Why is the presence of hedge funds in India minimal compared to global markets? Is there a potential market for hedge funds in India in the future?

General
1

Hi @nithin and everyone in the community,

There are many AMCs in India, but very few (or almost no) hedge funds. Why do you think that is? Is there a future for hedge funds in India? The HNI category is also growing — can a hedge fund startup succeed in this environment?

Big players like ICICI Prudential AMC, HDFC AMC, and Motilal Oswal are well-established, so why aren’t they doing something in this space? Is there any government regulation or law that is preventing hedge funds from thriving in India?

2

FWIW,
over the last few months,
there appears to be some progress towards
formalising a “Hedge fund” class of investment asset in India - Specialized Investment Fund.

Various fund houses appear to be slowy ramping-up
to offer Specialized Investment Fund (SIF) schemes “soon”.

Reading through the above references for the SIF asset class,
a recurring theme appears to be that
the SIF schemes are allowed exposure to unhedged derivative positions.
so am not entirely sure they qualify as a “hedge fund”. :person_shrugging:t4:

Maybe the explicitly specified limits on exposure to unhedged derivatives,
is a way to say that the rest of the exposure MUST be hedged? :thinking:

image
image812×843 111 KB

3

I believe AIF category III are considered as hedge funds in India.

[Categorisation: SEBI categorizes AIFs into three types:

Category I: Venture capital, social venture, SME, and infrastructure funds.

Category II: Private equity and debt funds.

Category III: Hedge funds.](Alternative Investment Funds - AIFs Meaning and Types)

SIFs are kinda like the “hedge fund lite” version for retail investors, although not really a hedge fund, due to its smaller size (minimum investment requirement) and other regulatory restrictions.

A Specialized Investment Fund (SIF) is not a hedge fund, but it can be used to create a fund that mimics a hedge fund’s flexibility and investment strategies. SIFs are a new asset class introduced by SEBI in India, designed to bridge the gap between traditional mutual funds and Portfolio Management Services (PMS).

In essence, SIFs provide a platform for creating investment funds with hedge fund-like characteristics, but they are not hedge funds themselves. They offer a balance between the regulatory protections of mutual funds and the investment flexibility of hedge funds.

PS:

I found this stats on the Data relating to activities of Alternative Investment Funds (AIFs)

This can give us an idea of the size of Hedge funds in India (Category III AIF)