Context

The expert committee, headed by Dr.K.P. Krishnan on Variable Capital Company has submitted its report on the feasibility of Variable Capital Companies in the International Financial Services Centres to the International Financial Services Centres Authority (IFSCA).

What is Variable Capital Company (VCC)?

• The Variable Capital Company (VCC) is a new corporate entity structure under which several collective investment schemes (whether open-end or closed-end) may be gathered under the umbrella of a single corporate entity and yet remain ring-fenced from each other.
• The new corporate entity structure gives funds an alternative to unit trusts, limited partnerships, limited liability partnerships and companies.
• A key characteristic of the VCC is its umbrella structure is that it allows the sub-funds to share a board of directors and have common service providers, such as the same fund manager, custodian, auditor and administrative agent.
• Certain administrative functions, for instance, the holding of general meetings and preparation of prospectuses, can also be consolidated.
• Where a VCC is set up as an umbrella fund with several sub-funds, members may hold shares that are referenced to a particular sub-fund held by the VCC.

About

About the Committee

In order to ensure India’s IFSC is at par with the developments in other parts of the world, IFSCA had set up a Committee of Experts headed by Shri K P Krishnan (IAS-Retd.), for examining the feasibility of the Variable Capital Company (VCC) in India with the following terms of reference:

• Comprehensive analysis of fund structures under Indian Trust Act and VCC.
• To examine VCC structure and suggest appropriate model/ framework that may significantly enhance the competitiveness of IFSC in India.
• Feasibility of introducing VCC as separate chapter in Companies Act, 2013 versus need of enacting a separate legislation.
• To explore alternative structures having characteristics like VCC.
• The Committee may also deliberate on any issues which may be considered necessary but not mentioned in the above terms of reference.

Key-recommendations

• The Committee recommended the adoption of a VCC-like legal structure for the purpose of conducting fund management activity in IFSCs.
• The Committee recognized that the legal framework governing entities that undertake fund management should provide for:
  • certainty and clarity to investors
  • effective segregation and ring-fencing of different pools of asset
  • the ability to issue different classes of shares
  • alterations to the funds’ capital structure without regulatory approvals
  • the freedom to choose the appropriate accounting standards applicable to funds with different characteristics
  • the ability to wind up quickly