Nikhil Kamath, a co-founder of Zerodha, has announced the launch of the first Alternative Investment Fund (AIF) in Gujarat’s GIFT city called True Beacon Global.

GIFT city is a special economic zon e that aspires to be an international financial services hub.

Kamath already manages a category III AIF outside GIFT city called True Beacon One, which was launched in September 2019.

True Beacon Global is targeting an initial corpus of $100 million. This would bring it close to the current size of around $140 million for True Beacon One.

The AIF, True Beacon Global, is a category III AIF. The fund’s long-only allocation, accounting for about 60% of exposure, will invest only in the Nifty 50 universe. The remaining exposure of about 40% is realized through long-short proprietary strategies that aim to hedge the long-only portion.

The AIF will not charge a fixed fee. It will charge a performance fee of 10%, with a high watermark on par with the structure of True Beacon One.

AIFs in GIFT city are not subject to any tax on profits from derivatives (such as futures and options) trading which confers them with an advantage over their ‘on-shore’ counterparts (those in India outside GIFT).

For equity transactions, AIFs in GIFT city have the same regime as onshore AIFs. AIFs in GIFT are also exempt from tax on bond trading and face a 10% tax on interest income. This makes such AIFs attractive for NRIs who face a tax deduction of just 10-15% on their investments in equity focused AIFs. However, NRIs cannot make up over 50% of the corpus of the AIF.