Finance Minister Arun Jaitley handed additional artillery to the investment community by allowing foreign participation in Alternative Investment Funds (AIFs). The funds are a category of pooled-in investment vehicles.

This will boost private equity (PE) investments in start-ups. Over the last decade, the PE sector had invested more than $80 billion in several Indian start-up companies.

“This is a move that could aid growth of start-ups which often face hiccups in raising working capital,” said Pranav Kumar Suresh, CEO, Startup Village.

The Village, which is based in Kochi, aims to launch 1,000 start-ups.

Equirus Capital’s Managing Director Ajay Garg said that the move will also help non-resident Indians (NRI) and institution participation, which constitutes a big segment of investors being targeted by the AIF. 

Making a better pitch

AIFs are basically funds established or incorporated in India for the purpose of pooling in capital from Indian investors.

The Finance Minister has said that the Government would do away with different categories like Foreign Portfolio Investors (FPI) and Foreign Direct Investment (FDI) for such investments to make it easier for overseas investors to invest in AIFs. The announcement of allowing overseas investment in domestic AIFs’ is a “game changer” since this would allow both foreign as well as domestic Indian investors to participate in one integrated platform, in line with the Government’s “Investment India” agenda. Clearly this provides one platform for PE investments rather than using overseas destinations such as Mauritius and Singapore. 

New opportunity

“Moreover, foreign funds can also explore the opportunity to deleverage their Indian strategy by using mix of overseas funds as well as domestic Indian investors and use this platform to invest in the Indian market,” said HV Harish, Partner, Grant Thornton. 

 He added that exits, which have remained one of the key challenges and focus for most PE Funds, would become easier as the lowering of the corporate tax rates (30 per cent to 25 per cent) would clearly enhance earnings and cash flows of portfolio companies. 

The start-up community has seen a flurry of activity over the last year with those in the e-commerce sector latching up impressive valuation from a clutch of investors.

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