FAQs for Registered Investment Advisors (RIAs) and licensed Broker Dealers
Where are the funds domiciled and regulated?
Cube Cloud’s funds such as Cube-Purnartha Fund, Cube Emkay Fund, Cube Alchemy Fund, and Cube Wealth First 1st and 2nd Fund (collectively defined as Funds) listed on Cube Platform would form part of two regulated Funds namely Tattva Investment Fund Ltd (sub-class),Bermuda and Dovetail Global Fund PCC (sub-cell), Mauritius.
What is the structure of the Funds mentioned above in the USA, Hong Kong, UAE and other parts of the world?
All Funds listed on the Cube Cloud Platform are domiciled and regulated only in Bermuda and Mauritius respectively and not in other parts of the world. However, eligible accredited or professional investors (subject to KYC requirements are fulfilled) from anywhere in the world can remit into these funds subject to the terms and conditions of the Funds and any state/ country filing required.
What due diligence documents are available for the Funds?
Comprehensive list of documents is available for investor due diligence which includes:
- Investment Advisor:
- Performance data
- Audited Performance Report
- Research Report
- Fund Documents:
- Subscription Agreement
These documents will be made available to the qualified investors at the due diligence stage.
Who can invest and KYC requirements of Investors?
Eligible accredited investors (subject to KYC requirements are fulfilled) to include Foreign / NRI individual, companies, trusts and partnership firms, family offices, funds, funds of fund.
List of KYC documents for individual investor on boarding:
- Personal details including name (including any former names and any aliases), permanent residential address (not a P.O. Box address) and details of occupation.
- An original utility bill or original bank or credit card statement or original bank reference, issued within the last 3 months to establish place of residential address. Where the original is not available, a certified true copy can be provided.
- Certified true copy of the current valid passports or current valid driving licence or
armed forces identity cards or national identity cards
For companies, trusts and partnerships, please refer this document for full KYC requirements
Do the Ultimate Beneficiary Owner (UBO) and the investing entities have to be domiciled in the same jurisdiction?
Not necessarily; however, KYC documents are required and complied with up to UBO level.
Can Indian Residents invest into the Fund?
At present the Fund structure does not allow any investments by Resident Indians.
Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) can invest provided:
- They are not tax residents in India
- Remits through his/her overseas bank account
- Proof of current residential address must be outside India
If an investor is Tax Resident in India, according to Securities Exchange Board of India (SEBI) Circular of 21st September, 2018:
“Contributions by NRI/ OCI/ RI including those of NRI/ OCI/ RI controlled Investment Manager should be below 25% from a single NRI/ OCI/ RI and in aggregate should be below 50% to corpus of FPI.”
Explanation: Resident Indian’s contribution permitted is that made through Liberalized Remittance Scheme (LRS) approved by Reserve Bank of India in global funds whose Indian exposure is less than 50%.
What is the Minimum Initial Investment amount?
Minimum initial investment is USD 100,000; for any additional investment by an existing investor, the minimum investment amount is USD 25,000 or above in increments of USD 1,000.
What is the Redemption Fee (or Exit Load)?
For equity funds, the exit load is 2% of redemption amount if redeemed less than 60 months after each investment is made. However, please refer to each Fund’s PPM and the Subscription Agreement.
Debt funds have a lock-in of 3 years for each investment tranche as per Reserve Bank of India regulations; there is no exit load after this lock-in period.
How long does the investment process take place?
After KYC requirements are fulfilled and the investment amount remitted, capital deployment (i.e. placement of trades in the Indian capital market) takes about 14 business days.
How long does the redemption process takes place?
Redemption request must be made at least 15 days before the Redemption Date which will be 7th of every month. Redemptions will generally be paid within twenty (20) days after the relevant Redemption Date.
What are the investment policy and objectives of the Fund?
Funds listed on Cube’s platform are either equity or debt funds. Broadly, all equity funds are long-only public market funds with high conviction and low churn portfolios. Each fund has its own individual investment philosophy which can be explored over here.
Why shouldn’t I just invest my client’s India allocation in India ETFs?
