IVCA President backs level-playing field between AIFs and MFs for new asset class

President of the Indian Venture and Alternate Capital Association (IVCA).

There is a need for a level-playing field between mutual funds and AIFs, in the newly introduced asset class, to ensure that one industry does not cannibalise the other, IVCA President Rajat Tandon said on February 12, in an exclusive interaction with Moneycontrol.

On the sidelines of a conclave in Mumbai, Tandon said that IVCA is in discussions with the regulator Securities and Exchange Board of India (SEBI) to revamp the challenging PMS/AIF fund managers' certification exam, which is infamous for the extremely low pass rate. IVCA said it sees the need to refine syllabus and incorporate more learning modules, in order to improve success rate.

He also spoke about why the number of accredited investors has not picked up in India, even after the capital market regulator has eased registration norms.

Edited excerpts:

Can you put a perspective to the AIF space in India, any numbers?

I don’t have a number. But in India, the AIF regulation only came into effect in 2012. If you look at the growth of fund managers and the overall business, the numbers tell an interesting story. About seven years ago, the industry stood at $14 billion, and during the pandemic, it grew to $74 billion. This is just the tip of the iceberg.

The US venture capital (VC) space alone does $300 billion annually, whereas India is at just $10 billion. Similarly, India does about $26 billion in PE and alternative investments, whereas the US does $1.3 trillion. Clearly, there is significant growth potential.

Globally, co-investments is a big area, but in India it has not really picked up. Why?

We have already put something together with the government on co-investment, so I may not be able to comment on that.

There is ongoing discussion about Systematic Investment Funds (SIF). The market believes that SIFs—due to their lower ticket size and similar strategies to Category III AIFs—could lead to a shift of clients from Cat III AIFs to SIFs.

It should be level-playing field. If the mutual funds are given this benefit, then the AIFs should be also given the same kind of benefit. It is not about cannibalising one industry against the other, but it will create a healthy competition as well.

How? Mutual funds are more tax efficient than AIFs.

That is an ever-lasting battle. Another request is a pass-through status for Category III AIFs. So, we can only keep the fingers crossed. We have done formal representations with SEBI on this. It is an ongoing process.

Why is the pass-rate so low for the mandatory PMS/AIF NISM exam for fund managers? Have you done any representation to SEBI on this?

The mutual fund industry already had an exam in place, and we worked with NISM to structure something similar for newcomers—those who want to understand and grow within this ecosystem. The goal is to promote education and expand the industry. SEBI has taken a positive approach in this regard.

However, we have also made certain requests. The curriculum includes a lot of elements, but if someone is focused on Category I or Category II AIFs, they may not necessarily be interested in Category III. So, the syllabus should be balanced accordingly.

Additionally, we raised the issue of experienced fund managers. If someone has 15-20 years of experience, does it make sense for them to retake the exam repeatedly? There should be a system where once they clear it, they are not required to take it again frequently. The objective is to grow the ecosystem, not burden it.

We need more fund managers and better education, but it should be structured in a way that supports industry expansion rather than adding unnecessary hurdles.

Even after SEBI has eased the registration for accredited investors, the number of accredited investors in India is very low, around 200? Why?

One challenge is that different regulatory bodies hold different types of investor data. One body may have information on assets, while another holds data on liabilities, making it difficult to establish clear eligibility. As India progresses with digital integration, this issue is expected to be resolved.

Is there a real benefit to be registered as accredited investors?

Absolutely. It solves a lot of issues around what should be the minimum ticket size for investments for accredited investors. SEBI is of the assumption that he is an accredited investor he knows what he is doing.

What risks do you see ahead?

The recent budget signals clarity, consistency, and deregulation, which are all positive indicators. The government is actively supporting key sectors like deep tech, health tech, defense, agritech, climate tech, and EVs. However, these industries require long gestation periods, making corporate VC participation crucial. Expanding domestic pools of capital is necessary to support long-term innovation.

We are also asking our start-ups who went out to come back. So, Bharatvapsi was another pitch which we did. There are certain challenges which need to be looked into, which I'm sure the government's looking at.

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