Rule 274 - Investment-fund procedure for benefit under section 9(12) and Schedule I

Investment fund procedure. 274. (1) Where investment in a fund is made directly by an institutional entity, the number of members and participation interest in the fund shall be determined by looking through that entity if it independently satisfies the conditions in Schedule I, paragraph 1(1)(c), (e), (f) and (g); was set up solely to pool and invest funds; and is resident of, or established/incorporated/registered in, a country or specified territory with which a section 159 agreement exists or which the Central Government has notified for this purpose. (2) A fund is not denied eligible-fund status under Schedule I for: non-fulfilment of the conditions in paragraph 1(1)(c), (d) or (e) that is beyond the fund's control and does not exceed 90 days, or does not exceed 18 months from setup (or final closing, if earlier) with bona fide efforts to comply, or is due to the fund being wound up and does not exceed one year from when winding-up began; or a delay of up to 90 days in furnishing the paragraph 1(4) statement. (3) For paragraph 1(1)(k) of Schedule I, a fund is treated as controlling or managing another entity's business if it directly or indirectly holds rights resulting in more than 26% of that entity's total share capital, voting power, or interest. (4) The fund manager's remuneration under paragraph 1(1)(m) of Schedule I must be at least: 0.10% of assets under management, for a Category-I foreign portfolio investor of the specified SEBI regulation categories; or, in other cases, the highest of 0.30% of assets under management, 10% of profits above a specified hurdle rate (where remuneration is purely profit-linked), or 50% of the management fee paid (net of operational/distribution expenses) where the fund also pays another fund manager. (5)-(6) Where the fund seeks a lower remuneration figure than sub-rule (4) requires, it may apply to the Board Member referred to in rule 275(2) for approval, with rule 275(3)-(12) applying to that application as they apply to a rule 275(2) application. (7) The fund manager must obtain and furnish, by the specified date in Form No. 172, an accountant's report on the fund-management activity, verified by that accountant, in addition to any section 172 report, with all provisions of the Act applying as if it were a section 172 report. (8) For paragraph 1(3)(a) of Schedule I, a fund manager is not treated as a connected person of the fund merely by virtue of undertaking its fund-management activity. (9) For paragraph 1(3)(d) of Schedule I, remuneration paid to the fund manager as a fixed charge (not linked to fund income/profits) is excluded from the profits referred to in that clause, provided the paragraph 1(1)(m) conditions are met and the fixed charge was agreed in writing at the start of the relevant activity. (10) For this rule, "assets under management" means the annual average of the monthly average opening/closing balances of the fund value the manager manages; "management fee" means the amount stated in an accountant's certificate for this purpose; and "specified hurdle rate" means the pre-defined profit-share threshold the fund agrees to.