Over the last decade, any investment in India ETFs has vastly underperformed in comparison to investments managed by private top-tier Indian fund managers. Purnartha Investment Advisers, one of the Investment Advisors active on Cube Cloud Platform, has given returns of up to USD CAGR 38% while the best among Indian ETF has given returns in the range of 4-6% only. Hence, it’s preferable to invest in actively managed funds for substantially greater returns from fast growing economies such as India.
Refer the performance graphs of various India-focused ETFs vs Purnartha for comparison in the image below:
How can I be confident about getting my clients’ money back?
The Funds which are highly regulated at each leg will invest in long-only public in India which offer quite liquidity. The Indian capital market operates freely but under the guidance of government policies. These markets function within the framework of government rules and regulations, e.g., stock exchange works under the regulations of the Security and Exchange Board of India which is a government body.
The total market capitalization of the Indian equity market stood around INR 155.53 billion (US$ 2.15 trillion), ranking 9th in the world in terms of market capitalization; and Foreign Portfolio Investors (FPIs)’s inflow in Indian equity nears INR 1.0 trillion (US$ 14.2 billion) in 2019. FPI inflow during the year is highest since 2013, when they made a net investment of Rs 1.1 trillion ($20.1 billion) in equities. Thus, Indian capital market has sufficient depth to offer good liquidity for equity investments of the Funds and consequently liquidity to the investors in the Funds.
However, it is to be noted that the Funds do not offer any capital protection guarantee to its investors. Returns to investors are subject to various factors such as performance of portfolio of the Funds which are again subject to market factors in India (where the Fund would be primarily investing in Public-Long Equities) such as economic conditions, geo-political environment, etc. Please read carefully the Section “Certain Risk Factors” in the PPM.
Who are the Investment Advisors (IAs) to the Fund?
To learn about all the Investment Advisors live on the Cube Cloud Platform, please visit this page.
What are the cost, fee and expenses associated with the Fund?
There are no additional costs except running operation expenses such as stock broking fee, swift fee, forex charges, audit fee, tax certificates/filings in India, state/country filing required based on the domiciliation of investors, any miscellaneous expenses, legal and consultancy; all such are based on actual at the time of incurring. The specific fees and expenses for each fund will be laid out in the corresponding fund’s Private Placement Memorandum (PPM).
Are these funds currency-hedged? If these are long-term funds, how do they handle currency fluctuation/depreciation over that time-frame?
The Fund’s currency will not be hedged and the proposed investments of the Fund are open to currency fluctuations.
Will the performance of Fund be audited?
Each Fund’s performance will be audited by an independent auditor.
Why don’t I just approach the Fund directly on behalf of my clients? What value does Cube Cloud add?
Cube Cloud seamlessly connect investors, Investment Manager and the Investment Advisors on a single platform to transact more efficiently for the benefit of all stakeholders. It offers simple investors’ on boarding, portfolio tracking through app (live status of investment, NAV, etc.,) ease of redemption requests, etc., which are hitherto not available for overseas investors who wish to invest in Indian securities markets through Foreign Portfolio Investment (FPI) route.
I would like to speak directly with the Investment Manager (IM) and the Investment Advisors (IAs). How can Cube Cloud facilitate the conversation?
Cube Cloud endeavours to provide a seamless connecting platform for all associated key stakeholders in the Funds. Thus, Cube Cloud would also facilitate direct conversation with the IMs and IAs within the permissible regulations.
As an RIA, can I access these funds through my platform Focus/Hightower/Dynasty/Mercer/similar?
Cube Cloud is actively working to get these funds listed on all the major platforms. Having said that, please write to us in case you need integration with a specific RIA platform. Also note the fact that you can directly offer these funds to your accredited clients without them needing to be listed on any RIA platform.
Are these funds available on my client’s managed accounts on Schwab/Fidelity/TD Ameritrade/others?
Cube Cloud is actively working to get these funds listed on the above mentioned brokerage platforms. Having said that, please write to us in case you need integration with a specific brokerage platform.
Do my clients need to file taxes in India? If so, what is the process?
No. Investors are not required to pay any taxes in India. Investors need to pay applicable taxes in their local jurisdictions for their gains from investments at the time of redemption.
What does Cube Cloud provide my clients to file taxes in the US for gains on this investment?
