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PE funds need an image makeover: UK Sinha

The Securities and Exchange Board of India chairman UK Sinha has said the private equity industry needs to have an image makeover not just in India but across the world.

A file photo of Sebi chief UK Sinha A file photo of Sebi chief UK Sinha
The Securities and Exchange Board of India chairman UK Sinha has said the private equity industry needs to have an image makeover not just in India but across the world.

"The industry needs to send this message across a broader section of people that PE funds are not a set of greedy people who want to make fast buck, and who won't mind if the staff and employees of an affected company are retrenched or promoters are changed at the will of the private equity investors," Sinha said in a conclave organised by the Indian Private Equity & Venture Capital Association (IVCA) in Delhi on Tuesday.

Praising the industry for its $60 billion worth of investment and help extended to 3,000 start-ups so far, he said the challenges faced by the industry cannot be viewed separately.

"Primary markets across the world including Asia and India have witnessed substantial fall. In the secondary markets the cash transactions have gone down. The rate of growth of depository participant (DP) accounts has also slowed down in the last couple of years. What is happening in other industries also have relevance on the challenges faced by PE industry," he said.

On the actions taken by SEBI for the industry, the chairman said that the regulations on Alternative Investment Funds (AIF) last year have opened many avenues for PE and venture capital funds.

"We had recommended to the government that all AIFs under category I and category II to be allowed avail tax pass through benefits, but government accepted it only for category I AIFs. Angel funds have been put in category 1 and the tax pass through benefits would be allowed to them. We have received government approval and a regulation in this regard would be issued shortly," said Sinha adding that the industry and Sebi could together make representation to the government to extend the pass-through benefits to category II AIFs as well.

Under pass-through tax structure, a fund is not directly taxed but the tax burden is instead passed on to the partners. Thus, the partnership pays its profit earnings to the partners as income, wages and profit payments, and each partner pays the taxes on their individual share of those profits

Category-I AIFs consist of venture capital funds, SME funds and social funds. Category-II AIFs consist of private equity funds, debt funds and Category-III AIFs consist domestic hedge funds.

The SEBI chairman also said that delisting regulations would be changed to allow PE investors to invest in financially weak companies and bring them back to financial health.