The proposed dedicated infrastructure funds (DIFs) by mutual funds (MFs) will need to be structured differently from the current Mutual Fund schemes as they will largely invest in unlisted companies, with longer gestation periods, said a Sebi appointed committee in its report put on the official website on Monday for public comments.

Sebi’s appointed committee on DIF in its report recommended that the DIFs should operate as closed ended schemes with a maturity of seven years and a possibility of one or two extensions and DIFs should be given a listing option to provide liquidity to retail investors.

Tax incentives

Further, the Committee has recommended some tax incentives to retail investors for investment in DIF saying, “Without the tax incentives no retail investor would be motivated to invest in a DIF.” However, such tax benefits should be available only to the original investors.

In terms of investments, the Committee has suggested that the DIFs may be allowed to invest up to 100 per cent of its funds into unlisted securities including both equity and debt instruments. Exposure to listed companies, however, should be limited to 10 per cent of the NAV at the time of making the investments.

On valuations, the committee recommended that the DIFs should report the fund NAV at the time of each asset valuation and also at quarterly intervals. About valuations, it believes that current Sebi guidelines to value unlisted equity shares will need to be suitably amended for the proposed asset class. The proposed DIFs should engage an approved consultant to value the assets semi-annually. Such an approved list can be drawn up by the Sebi registered rating agencies.

Eligibility

On investor profile, it suggested that all entities including financial institutions should be eligible for making investment in such mutual funds. The profile of DIFs in terms of tenure, risks and returns are also complimentary to liability side of insurance companies and pension funds.

The committee said that “Trustees will review the performance and compliance of the regulations in case of DIFs in their periodical meetings and report it to Sebi as per regulations.”

On the disclosure of risk factors, recommendations are that risk factors for such schemes may be disclosed in the offer documents and advertisements for launch of such schemes.