Hedge funds in New York and London fretting about tough times have one consolation: at least they’re not in India.

There, a tax of about a third of income from investments — versus no levy for mutual fund picks held for at least a year — has kept assets managed by hedge funds in the country well below $1 billion and forced money managers to be creative. Take Andrew Holland, the man behind one of India’s first onshore hedge funds, who markets his long-short stock vehicle as an alternative to bonds.

“I can’t compete with equities with that tax,” Holland, who manages about Rs 8 billion ($124 million) for Avendus Capital, said. “It’s a big disadvantage,” he said of the levy. “We’d like to have a level-playing field.”

Hedge funds in India got a relatively late start, with regulators allowing such investments for the first time in 2012. Unlike Asian financial hubs such as Singapore and Hong Kong, which have thriving hedge fund industries, thanks to regulations that are more consistent with global peers, India has taken a tougher stance. The country’s tax and financial authorities still see hedge funds as “not investing for the long term,” says Holland, who’s lived in India for two decades.

“But actually you’re providing liquidity for the market,” Holland said. “And also you are investing, because it’s not just pure speculation.”

D S Malik, a finance ministry spokesman, said he wouldn’t like to comment on the matter. Meenakshi Goswami, official spokesperson at the Central Board of Direct Taxes, didn’t answer calls to her office and mobile phones.

While India’s stock market is approaching $2 trillion in market value, domestic hedge funds oversaw just $603 million as of May, according to Eurekahedge Pte. Contrast that with the country’s mutual funds, which manage the equivalent of $284 billion, according to data compiled by Bloomberg. Worldwide, hedge funds manage more than $3 trillion in assets.