Dubai is set to emerge as the preferred destination for Indian investors to register their investment funds, following the government’s decision to classify foreign portfolio investors (FPIs) from the UAE as eligible for a Category-I licence.
Currently, FPIs coming from the UAE are classified as Category-II and, historically, this has led to most of the India-centric FPIs opting for Mauritius or Singapore to register their funds.
Category-I licence funds face relatively less compliance norms, while Category-II FPIs are subjected to stringent compliances.
Normally funds under Category-I are less than $100 million.
The Indian government communicated its decision to reclassify the UAE earlier this week, according to officials at investment funds and legal firms.
The UAE is the second non-FATF (Financial Action Task Force) country, after Mauritius, to be given the classification and stock market experts said India may have taken this decision in view of its growing close relationship with the UAE.
Most GCC countries are not a full member of FATF and were not qualified to be classified for Category-I licence.
At present, Category-II FPIs from the UAE include endowments and foundations, charitable organizations, corporate bodies, family offices, individuals and other regulated entities investing on behalf of their clients.
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India may have taken this decision in view of its growing close relationship with the UAE
According to experts in investment circles, India’s move to bring the UAE on a par with countries like Mauritius or Singapore could lead to many Indian and international funds to either move their existing funds to Dubai or Abu Dhabi or register their new funds in the Gulf country.
“The problem with Mauritius is that they are horrible at execution. While it costs about $50,000 annually for funds registered in Mauritius, funds face long delays and discontent while getting their work done,” Nikhil Kamath, co-founder and chief investment officer of unicorn Zerodha and True Beacon, a leading alternative investment fund, told Arabian Business.
“As for Singapore, it is very expensive – costs about $200,000 a year – and also requires FPIs to hire a couple of highly paid executives there,” Kamath added.
Nikhil Kamath, co-founder and chief investment officer of unicorn Zerodha and True Beacon
“Therefore, the key for us will have to be getting new jurisdictions which will be cheaper and more efficient,” Kamath said, adding that Dubai could therefore emerge as the preferred destination now for FPIs.
However, he added that he was not yet aware of the costs involved for FPIs in the UAE.
Market experts said India’s move on FPIs from the UAE could also lead to the Gulf country taking more measures to promote asset management and fund businesses out of its international finance centres in Dubai and Abu Dhabi to invest in India.
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