Not in India, yet

Author: | Published: 1 Jul 2007

The Securities and Exchange Board of India (Sebi) is keen to encourage hedge funds to invest directly in the Indian capital market as foreign institutional investors (FII), rather using the backdoor route of investing in securities of Indian companies through participatory notes (PNs).

PNs are offshore derivative instruments through which hedge funds can invest in Indian securities without directly entering the market as an FII or its sub-account. (FIIs are permitted to invest in the Indian capital markets subject to registration with SEBI.) According to a SEBI report issued in May 2004, hedge funds accounted for about 5% of the market value of the total assets held by FIIs in India. Presumably, with increased interest in India as an emerging market, this percentage has increased and SEBI is keen to attract direct investments from hedge funds.

No statute defines the term hedge fund. What began as a reference to funds...