What the Budget proposes
*Allows foreign investment in AIFs (Alternative Investment Funds)
*Proposes to give pass-through status to category-I and category-II AIFs
Decoding AIFs
*Category-I AIFs include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds. They are entitled to certain incentives from the government, Sebi or other regulators. Category-II AIFs include private equity funds, debt funds or fund of funds, and all those that are not classified as Category-I and category-III AIFs. Category-II AIFs are allowed to invest across asset classes with any combination, however, they are prohibited from raising debt, except meeting their day-to-day operational requirements
*Category-III AIFs includes hedge funds, among others. These funds are set-up with a view to trade in various instruments and make short-term profits
Impact of Budget proposals
*Provides clarity to PE firms since capital gains will not be taxed at the level of the fund, and it will be passed on to investors
*Will help both domestic and foreign PE funds to raise capital on a common platform, eliminating the need for using overseas structure like routing investments through Mauritius and Singapore
*Allows foreign and domestic funds to invest in India by deploying a mix of overseas and domestic capital
