SEBI Notifies Regulations on Alternative Investment Funds

Last year, SEBI had issued a concept
paper
on comprehensive regulation for alternative investment funds (AIFs). The
proposal to set up a separate framework was approved by SEBI at its board
meeting
held last month. This proposal has now been operationalised by the
promulgation of the SEBI
(Alternative Investment Funds) Regulations, 2012
, which were notified
yesterday.
These new regulations are expected to
affect private equity, venture capital and other investment firms by
introducing a registration requirement with SEBI. An AIF is defined quite
broadly in Reg. 2(b) to mean any “fund established or incorporated in India”
which is a “privately pooled investment vehicle which collects funds from
investors, whether Indian or foreign, for investing it in accordance with a
defined investment policy for the benefit of its investors”. A number of
specific investment funds such as mutual funds, collective investment schemes,
family trusts, ESOP trusts, etc. are expressly excluded.

There are three categories of registration depending on the nature of the fund and the risk to investors (based on leverage, complexity in trading strategies, etc.). Limitations are also placed on the manner in which the AIFs are operated. A summary is contained in the notification link above, and a previous discussion of the regulations’ impact is contained in the first two links above (to previous posts on this Blog).

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

5 comments

  • Thanks for this post and the link. Does this mean the eligibility criteria for the registration is Rs. 20 crores? what happens if the corpus is lesser, no registration required? (like the erstwhile Rs. 5 crore threshold)

  • Dear Umakanth, Though the definition suggests that the pooling of funds would be from the investors, is it possible to have an AIF registered with only one investor so long as the minimum corpus amount of AIF is maintained? Regards. Raju.

  • As regards question 1 —

    Existing funds which are not able to comply with conditions specified under the Regulations, can make an application to SEBI seeking relaxation of the Regulations and SEBI can grant exemptions or issue instructions as may be deemed appropriate in this regard.

    As regards question 2 —

    It is possible to have one investor. There is no prohibition. There is a restriction on maximum number of investors, but no requirement as regards minimum investors. Having one investor, will be "unusual" and one can expect queries from SEBI in this regard. This could delay the registration process.

  • Thanks for the post. Can one register a new fund under Category II and invest the pool of money into varied asset classes including real estate etc. If so, what would be the rules and regulations.

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