An Overview of Alternate Investment Fund Registration An Alternate Investment Fund (AIF) is a privately pooled investment vehicle that is established or incorporated as a trust or a company or a Limited Liability Partnership (LLP) or a body corporate to invest funds in different forms of companies and start-ups. AIF as an investment vehicle collects funds from investors both Indian as well as Foreigners and invests it in accordance with the prevalent investment policy for the benefit of the investors. AIFs are not governed by the SEBI (Mutual Funds) Regulations, 1996 or SEBI (Collective Investment Schemes) Regulations, 1999 or by any other regulations of SEBI formulated to regulate the fund management activities. For regulating the AIFs in India, SEBI has framed separate regulations namely the SEBI (Alternate Investment Fund) Regulations, 2012. SEBI (AIF) Regulation, 2012 is a set of regulations that regulate pooled investment funds such as real state, private equity and hedge funds in India and it also brings unregistered funds under the ambit of the law. Any person willing to start an AIF has to register with SEBI in accordance with the SEBI (AIF) Regulations, 2012 as amended from time to time. What are the different categories of Alternative Investment Funds? As per sub-regulation 4 of Regulation 3, there are three categories of AIFs under which an applicant can seek registration. These categories are as follows: Category I AIF are those AIFs that invest in the following: start-ups early stage ventures social ventures SMEs infrastructures any other sector or area which is considered socially or economically desirable by the government or regulators and includes venture capital funds, SME funds, social impact funds, infrastructure funds, special situation funds, and any other AIF as may be prescribed. such as private equity funds or debt funds on which no specific incentives or concessions are provided by the government or any other regulator are also included. Category II AIF AIFs that do not fall under Category I and III and where no leverage or borrowing is undertaken except for day-to-day operational activities as permitted under the regulations are registered under this category. This category of AIF includes private equity or debt funds in which no incentives or concessions are given by the government or other regulators. Category III AIF Under this category, those AIFs are registered which require diverse or complex trading strategies and it may require leverage including investment in listed or unlisted derivatives. This includes AIFs such as hedge funds, funds that are traded to make short-term returns and open-ended funds which require no specific incentives or concessions given by the government or any other Regulator. What is not considered an Alternate Investment Fund? As per the proviso to sub-clause (b) of Regulation 2, the following shall not be considered as AIFs: Family trusts ESOPs under SEBI (Share Based Employee Benefits) Regulations, 2014 or Companies Act, 2013 Employee welfare trusts or gratuity trusts for employees Holding companies Special Purpose Vehicles including securitization trusts which are not established by fund managers and are regulated under a specific regulatory framework Funds managed by a securitization company or reconstruction company registered under the SARFAESI Act, 2002 Any other pool of funds that are directly regulated by any other regulator in India. What are the eligibility criteria for Registering as an Alternate Investment Fund in India? The SEBI shall consider the following criteria for the grant of a registration certificate to an applicant: Specific Eligibility Criteria for different business structure: Company If an applicant is a Company, then the memorandum of association of the company should permit it to carry out activities as an AIF. On the other hand, the MOA should prohibit the applicant from making an application to the public to subscribe to its securities. Trust If an applicant is a Trust, then the Trust deed should permit it to carry out activities as an AIF. Further, the trust deed should be duly registered as per the Registration Act of 1908 and should prohibit the applicant from making an application to the public to subscribe to its securities. LLP If an applicant is an LLP, then the partnership deed of the LLP should permit it to carry out activities as an AIF. The partnership should be duly incorporated and the partnership deed should be duly registered under the LLP Act, 2008. Further, the partnership deed should specifically prohibit the applicant from making an application to the public to subscribe to its securities. Body Corporate If the applicant is a body corporate then it should be incorporated under the laws of the Central or State Government and should also be permitted to carry on activities as an AIF. General Eligibility Criteria for all business structures: The applicant, its sponsors, and managers must be fit and proper. The key investment team of the AIF must have adequate experience and at least one key personnel should have a professional qualification in finance, accounting, business management, commerce, economies, capital market or banking. The applicant must have the necessary infrastructure and manpower to effectively discharge its activities. The applicant must clearly describe its investment objectives, target investors, proposed corpus, strategy and proposed tenure of fund or scheme at the time of registration. The applicant must also state if it has been refused registration by the Board in the past. What are the necessary papers required for Alternate Investment Fund Registration? The necessary papers required for AIF Registration are as follows: Duly filled, signed, and stamped Application Form-A along with the supporting necessary papers. Duly signed and stamped undertaking from the authorized signatory. Proof of Incorporation Address of the registered office Details of shareholders and partners Details of Investment Manager, Sponsors, and trustees of the AIF Financial Information of the Investment manager or sponsor of the AIF Private Placement memorandum Information regarding controlling entities, persons, key management personnel and key investment team, etc. Any other information regarding the type of business entity and expansion plans, if any. What is the process for Alternate Investment Fund Registration? Application under Form-A If an applicant desires to get registered as an AIF, then it has to make an application under Form-A under the SEBI (AIF) Regulations, 2012 along with a cover letter and other supporting necessary papers. In the cover letter, the applicant must state details such as i) whether it is registered with SEBI as a Venture Capital or not, and if yes, then provide details