The government on Friday finalised the broad structure of a proposed Infrastructure Debt Fund (IDF) to source long-term funding for infrastructure projects.
To attract off-shore funds into IDFs, finance minister Pranab Mukherjee had, in his budget speech, announced that withholding tax on interest payments on borrowings by the IDFs would be reduced from 20% to 5%. Income of the IDFs has also been exempted from income tax.
“An IDF may be set up either as a trust or company,” a finance ministry statement said.
An IDF would have to be registered in India and regulated by one of the financial regulators.
A trust-based IDF would be regulated by the Securities and Exchange Board of India (SEBI), while an IDF set up as a company would be regulated by the the Reserve Bank of India.
Investors would primarily be domestic and off-shore institutional investors, especially insurance and pension funds.Banks and financial institutions would only be allowed to invest as sponsors of an IDF. An infrastructure debt fund scheme created through the trust route can be launched either as close-ended scheme maturing more than five years or an interval scheme with lock-in period of five years.
It would have a minimum of 5 investors, each holding not more than 50% of net assets of the scheme. The minimum investment would be R1 crore with R10 lakh as minimum size of the unit.