Guidelines for setting up IDFs
Infrastructure Debt Funds (IDFs) had been envisioned in the FY 2011-12 Union Budget to facilitate the flow of long-term debt into infrastructure projects. It had been decided that an IDF will be set up either as a trust or as a company. A trust based IDF would be a Mutual Fund (MF), regulated by the Securities and Exchange Board of India (SEBI) while a company based IDF would be an NBFC, regulated by the Reserve Bank of India (RBI).
The RBI has come out with a detailed regulatory framework for NBFCs to sponsor IDFs which are to be set up as MFs and NBFCs. These bodies would be known as “Infrastructure Debt Fund – Mutual Funds (IDF-MF) and “Infrastructure Debt Fund – Non-Banking Financial Company (IDF-NBFC)”. All NBFCs, including Infrastructure Finance Companies (IFCs) registered with RBI may sponsor IDFs to be set up as Mutual Funds, but only IFCs can sponsor IDF-NBFCs.
The RBI has set the following eligibility criteria for NBFCs which intend to sponsor IDF-MFs:
(a) The NBFC should have a minimum Net Owned Funds (NOF) of Rs 300 crore, Capital to Risk Weighted Assets (CRAR) of 15% and net NPAs should be less than 3% of net advances
(b) It should have existed for at least 5 years and should be earning profits for the last 3 years
(c) The CRAR of the NBFC post investment in the IDF-MF should not be less than the regulatory minimum prescribed for it and it should continue to maintain the required level of NOF after accounting for investment in the proposed IDF
(d) There should be no supervisory concerns with respect to the NBFC
IFCs, which intend to set up IDF-NBFCs, have to fulfil the following criteria:
(a) Sponsor IFCs would be allowed to contribute a maximum of 49% to the equity of the IDF-NBFCs with a minimum equity holding of 30% of the equity of IDF-NBFCs
(b) Post investment, the sponsor NBFC-IFC must maintain minimum CRAR and NOF prescribed for IFCs
(c) There should be no supervisory concerns with respect to the IFC
An IDF-NBFC would raise resources through issue of either rupee or dollar denominated bonds of minimum 5 year maturity. The investors would be mainly domestic and off-shore institutional investors, especially insurance and pension funds which would have long term resources.
Regulation for non-resident investors’ investment in IDFs
The Reserve Bank of India (RBI) has allowed investment on repatriation basis by eligible non-resident investors in rupee and foreign currency denominated bonds issued by Infrastructure Debt Funds (IDFs) set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) and in rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds (MFs).
The central bank will consider the following non-resident investors as eligible:
(i) Sovereign Wealth Funds, Multilateral Agencies, Pension Funds, Insurance Funds and Endowment Funds which are registered with SEBI as eligible non-resident investors in IDFs.
(ii) SEBI registered Foreign Institutional Investors (FIIs).
(iii) Non Resident Indians (NRIs) as defined in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
(iv) High Networth Individuals (HNIs) registered with SEBI as sub accounts of SEBI registered FIIs or HNIs which are separately registered with SEBI as eligible non-resident investors in IDFs in India.
While the entities listed under (i), (ii) and (iv) are allowed to invest in foreign currency and rupee denominated bonds and rupee denominated units issued by IDFs; SEBI registered FIIs who do not qualify and NRIs can invest in rupee denominated bonds and units issued by IDFs. The original maturity of all such securities at the time of first investment by a non resident investor shall be 5 years and all non-resident investment will be locked in for 3 years. However, all non-resident investors can trade amongst themselves within this lock in period.
The central bank has also set limits to investment in IDFs. All non-resident investment in IDFs (other than NRIs) (in both rupee and foreign currency denominated securities) will be within an overall cap of $10 bn, which is itself within the overall cap of $25 bn for FII investment in bonds and non-convertible debentures issued by Indian companies in the infrastructure sector or by Infrastructure Finance Companies. However, there would be no cap for NRI investment in IDFs by way of rupee denominated bonds or units.
Change in fund managers
IDBI Mutual Fund has changed fund management responsibilities for some of it funds. It has announced that IDBI Nifty Index Fund, IDBI Nifty Junior Index Fund and IDBI Gold ETF will be managed solely by Mr V. Balasubramanian while he will jointly manage IDBI MIP with Mr Gautam Kaul, who will manage the debt portion of the fund.
New fund launches
Sundaram Mutual Fund launched Sundaram Capital Protection Oriented Fund 5 Years (Series 4) with an objective ‘to seek income and minimise risk of capital loss by investing in a portfolio of fixed-income securities.’ The NFO period will be from November 18 till November 30, 2011. The performance of the fund will be benchmarked against CRISIL MIP Blended Index and will be managed by Ms Srividhya Rajesh (equity) Mr Dwijendra Srivastava (debt).
Axis Mutual Fund launched Axis Capital Protection Oriented Fund - Series 2, a closed ended scheme with the objective ‘to protect the capital by investing in a portfolio of debt & money market instruments that are maturing on or before the maturity of the scheme.’ The NFO period is from November 23 till December 7, 2011. The scheme’s performance will be benchmarked against CRISIL MIP Blended Index and will be managed by Mr R. Sivakumar and Mr Sudhanshu Asthana.
Changes in scheme structure
SBI Mutual fund has made some changes in its Magnum TaxGain Scheme. It has announced that the provision of compulsory re-investment of dividend amount of less than Rs 250 under a folio has been withdrawn with immediate effect. Henceforth, unitholders who have opted for payout of dividend under the said scheme shall be paid the dividend, irrespective of the amount.
Reliance Mutual Fund will introduce Systematic Withdrawal Plan (SWP) facility under Reliance Money Manager – Retail Plan and Institutional plan and Reliance Liquid Fund – Treasury Plan and Institutional Plan November 28, 2011. The minimum withdrawal amount will be Rs 500 and in multiples of Rs 100 thereafter, subject to revision by AMC. All SWP transactions would be reported on either of the 1st, 8th, 15th, 22nd transaction day of the respective month/quarter. This facility is available for all sub options except for daily dividend option.
Altered exit loads and dividends announced
ICICI Prudential Mutual Fund revised the exit load and minimum application amount under ICICI Prudential Ultra Short Term Plan from November 22, 2011. The revised exit load will be 0.25% of the applicable NAV if the amount is redeemed / switched out in 3 months from the date of allotment. Also, the minimum subscription amount has been revised to Rs 5 crores and in multiples of Re1 thereafter.
ICICI Prudential Mutual fund has announced changes in exit load under all options of ICICI Prudential Short Term Plan. Accordingly, with effect from November 26, 2011 0.75% of the applicable NAV will be levied if the amount sought to be redeemed or switched out is invested for a period up to 6 months from the date of allotment. No exit charge is applicable the period exceeds 6 months.
UTI Mutual Fund declared dividend under UTI Dividend Yield Fund. The quantum of dividend is 4% or up to 90% of the distributable surplus, whichever is lower, with the records date set as November 30, 2011.