There has been a significant change in the approach to wealth management, investments, and taxes amongst wealthy individuals and family offices in India. One notable development is the growing preference for fund structures over direct investments from a company's balance sheet. Family offices of great Indian billionaires Narayan Murthy (Cataraman) and Azim Premji (Premji Invest) are now looking towards GIFT City, the pioneering International Financial Services Center (IFSC) in India, as a means to facilitate organized global investments. The self-managed Family Investment Funds (FIFs) are crucial in this change and have gained momentum within the IFSC framework.
What is a Family Office? The simplest definition of a family office is that it is a private firm that offers wealth management advice to ultra-high-net-worth individuals (HNWI). Affluent individuals and families often require specialized financial and investment management services tailored to their needs. Family offices exist to provide comprehensive solutions that address a wide range of financial concerns, from wealth preservation and growth to tax planning and estate management. These offices are staffed by experienced professionals who are well-versed in the complexities of managing large fortunes and can help clients navigate the often-complicated landscape of modern finance with confidence and ease. Many family offices provide services beyond financial planning and investment management, such as budgeting, insurance, charitable giving, wealth transfer planning, tax services, and more. What is a Family Investment Fund in IFSC?
Family Investment Funds (FIFs) are a type of investment fund managed by a single family and involve pooling their resources together. These funds can be structured in various ways, such as companies, trusts, or LLPs, and are allowed by the International Financial Services Centre Authority (IFSCA). FIFs can also be open or closed schemes and invest in diverse assets, including securities, shares, and bullions. This flexibility in investment options makes FIFs popular for families looking to invest together while diversifying their portfolios. Individual investors can contribute up to $250k to Family Investment Funds (FIFs). Family-owned entities with at least 90% ownership can contribute up to 50% of their net worth. FIFs are required to maintain a minimum capital of $10 million within three years of operation. Why did Murthy and Premji Choose GIFT City?
GIFT City, located in Gujarat, is a thriving center for International Financial Services. It has successfully attracted numerous national and international firms to its premises. GIFT City project holds immense national importance and is a key pillar in India's journey towards becoming a developed nation. GIFT City's distinctive tax structure has proven to be crucial in drawing in both local and foreign investors. Here are the regulatory relaxations IFSCA has introduced to encourage FIFs establishment in GIFT City.
1. Expansion of The ‘Single Family’ Definition Previously, the ‘Single Family’ definition was limited to individuals who had direct origins from a common ancestor, including spouses and children (both step and adopted), but now the current ‘Single Family’ definition has been expanded and has included entities like partnership firms, LLPs, sole proprietorships, companies, corporate bodies and trusts that individuals of the same family control and allow them to have a substantial economic interest.
2. Protecting Non-Family Minority Members Family Investment Funds (FIFs) must disclose any investment risks and provide a way to exit the investment to protect the interests of individuals who have up to 10% economic interest in a single-family entity and are not part of the family. Only those who hold at least 90% interest in the entity can offer this exit, and an independent third-party service provider determines the acquisition price.
3. Accepting Contributions From Non-family Members Individuals outside of a ‘Single Family’ can now contribute to FIFs, but only for the purpose of allocating economic interest to FIF employees, directors, the Fund Management Entity (FME), and other service providers. Contributions are capped at 20% of the FIF's profits and must comply with the FIF's internal policies.
4. Additional Investment Vehicles FIFs can now create extra investment vehicles like companies, LLPs, trusts, or other forms defined by IFSCA. These vehicles are part of the FIF for regulatory compliance. This allows for flexibility in how economic interest is allocated. For example, these vehicles can have different entity types, which allows for varied investments based on taxation preferences, regulatory requirements, and documentation complexity.
5. Formal Requirements Before beginning investment activities, individuals contributing to the Family Investment Fund (FIF) must acknowledge their understanding of the unique risks and regulatory measures associated with FIFs. This process streamlines operations and promotes risk awareness. GIFT City: A Change Motivator
The establishment of the Family Investment Fund (FIF) at the IFSC center, GIFT City has boosted the reshaping work of wealth management, taxation, and investments. The conjunction of the innovative financial structure and tax benefits of GIFT City has made this a prime time for investors seeking the right time and place to invest their money. Besides this, billionaires like Azim Premji and Narayan Murthy have boosted the status and popularity of GIFT City in the global market. Don’t waste this precious time thinking whether to invest in GIFT City or not, consult your best real estate consultant, RES Management and acquire an office for sale in the global emerging IFSC center.
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