Variable Capital Company: An overview

The Variable Capital Company (‘VCC’) model was first conceptualised in Singapore through the Variable Capital Companies Act, 2018. VCC model is a unique corporate structure tailored to support investment funds. VCCs provide a corporate structure which achieves flexibility by treating the issuance of new shares (subscription) and the cancellation of existing shares (redemption) as simple administrative actions without requiring regulatory filings and shareholder approvals, offering a progressive approach for pooling investment funds. 

Typically, traditional investment fund structures operate with fixed capital, involve rigid share issuance and redemption mechanisms, and often require the establishment of separate legal entities for each investment strategy. In contrast, the Variable Capital Company framework permits seamless issuance and redemption of shares at net asset value and accommodates an umbrella structure under which multiple sub‑funds may be constituted. Each sub‑fund is distinct from the other and legally segregated from the others, while benefiting from a common board, fund manager, and shared service providers, thereby achieving significant operational efficiencies. 

VCCs stand out for their flexibility, offering fund managers the freedom to align their investment strategies with dynamic market trends and investor demands swiftly. Further, in case of VCCs, ability to create multiple sub-funds under a single umbrella means that they can be used as a vehicle for both traditional funds and alternative funds, such as hedge funds, private equity funds, real estate funds, and infrastructure funds. The VCC structure offers efficiency in terms of distributions, redemptions and repatriation of profits. This flexibility allows the fund managers to employ different fund strategies, risk allocation, and asset classes.

Additionally, in Singapore, VCCs enjoy highly favourable tax treatments. Irrespective of whether the fund is structured as a standalone or an umbrella structure encompassing various sub-funds, they are regarded as a single taxable entity for income tax purposes, requiring only one corporate tax filing thereby simplifying compliance. 

In India, the need for VCC Model was first recognized by International Financial Services Centres Authority (‘IFSCA’) back in September 2020. Thereafter, the IFSCA set up two expert committees (Krishnan Committee and Sahoo Committee) to assess the viability of VCC models in India. The Expert Committees recommended that the VCC framework be introduced initially for foreign funds operating within the IFSC and proposed corresponding amendments to the International Financial Services Centres Authority Act, 2019 (‘IFSCA Act’). This regulated approach was meant to allow for testing VCC structures in the IFSC before potentially expanding it domestically. However, despite the recommendation, no specific regulations, amendments to the IFSCA Act, or any circulars / directives have been promulgated yet. 

VCC models, if implemented, will mark a shift from India’s traditional reliance on private trust structures for fund management. Several jurisdictions across the globe most notably Singapore, Mauritius, and the UAE have already adopted VCC‑type regimes, making them preferred jurisdictions for capital pooling and cross‑border investment. For Indian landscape, a new structure with untested consequences may initially deter investors, therefor making a clear and stable framework is essential for its success. Additionally, flexibilities such as permitting capital reduction and share issuance or buybacks without restrictive conditions will be central to ensuring competitiveness with global model

Indian investors may, at present, access investment opportunities in Singapore‑domiciled Variable Capital Company funds, thereby availing themselves of regulated and sophisticated overseas portfolio structures. Investors must, however, ensure strict adherence to the Foreign Exchange Management Act (‘FEMA’) Overseas Investment framework, including mandatory routing of remittances through an Authorised Dealer bank and compliance with all applicable reporting and tax obligations.

[The author is an Associate in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, Hyderabad]