True Beacon Global – Category III AIF

True Beacon is a wealth management firm that offers a variety of investment products and services to high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs). The firm was founded in 2019 by Nikhil Kamath, the co-founder of Zerodha, a leading online stock brokerage firm in India.

True Beacon’s flagship product is its Alternative Investment Fund (AIF), which is a long-short hedge fund that invests in Indian equities. The AIF is managed by a team of experienced investment professionals and has a track record of delivering strong returns.

True Beacon Global – Category III AIF is domiciled in the International Financial Services Centre Authority (IFSCA) in GIFT City, India. This means that it is subject to a different regulatory framework and may have some tax advantages. True Beacon’s Category III IFSCA AIF is called True Beacon Global and it invests in a mix of Indian and global equities and operates as a liquid Category III Alternative Investment Fund, strategically taking long and short positions in the Indian capital markets. 

True Beacon Global – Category III AIF adopts a dual approach to maximize returns and minimize risks in the Indian equity market, for UHNIs. Approximately 60% of the portfolio is ‘long-only’, focusing on investment in fundamentally robust, large-cap Indian firms for the long haul. The remaining 40%, a long-short derivative portfolio, is dedicated to risk mitigation and volatility reduction, while simultaneously seeking to create alpha (excess returns) through algorithmic trading strategies on shorter market cycles.

Alternative Investment Funds (AIFs) in GIFT City enjoy a distinct tax advantage over their counterparts located elsewhere in India, particularly in derivatives trading. Profits from derivatives, such as futures and options, are not taxed in GIFT City, while AIFs outside of this zone must treat such profits as business income and are subject to taxation that can reach up to 42.7%.

Regarding equity transactions, AIFs in GIFT City follow the same tax regime as onshore AIFs, with a 15% tax on short-term gains for holdings under a year and a 10% capital gains tax for longer periods. Additionally, these AIFs are exempt from tax on bond trading and incur a 10% tax on interest income.

This framework makes GIFT City AIFs particularly appealing to Non-Resident Indians (NRIs), who are subject to a tax deduction of 10-15% on equity-focused AIF investments. However, NRIs are limited to comprising no more than 50% of an AIF’s corpus.

In terms of liquidity, AIFs based in GIFT City trade on the NSE and BSE, ensuring they have access to the same market liquidity as other participants in India. However, they are subject to the same transaction costs, like Securities Transaction Tax (STT) and Stamp Duty, as mutual funds and onshore AIFs.

Foreign investors and NRIs can invest in GIFT City in foreign currencies and are free to repatriate their funds without restrictions. One specific fund aims to outperform the Nifty index by 6% per annum over a 2-3 year period. Additionally, there is no current plan to hedge against the rupee’s expected annual depreciation, as the cost of hedging is deemed to offset potential depreciation benefits.

Furthermore, the entry of foreign portfolio investments through GIFT IFSC is now a reality, with a focus on attracting new investors and providing them with a comprehensive range of investment services. This effort is supported by prominent financial institutions, which have been instrumental in the licensing processes for various AIFs in GIFT City and also act as custodians and depository participants for these funds.