Launching a Cayman Fund for India-Focused Investments: Key Benefits and Considerations

A CV5 Capital Insight

For managers looking to attract international investors into India-focused strategies, the Cayman Islands has become the preferred jurisdiction for fund formation. Cayman’s tax neutrality, regulator credibility, flexible structuring, and global investor acceptance make it the optimal vehicle for cross-border India investment.

Below, CV5 Capital outlines the key considerations and advantages when establishing a Cayman fund focused on the Indian market, spanning hedge funds, long-only strategies, venture/PE, credit, and hybrid structures.

1. Why Cayman for India-Focused Funds?

a. Tax Neutral and Widely Accepted by Global Allocators

Cayman funds are tax-neutral vehicles, meaning:
• No Cayman corporate tax
• No capital gains tax
• No withholding tax
• No income or profits tax on the fund or investors

This allows investors to be taxed only in their own jurisdictions (if applicable), ensuring maximum efficiency for global investors.

b. Investor Familiarity and Comfort

Cayman is the most widely used jurisdiction for hedge funds globally, and a leading domicile for India-focused offshore funds. Investors across the U.S., Europe, Middle East, Asia, and family offices already understand and accept Cayman structures.

c. Flexibility for Multi-Strategy India Exposure

A Cayman vehicle can invest into:
• Listed Indian equities (via FPI route)
• Indian private equity or venture opportunities
• Offshore derivative instruments (ODIs)
• Masala bonds and structured credit
• Pre-IPO and unlisted opportunities

The fund can be designed to hold multiple sleeves under one structure (e.g., India long-only, India credit, India quant, India structured opportunities).

d. Regulatory Strength and Speed

The Cayman Islands Monetary Authority (CIMA) offers:
• A robust but commercially pragmatic regulatory framework
• Fast fund registration
• Global AML/FATCA/CRS compliance
• Institutional governance standards

With CV5 Capital, managers can launch their India-focused fund in 4–6 weeks, avoiding lengthy standalone formation timelines.

2. Accessing Indian Markets: FPI or ODI Route

India regulates foreign investment into its public markets through SEBI’s Foreign Portfolio Investor (FPI) regime.

Option 1: FPI Route (Direct Market Access)

For managers seeking direct India exposure:
• The Cayman fund or its feeder becomes the FPI applicant
• Requires KYC/beneficial-ownership disclosure
• Must appoint local custodian, broker, and designated bank
• Governance, risk, and compliance standards must be met

Key advantages:
• Full access to listed Indian securities
• No reliance on counterparties for exposure
• Ability to participate in IPOs and block deals

The process is increasingly streamlined but still detailed. CV5 Capital works closely with India-licensed service providers to manage onboarding, disclosures, and ongoing compliance.

Option 2: ODI (Offshore Derivative Instrument) Route

Some managers trade Indian exposure via:
• Swaps
• Participatory notes
• Synthetic or structured products provided offshore

Advantages:
• No need for FPI license
• Significantly faster launch
• Operational simplicity

Consideration: Reliance on prime brokers or international banks issuing the instruments.

3. Fund Structure Options

Cayman provides multiple structures suitable for India strategies:

a. Standalone Cayman Fund

Ideal for single strategy / LP base with uniform terms.

b. Cayman Segregated Portfolio (SP) Under CV5 umbrella fund platform

The fastest and most cost-efficient option:
• Institutional infrastructure pre-built
• Governance, AML, compliance included
• Separate share classes and portfolios
• No need for bespoke incorporation

A segregated portfolio/sub-fund can be launched in weeks rather than months.

c. Master-Feeder for U.S. Taxable and Non-U.S. Investors

Common for India equity and credit funds:
• Delaware feeder for U.S. taxable investors
• Cayman master + Cayman feeder for non-U.S. and U.S. tax-exempt investors

Provides optimal tax treatment and broad investor reach.

4. Economic Terms and Investor Structuring

India-focused funds often include:
• 1.5–2% management fees
• 15–20% performance fees
• Quarterly or annual liquidity
• Founders classes for early investors
• Longer lock-ups for private equity or credit strategies

A Cayman fund can easily accommodate multiple share classes with differentiated fees, liquidity, and terms.

5. Key Operational and Governance Considerations

Launching an India-focused fund requires alignment across Cayman and India:

a. Service Providers (Cayman + India)
• Cayman administrator (e.g., NAV, SS&C, Citco)
• Custodian / PB (Morgan Stanley, Goldman Sachs)
• Indian custodian (Kotak, ICICI, HDFC, etc.)
• Legal counsel in both jurisdictions
• Cayman independent directors
• Auditor familiar with cross-border structures

b. AML, KYC, FATCA/CRS Compliance

India has strict beneficial ownership transparency rules — Cayman structures must be prepared for enhanced disclosures during FPI onboarding.

c. Valuation and Audit

CIMA requires:
• Documented valuation policy
• Annual audit
• Independent oversight

d. Currency and FX Considerations

Given India’s capital controls and INR convertibility restrictions, FX hedging may be required for USD-based funds.

6. Benefits of Launching an India-Focused Fund Under CV5

Managers partnering with CV5 Capital gain:
• Speed: Launch in 4–6 weeks instead of 3–4 months
• Lower cost: No standalone company, no bespoke regulatory setup
• Institutional credibility: Governance, AML, and compliance provided
• Connectivity: Access to our network of India FPIs, custodians, brokers
• Flexibility: Multi-class, multi-strategy India portfolios
• Reduced complexity: One platform, one ecosystem, one point of contact

This is why multiple India-focused managers, quant, long-only, and credit, choose CV5 Capital as their launch partner.

Conclusion: India Is Rising, and Cayman Is the Ideal Gateway

As India accelerates into one of the world’s most attractive growth markets, global investors are increasing their allocations across equities, credit, venture, and structured opportunities.

A Cayman fund provides the ideal offshore wrapper: combining tax neutrality, regulatory confidence, global acceptance, and structuring flexibility.

Through CV5, managers can bring India-focused strategies to market quickly, cost-effectively, and with full institutional infrastructure behind them.

If you are considering launching an India-focused fund, the CV5 Capital team would be delighted to guide you through structuring options, the FPI or ODI pathways, and a practical roadmap to launch: info@cv5capital.io

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