13 hedge funds get Sebi approval

More than a dozen hedge funds have received the regulatory nod after the Securities and Exchange Bo*ard of India (Sebi) allowed hedge fund-like stra*tegies to launch operations in India under alternative investment fund (AIF) Category-III segment.

The funds that got the regulatory green signal include Avendus India, Karvy Capital, Motilal Oswal, Ca*pveda, DSP BlackRock, Ed*elweiss and Ambit Capital. The other hedge funds that received Sebi’s approval are Forefront, Unifi AIF, Malabar Capital, Monsoon Alternative Investment, Red*art India and Mavenvest Absolute Return Fund. One hedge fund, SBI Pipe Fund, is awaiting approval.

A popular product overseas, hedge funds in India are in their infancy. They are similar to mutual funds in the way they pool in investors’ money and invest it in stocks and stocks derivatives and bonds, and returns are distributed among unitholders. Unlike MFs, hedge funds use far more complex strategies, such as long-short, derivatives and leverage, among others.

Hedge funds have gained popularity abroad with increasing volatility in global markets, as they are viewed as risky but money-spinning products.

Till now, Indian investors had to invest money in long-only funds such as portfolio management services (PMS) and they had no way to bet against the market.

Sebi’s new rules for alternative investment funds Category III segment allows hedge fund-like strategies such as short selling. Short sales or selling a stock that one does not own are prohibited in PMS schemes.

Till the new local hedge funds are allowed, only foreign investors could participate in hedge funds through Mauritius or other offshore-based funds.

In addition to short selling, hedge funds can leverage twice their assets, meaning an India hedge fund of Rs 100 crore assets can take bets worth up to Rs 200 crore, according to Sebi.

The total asset size of local hedge funds in India is not known. The minimum ticket size for investors putting money in these hedge funds is Rs 1 crore. This is to ensure small investors are kept away from betting on these risky strategies.

“The total funds managed by hedge funds in India may be in the region of Rs 300-500 crore,” said a fund manager, adding that Karvy, Ambit, Forefront and Capveda are up and running while others are just starting off.

“Most fund houses may be managing just Rs 30-40 crore or even lower. Most of this too are proprietary money,” said an industry official. The law stipulates AIF Category III to have minimum of Rs 20 crore of assets under management (AUM).

“Some funds are up and running while most others are in fund raising mode right now,” said another industry official.

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