The Securities and Exchange Board of
India (SEBI) has on May 21, 2012 notified the SEBI (Alternate
Investment Fund) Regulations, 2012 (AIF Regulations).
These regulations have replaced the SEBI
(Venture Capital Funds) Regulations, 1996 (VCF Regulations). However,
the existing venture capital funds will continue to be regulated by the
earlier norms till the existing fund or scheme managed by the fund is
wound up.
Existing funds not registered under the
VCF Regulations will not be allowed to float any new scheme without
registration under AIF Regulations. However, schemes floated by such
funds before coming into force of AIF Regulations, shall be allowed to
continue to be governed till maturity by the contractual terms.
Also, existing funds not registered
under the VCF Regulations, which seek registration but are not able to
comply with all provisions of AIF Regulations may seek exemption from
SEBI from strict compliance with the AIF Regulations.
All AIFs whether operating as Private
Equity Funds, Real Estate Funds, Hedge Funds, etc. are required to
register with SEBI under the AIF Regulations.
Some of the key features of the AIF Regulations are listed below:
Applicability of AIF Regulations
AIF Regulations are applicable to any
fund established or incorporated in India in the form of a trust or a
company or a LLP or a body corporate, which collects funds from
investors, whether Indian or foreigner for investing in accordance with a
defined investment policy.
Mutual funds under the SEBI (Mutual
Funds) Regulation, 1996 and SEBI (Collective Investment Schemes)
Regulations, 1999 are not covered under the AIF Regulations.
Excluded Funds
Family trust, ESOP trusts, employee
welfare trusts, collective investment schemes, holding companies etc.
are expressly excluded.
Certificate of Registration from SEBI
No entity or person shall act as an AIF
unless it has obtained a certificate of registration from SEBI. Any
entity, which fails to make an application for grant of, a certificate
within the specified period shall cease to carry on any activity as an
AIF.
Categories of Fund
An application can be made to SEBI for registration as an AIF under one of the following 3 categories:
Category I AIF – those AIFs for which certain incentives or concessions might be considered by SEBI or Government of India or other regulators in India; and which shall include Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds and such other Alternative Investment Funds as may be specified.
Category II AIF – those AIFs for which no specific incentives or concessions are given by the government or any other Regulator; and which shall include Private Equity Funds, Debt Funds, Fund of Funds and such other funds that are not classified as category I or III. These funds shall be close ended, shall not engage in leverage and have no other investment restrictions.
Category III AIF – those AIFs including hedge funds, which trade with a view to make short, term returns; which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. These funds can be open ended or close ended.
Investment in AIF
- AIF may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units;
- Each scheme of the AIF shall have corpus of atleast Rs. 20 crore.
- AIF shall not accept from an investor, an investment of value less than Rs. 1 crore
- The Manager or Sponsor shall have a continuing interest in the AIF of not less than two and half percent of the corpus or Rs. 5 crore, whichever is lower
- The Manager or Sponsor shall disclose their investment in the Alternative Investment Fund to the investors of the AIF;
- No scheme of the AIF shall have more than 1000 investors;
- The AIF shall not solicit or collect funds except by way of private placement.
There are several other features
mentioned in the AIF Regulations such as investment strategy, disclosure
of periodic information to investors, valuation procedure, audit of
fund etc.
This change in the regime of funds will require amendment to exchange control laws and various SEBI Regulations.
