Open a Hedge Fund in India

Updated on Tuesday 31st May 2022

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The Indian investment funds industry has known a great development in the past years, attracting investors from all over the world. The hedge fund is one of the most appreciated types of investment vehicles under which various trading strategies can be employed in order to obtain substantial financial benefits.

How to open a hedge fund in India? Below, our company formation experts in India explain the main laws and licensing requirements for a structure. We are also at your service if you want to create such a structure.
 

Characteristics of a hedge fund in India


In India, hedge funds can be registered as Alternative Investment Funds (AIFs) with the following characteristics:
 
  1. to gather money from investors and invest them into various types of financial instruments, among which bonds, commodities, real estate, stocks, etc.;
  2. to use derivatives in order to leverage the capital;
  3. to allow investors to withdraw from the fund, as well as allow other investors to join anytime;
  4. the participants in the fund have a limited liability towards the debts of the investment vehicle;
  5. the management will rely on fund managers who will be compensated through an annual fee and profit share.

If you want to start a hedge fund in India and need more information on what the procedure entails, you can request it from our local advisors. We can also guide you on how to form a company in India in any other industry.
 

Requirements to open a hedge fund in India


If you are interested in how to open a hedge fund in India, you should know that you need to respect the following laws:
 
  • the Alternative Investment Funds (AIFs) Regulations of 2012;
  • the Foreign Portfolio Investor Regulations of 2014.

Both sets of laws fall under the governance of the Securities and Exchange Board of India (SEBI).

The Board enables those who want to open a hedge fund in India to use the following legal entities for registration:
 
  • a trust;
  • a company;
  • a partnership or a limited liability partnership.

Should you decide on setting up such an investment fund in India, please get in touch with our consultants for details on the regulatory framework you need to comply with.
 

Types of hedge funds and investors allowed to operate them in India


Those who want to start a hedge fund in India need to consider various aspects, as they should know that here there are several categories of investors, as well as types of funds.

There are 3 categories of foreign investors, namely Foreign Investment Institutions (FII), foreign individuals, and non-resident Indians. Hedge funds are divided into domestic, offshore, and funds of funds.

In order to open a hedge fund in India, investors must prepare a set of documents which can consist in:
 
  • a trust deed when the chosen legal vehicle is a trust;
  • a partnership agreement when a limited liability partnership is used;
  • memorandum and articles of association in the case of a company.

The prospectus must be created no matter the structure of the Indian hedge fund.

Our company registration agents in India can help you draft the necessary paperwork related to starting a hedge fund.
 

Taxation of hedge funds


Opening a hedge fund in India also comes with responsibilities, among which one of the most important is paying taxes on the income generated. Here are the main aspects when it comes to the taxation of a fund:
 
  • hedge fund investors are not taxed, however, the entity used can be taxed;
  • however, the management fee can range between 1% and 2% (usually, below 2%);
  • the profits sharing part can range between 10% and 15%.

If you are interested in how to open a hedge fund in India and need advice, please contact us.