in that regard; ii) If the applicant has undertaken activities of an AIF earlier then details relating to that must be provided; iii) details regarding application for registration of a new fund. Ensure all SEBI Compliance The pace of AIF registration depends upon the applicant. If the applicant complies with all the requirements on time, then the process of registration will be hassle-free. For expediting the registration process, an applicant must go through the SEBI (AIF) Regulations, 2012. Review of Application by SEBI After the applicant has submitted the application to SEBI, SEBI will review the application and respond within 21 days. SEBI may consider all the requirements as specified in the SEBI (AIF) Regulation, 2012 for the purpose of grant of registration. SEBI may while reviewing the application, require the applicant to furnish any other information as may be required for the grant of a registration certificate. If required, SEBI may also ask the applicant or the manager, or the sponsor to appear before SEBI for personal representation. Payment of Registration Fee For payment of the Registration fee, the applicant must fill out the online application as per the guidelines laid down by SEBI. The applicant has to submit duly filled Form-A along with the application fee of Rs. 1,00,000/- by way of bank draft in favor of SEBI payable at Mumbai. Grant of Certificate of Registration After reviewing the application and receiving the registration fee, if SEBI is satisfied that the application fulfills all the requirements as specified in the regulations then SEBI will grant a certificate of registration in Form-B. SEBI may impose such conditions as may be deemed appropriate. What is the process for obtaining Online Alternate Investment Funds Registration? The applicant has to visit the website siportal.sebi.gov.in and fill out the application form for grant of registration as an AIF. A login id of the applicant will be generated once the application for registration as an AIF is received and the login id and password are sent to the applicant automatically. After receiving the login-id, the applicant has to fill up the details by clicking "Fresh Registration" under AIF and pay the requisite fee of Rs. 1,00,000/- along with GST at the rate of 18% either via online mode on the portal itself or via bank draft drawn in favor of SEBI payable at Mumbai. The applicant is also required to submit details as specified under the First Schedule of SEBI (AIF) Regulations, 2012 along with other information as specified. Details in various fields are to be provided by the applicant on the SI Portal and various necessary papers are to be uploaded by the applicant on the SI Portal. After filling all the details, the applicant has to submit the online application form. The applicant can keep a track of the application status by using the application number allotted. For ease in processing the registration, the applicant is required to furnish all the necessary papers in physical form also. What is the fee structure for Alternate Investment Fund Registration? The second Schedule of the SEBI (AIF) Regulations, 2012 prescribes the amount to be paid as registration fees. The fee prescribed is as follows: Particulars Amount Application Fee Rs. 1,00,000/- Registration Fee for Category I AIF (except Angel Funds) Rs. 5,00,000/- Registration Fee for Category II AIF (except Angel Funds) Rs. 10,00,000/- Registration Fee for Category III AIF (except Angel Funds) Rs. 15,00,000/- Scheme for AIF other than Angel Funds Rs. 1,00,000/- Re-registration Fee Rs. 1,00,000/- Registration Fee for Angel Funds Rs. 2,00,000/- What is the tenure for Alternate Investment Fund Registration is granted? Category Tenure Category I AIF Minimum 3 years + 2 years extension Category II AIF Minimum 3 years + 2 years extension Category III AIF Minimum 3 years + 2 years extension (in case of closed-ended AIFs) An exception to above tenure are Close-ended AIFs having large value funds for accredited investors who may be allowed to extend their tenure beyond 10 years subject to the terms and conditions as specified by SEBI from time to time. Frequently Asked Questions What is an Alternate Investment Fund? AIF means privately pooled investment fund established or incorporated in India to collect funds from investors whether Indian or Foreign and invests it as per the specified investment policy for the benefit of the investor. What is an Angel Fund? Angel Fund is a sub-category of Venture Capital Fund under Category-I AIF which raises funds from angel investors and invests it in accordance with the provisions of SEBI (AIF) Regulations, 2012. What is the validity of the certificate of registration of an AIF? As per Sub-regulation 7 of Regulation 3, a certificate of registration of an AIF shall be valid till the AIF is wound up. Who is a Sponsor of the AIF? As per Regulation 2(1) (w) a 'sponsor' is a person who sets up the AIF and it includes promoters in the case of a company and designated partners in the case of an LLP. What is the limit specified for the number of investors under the SEBI (AIF) Regulations, 2012? No scheme for AIF shall have more than 1000 investors except for Angel funds which can have not more than 200 angel investors. Can AIF make an invitation to the public to subscribe to its securities? No. As AIFs are privately pooled investment vehicles they shall raise funds only through private placement by the issue of an information memorandum or placement memorandum. Further, an AIF's AOA/trust deed/partnership prohibits it from making an invitation to the public to subscribe to its securities. Can an AIF opt to be close-ended or open-ended? No. As per Regulation 13(1) Category I and II AIFs are close-ended and as per Regulation, 13(3) Category III AIFs may be open-ended or close-ended. Can an AIF change its category pursuant to registration? Yes an AIF can change its category pursuant to registration but only those AIFs can change who have not made any investments under the category in which they are registered. If an AIF has received commitments or raised funds before the application for change in category is made, then the AIF is required to send letters/emails to all the investors giving them the option to withdraw their commitments or funds raised without any penalties or charges. If any fee was collected from the investors seeking to withdraw commitments/ funds then the same shall be returned to them. Partial withdrawal is allowed only if it satisfies the minimum investment amount specified under the SEBI (AIF) Regulations, 2012. No investments should be made by the AIF till the deployment of funds takes place as per the scheme other than liquid funds and bank deposits, till the approval for change in category is granted by SEBI.