The Finance Ministry is toying with the idea of allowing the novel corporate structure of Variable Capital Company (VCC) to meet the unique needs of investment funds. This may initially be allowed in GIFT City, which is the country’s sole international financial services centre (IFSC).
Such structures have, in recent years, received significant attention within the fund management industry globally.
“We are actively considering this. It is likely to be acted upon in coming days. It may require an amendment to the IFSCA Act”, official sources said.
What is VCC?
To put it simply, a VCC is a type of company that allows its share capital to fluctuate, depending on the number of shares issued or redeemed.
Unlike traditional companies, where the capital is fixed and changes require shareholder approval, a VCC’s capital can be increased or reduced without such formalities.
This flexibility is central to VCC’s appeal, particularly for open-ended funds where investor subscriptions and redemptions are frequent. VCCs represent a major innovation in how funds are organised, managed, and marketed, making it a competitive option for fund managers worldwide.
The VCC structure can accommodate both open-ended and closed-ended funds. It can be used as an umbrella fund with multiple sub-funds, each with its own distinct assets and liabilities, sources explained.
This allows fund managers to consolidate multiple strategies under one corporate umbrella, potentially reducing costs and improving operational efficiency, sources added.
Benefits of VCCs
Some of the benefits from VCC structure that flow to the fund management industry include flexibility, cost efficiency, operational simplicity and global appeal.
In terms of flexibility, the ability to issue and redeem shares without cumbersome procedures makes VCCs particularly attractive for fund managers dealing with diverse investor bases and fluctuating investment horizons.
It is also cost-efficient, as by consolidating multiple sub-funds under a single VCC fund managers can achieve economies of scale. This reduces administrative costs and enhances the efficiency of fund operations, making it a cost-effective solution for both fund managers and investors.
The VCC’s adaptability and compliance with international regulations have made it an attractive option for global fund managers.
Since its introduction, the VCC structure has seen strong adoption, particularly in Asia. Its appeal lies in its ability to meet the evolving needs of fund managers who require a structure that is both flexible and globally recognised.
The structure has been used for a wide range of investment strategies, from traditional equities and bonds to alternative assets like real estate and private equity.
Foreign jurisdictions like Singapore have already introduced the concept of VCC through a separate legislation.