Cube Cloud would facilitate K1 Reports from the Fund Administrator required for your client’s tax filing.
Does Cube Cloud support my strategy that invests in mutual funds? Or are only direct equity strategies possible?
Yes. Cube Cloud funds can invest in equity and debt mutual funds in addition to direct equities.
Does Cube Cloud support long-short funds, other derivatives-based strategies?
Please get in touch with us to discuss in more detail.
Can I bring on board Cube Cloud my multi-geography strategy, which includes India?
Please get in touch with us to discuss in more detail.
Do I need to set up an overseas entity to accept overseas investment via Cube Cloud?
No need to set up a separate overseas entity as it is taken care by Cube Cloud/Dovetail Investment Management, Mauritius (Investment Manager) via incorporation of Protected Cell Company (PCC) set up in Mauritius. Each Cell will be managed under a dedicated Sub-Cell so as to ring fence assets and liabilities of each Fund.
Does the Cube offshore structure satisfy the broad-basing requirements that SEBI’s FPI regulations stipulate?
Securities and Exchange Board (SEBI) of India has recently removed broad based criteria for FPIs.
Does the investor wire money to Cube? To me as the investment advisor on the fund? How does the actual money movement work?
Investors directly remits the amount to Tattva Investment Fund Limited’s Feeder Fund (Tattva Fund) in Bermuda which is approved by Bermuda Monetary Authority (BMA) or Dovetail Global Fund PCC (DGF), Master fund in Mauritius which is approved by the Financial Services Commission (FSC) of Mauritius.
Money collected at Tattva Fund is pooled at DGF before it is invested in Indian securities markets. Cube Cloud system only facilitates investors’ onboarding and does not accept money from investors into in to its account.
What is the path that an investor’s money takes before it is invested in India?
Same as described above.
How often is money moved from the offshore fund to India to be invested?
It is planned to be on weekly basis.
Do I provide advice in rupees, dollars or other currency?
The money flows in USD into India and is converted into INR on the prevalent exchange rate just before the time of execution any purchase trade. IM or the Fund Administrator (Apex Fund Services, Mauritius) will inform IA through Cube Cloud the available amount for investments in USD on weekly basis. In order to have flexibility of executing spot opportunities, some amount is also converted into INR and kept in the bank in India.
Refer this document to understand the trade flow which includes Subscription, Money Flow, Trade Execution, Redemption
What is the cost of the currency conversion? Who bears this cost?
The cost of currency conversion is around 2 to 5 paise per dollar (depending on the size); it is an operating expenses of the Fund.
What is the tax impact to the fund when securities are sold?
The Fund needs to pay taxes in India when securities are sold. Fund Taxation is as follows:
- In India:
- Listed shares/ redemption of equity oriented MFs(where STT is already paid) – Long Term Capital Gain (LTCG) tax is 10% and Short Term Capital Gain (STCG) tax 15% plus surcharge of 5% and cess of 4% ; so effective tax for LTCG is 10.92% and STCG is 16.38% respectively.
- Sale or transfer of other securities (bonds, derivatives) – LT 10% and ST 30% plus surcharge and cess – so effective tax for LTCG 10.92% and STCG 32.76%
- Interest on Securities– 5% on interest payable up to 30th June 2020 on Government Bonds and Corporate Bonds whose coupon rate does not exceed 500bps of the base rate of SBI on the date of issuance of bonds; interest from other corporate bonds is taxable at 20%
- Dividend income– exempt from tax; however, Indian companies who declare dividend should pay dividend distribution tax of 20.56% on the dividend.
- In Mauritius– no taxation for the Fund’s income because of DTAA except tax on interest earned and dividend received is at effective tax @ 3%
- In Bermuda– no taxation as it is a pass through vehicle
- Individual Investors in the Fund– taxes are paid on gains from their investments; based on applicable taxes in investors jurisdictions.
What is the tax impact to the investor when securities are sold?
NAV of the Fund is calculated after adjusting taxes paid on capital gains in India as mentioned in earlier paragraph; interest and dividend tax paid in Mauritius @ 3%
How does an investor avoid double taxation in India and in their home justification?
