely important to provide some tax incentives to the retail investors to motivate them to invest in DIFs and therefore help in and benefit from the infrastructure creation in the country.?
?Without the tax incentives no retail investor would be motivated to invest in a DIF. Such tax benefits should be available only to the original investors,? the committee said.
The committee led by UK Sinha, CMD, UTI AMC said, ?Venture Capital Funds have the ability to invest in 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 as well as potential retail investors.? In terms of investments, the committee has suggested that the DIFs may be allowed to invest up to 100% of its funds into unlisted securities including both equity and debt instruments. However, ?The exposure to the listed companies should be limited to 10% of the NAV at the time of making the investments,? the report said.