INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeIndia is killing off the one industry that can bring badly behaving tycoons into line while nudging savers away from an
unproductive lust for gold
That industry is domestic hedge funds, which have taken seven years to reach $6 billion in investment commitments from nothing
By contrast, equity investment in India by overseas financial investors is upward of $400 billion.
Even that measly $6 billion figure for
Some managers of vanilla mutual funds now seek the AiF registration to avoid regulatory restrictions on what they can pay distributors for
selling to mom-and-pop investors
But leave aside the pretenders
Rather than encourage a community of investment vigilantes who target firms falsifying accounts or stealing from investors, the Indian
taxman is threatening to disband it.
Increase to 42.7% from 35.9% in the tax rate on annual earnings over 50 million rupees
The increase to 42.7 per cent from 35.9 per cent in the tax rate on annual earnings over 50 million rupees ($730,000), announced in the
Often structured as trusts or associations, they too will have to pay the higher levy that applies on all non-corporate income
equities bought and sold within a year will be charged at 21 per cent, up from 18 per cent
It gets even more draconian
Alternative funds now have to withhold 42.7 per cent of all income on derivatives trading before they pass on the returns to investors
This is bread and butter business for long-short hedge funds, which frequently use derivatives to mount leveraged bets
India, or SEBI, has always been suspicious of the source of capital for hedge funds investing in India from Singapore or Hong Kong
being torpedoed by the taxman
Many hedge funds betting from overseas can't even beat the Indian benchmark
Stamping out short sellers will tilt an already-skewed playing field even more toward long-only investors
Those who profit only when share prices rise will happily overlook corporate skulduggery, especially if the tycoons riding roughshod over
minority shareholders make the fund managers feel important by giving them access
Even so, the country had 343,000 dollar millionaires this time last year, according to Credit Suisse Group AG
If hedge funds die because of taxation, the rich in India will be left with two sub-optimal options
trapped in gold that any more will be a colossal social waste
capital to go into productive assets
Yet policy makers are jacking up tax rates on the one avenue for risk-taking they should be nourishing
Without an industry that has their back, which analyst will pore over obscure company filings; meet suppliers, customers, and regulators;
If nothing else, the domestic alternatives business is worth saving because it can speak truth to power and put its money where its mouth is