Note that an Investor in the Fund does not pay any taxes in India. Investors’ need to pay applicable taxes in their local jurisdictions for their gains from investments at the time of redemption.
What is the impact of the rationalization of tax rates between India and Mauritius that came into force on 31 March 2019? What if my fund invests in equities? What if my fund invests in MFs?
According to the protocol signed in May 2016, India has obtained the right to tax capital gains on the sale of shares in an Indian company. This right is only for investments made on or after 1 April 2017, meaning that investments made earlier are protected. Furthermore, tax on capital gains arising during the transition period (1 April 2017 to 31 March 2019) will be limited to 50% of India’s tax rate, subject to the newly introduced ‘limitation of benefits’ article (which requires the Mauritius resident to pass the main purpose test and bonafide business test). Such shares, once sold on or after 1 April 2019, will be taxed at 100% of the Indian tax rate.
LTCG and STCG from equity MFs investments will be exempt from tax as per the India Mauritius tax treaty.
Can my fund accept investments from US based investors?
Yes, the Tattva Fund can accept funds from US based accredited investors as it is Reg D complaint with Securities Exchange Commission (SEC) of USA.
Does the fund do State filing in the US for US based investors?
The Fund does State filing in the US. This is basically when the fund accepts investors from a particular state in the US, there are State filings that the fund is required to do. The fee/cost varies based on the investors domiciliation/State in which the tax filing is required to be done.
What is the impact of FATCA on me as the investment advisor on my fund?
The Foreign Account Tax Compliance Act (FATCA) is a tax law that compels U.S. citizens at home and abroad to file annual reports on any foreign account holdings. Hence, it does not affect the IAs who are non US citizens.
Is the Cube Cloud offshore structure GAAR-compliant?
We believe Dovetail Global Fund PCC is compliant with the Indian GAAR requirements. However, no assurance can be provided in case the tax authorities rules otherwise and request for tax payment.
Do I benefit from the May 2019 CBDT decision to allow SEBI-approved asset management companies to operate offshore funds under section 9A of the IT Act?
The benefits would be applicable only if the Fund Manager is located in India and managing an offshore Fund. In the Cube Cloud structure, the Fund Manager/ IM is located in Mauritius and the IA provides only non-binding recommendations to buy/sell securities in India.
Does the Cube Cloud offshore structure account for the CBDT’s guidelines on Place of Effective Management (POEM) to demonstrate that tax residency is overseas?
Yes, the Cube Cloud, and the Fund, Investment Manager, and FPI license are fully compliant with POEM.
For US Investors, are the investments designated as Passive Foreign Investment Company (PFIC) under the Internal Revenue Service (IRS), US?
No, the Bermuda Feeder Fund is not a Passive Foreign Investment Company (PFIC) as it is a partnership structure
The information contained in this document is for accredited or professional investors and is only intended for accredited or professional investors as defined in your jurisdiction. Please read the relevant Fund documents for complete information.
The information on this presentation should neither be regarded as an offer nor a solicitation to buy, sell or otherwise deal with any investment referred to herein and is not intended for distribution to, or use by, any person in any country (including the United States) where the investment funds and services referred to are not authorized or registered for distribution or in which the dissemination of information on the funds or services is forbidden.
The distribution of this document in certain jurisdictions maybe restricted by law and persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions.
The content of this document is based upon sources of information believed to be reliable. However, no guarantee, warranty or representation, express or implied, is given as to the accuracy or completeness of such information; and neither the Fund or the Investment Manager or the Investment Advisor nor any other company or unit belonging to the Investment Manager or the Investment Advisor, nor any of its officers, Directors, affiliates or employees accept any liability or responsibility in respect to the information or any recommendations expressed herein. The information in this presentation is subject to change without notice.
Prospective investors are urged to consult their own tax advisors with respect to their own tax situations and the tax consequences in respect of their investment in the Funds.
Any tax applicable to the Fund will be borne by the Fund and will be ultimately be borne by all or respective Shareholders as may be determined by the Board of the Fund in its sole discretion. Even if the Shareholder has redeemed its Shares, it will be required to indemnity Fund for allocated tax applicable to such Shareholder.