Unifi Capital’s Retail Mutual Fund In Incubation Stage, Says Founder Sarath Reddy

Even as it has set up an independent subsidiary at the GIFT City in Gujarat to launch two new investment funds, the over-two-decade-old Chennai-based asset management company Unifi Capital Pvt. is toying with the idea of a retail fund to satiate the growing appetite of domestic investors.

Unifi Capital already has a domestic portfolio management service fund under the name of Blended Rangoli. The Blended Rangoli Fund is a diversified multi-cap fund investing in listed Indian equities.

Indicating this in a free-wheeling interaction at their headquarters in Chennai, a top official said that the idea of a retail mutual fund was at an incubation stage and would take a while to fructify.

Unifi was established in 2001 as a specialised portfolio management company, offering innovative investment strategies with superior risk-adjusted returns. The company offers a range of portfolio management services, alternative investment funds and international investment opportunities.

Sarath Reddy, founder of Unifi Capital, said that the establishment of a new subsidiary—Unifi Investment Management LLP—was a strategic expansion of its international capabilities and largely aimed to aid in the economic multiplier that the GIFT City could trigger in its wake.

Krishna Prassad, who has been with Unifi Capital for a long , has been appointed as the chief executive officer and principal officer of the newly-floated subsidiary, UIML. Prassad listed three primary reasons—stability, cost and tax benefit—for setting up an independent structure at the GIFT City.

"Setting up a structure elsewhere, in other countries, could sometimes get us into grey areas in terms of rules and regulations. At GIFT City, we will have blessings from a unified regulator," Prassad said.

The G20 nations, according to him, are looking at the principal purpose test. Increasingly, PPT will come into the picture in tax avoidance cases. PPT is a broad and subjective test for denying tax treaty benefits in cases where obtaining the tax benefit is one of the principal purposes (even if not the main purpose) of the arrangement or transaction.

No doubt, there is this general anti-avoidance rule for tax authorities to invoke in such cases. GAAR is a concept that generally empowers the revenue authority in a country to deny the tax benefit of transactions or arrangements that do not have any commercial substance, and the only purpose of such a transaction is to achieve the tax benefit. Given the increasing reliance on PPT, Prassad said that a subsidiary at GIFT City with regulatory clarity was a preferred option for Unifi Capital.

Establishing a subsidiary elsewhere in the globe to float investment funds in India, he said, had huge financial implications in terms of real estate price and human resources’ cost. A subsidiary at GIFT City could hasten the breakeven time, he said. Besides offering a 10-year tax holiday, the establishment of a subsidiary in a regulated environment like GIFT City would bring about a direct connection with the investors.

UIML has announced the launch of two funds. The first fund, the Rangoli India Fund, is an in-bound Cat III AIF registered with SEBI as a Category 1 FPI. This growth-stage fund will target Indian companies benefiting from the rising middle class, the formalisation of the informal sector and emerging national competencies. The second fund, the G20 Portfolio, is an out-bound PMS still under development. This fund aims to bring 20 global businesses to Indian high-net-worth individuals, helping them diversify internationally and optimise their portfolio’s risk-adjusted returns.

Reddy said that Unifi’s foreign and NRI investors could now directly invest in its concentrated Indian portfolios without routing through offshore jurisdictions. Similarly, Indian investors could now directly invest in global markets through the same streamlined channel.

Prassad said that SEBI had recently allowed 100% NRI investment for FPIs based in GIFT City. "This is a major milestone for such funds targeting the diaspora, who are natural investors in Indian markets. Unifi’s deep research and asset management expertise, coupled with our commitment to lifetime client relationships, will help our clients confidently enter this new arena of developed market equities,” he said.

The decision of Unifi Capital to float these funds through a newly-established subsidiary comes at a time when the government has pulled all stops to ensure that the GIFT City project is a success. The International Financial Services Centre Authority is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre in India.

At present, the GIFT IFSC is the maiden international financial services centre in India. The finance hub offers a 10-year tax holiday for companies and zero taxes on fund transfers from overseas, boosting fund management activities in the GIFT City.

KT Jagannathan is a senior financial journalist based in Chennai. He has been in business journalism for over three decades, covering corporate developments and critical industry verticals. He is the co-founder of www.carnaticdarbar.com, a news website for Carnatic music, a niche art form.