Alternative Investment Fund (AIF) Registration

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Overview of Alternative Investment Fund Registration

An Alternative Investment Fund (AIF) is a category of investment fund in India. Investors have the option of utilizing AIF for both investing and receiving advantages. It is a fund that invests in various asset classes besides bonds, stocks, and cash. AIF is crucial for maintaining transparency, credibility, and investor protection in India's alternative investment sector.

AIF is a group of privately pooled investment funds that invest in private equity, venture capital, hedge funds, managed funds, and more. For regulating the AIFs in India, SEBI has framed separate regulations namely the SEBI (Alternate Investment Fund) Regulations, 2012. Alternative investment fund registration makes sure that your AIF is registered seamlessly without any hassle.

What is an Alternative Investment Fund?

AIF is defined in Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012. The rules describe an Alternative Investment Fund (AIF) as an entity formed in India as an LLP, company, trust, or body corporate.

It is also a private pooled investment vehicle gathering funds from both Indian and foreign investors to invest according to a specific policy for the benefit of its investors.

Which Body Regulates AIF in India?

The body which regulates alternative investment funds in India is the Stock Exchange Board of India (SEBI). Under which the AIF is required to be registered before the commencement of operation of AIF.

Which Entities are not Falling under AIF?

As per the SEBI Regulations, 2012, the entities that do not fall under alternative investment function given under the sub-clause (b) of Regulation-2 discussed below for your better insight:

  • 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 include securitization trusts not established by fund managers and are regulated under a specific regulatory framework.
  • Funds managed by a securitization or reconstruction company registered under the SARFAESI Act, 2002.
  • Any other pool of funds that any other regulator in India directly regulates.

What are the Categories of Alternative Investment Funds?

SEBI has divided alternate investment funds into three categories for your better understanding discussed below such as:

Category-1 AIF

These funds are usually in the SMEs, start-ups and new economically feasible businesses with high growth potential. Investments in Category I AIFs include funds for small and medium enterprises, venture capital, infrastructure, social ventures, and other specified types of AIFs.

Private equity funds and debt funds that do not receive any special incentives or concessions from the government or other regulators are also encompassed.

Category-2 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-3 AIF

Under this category, those AIFs are registered, which require diverse or complex trading strategies. It may require a grip on the listed or unlisted investment derivatives.

This includes AIFs such as hedge funds, funds traded to make short-term returns, and open-ended funds, which require no specific incentives or concessions from the government or any other Regulator.

What are the Benefits of Investing in AIFs?

Investing in Alternative Investment Funds (AIFs) provides diversification, exposure to distinctive and high-growth assets, and the possibility of higher returns.

The following are the benefits of investing in AIF for your better insight:

1- Potential for Higher Return

The AIFs have the potential to give higher returns than other investment options. The huge pooled amount allows the fund managers enough space to prepare flexible plans for maximizing returns.

2- Low Volatility Rate

AIFs do not have a direct correlation with stock markets. The funds exhibit lower volatility compared to traditional equity investments. Therefore, it could be appropriate for cautious investors seeking stability.

3- Diversify Funds

These funds enable necessary diversification within an investment portfolio. They provide a buffer during times of financial turmoil or market fluctuations.

4- Customized Portfolio

Alternative investment funds provide a level of portfolio customization that is frequently not offered by conventional investment choices.

Investors have various options when it comes to selecting from a wide range of AIFs with varying risk-return profiles, strategies, and asset classes.

5- Tax Efficient

AIFs can offer tax advantages to investors as well. Investors in AIFs could potentially postpone taxes on capital gains until they decide to liquidate their investment in the fund. Investors can have more flexibility in managing their tax obligations with this option.

What is the Market Size of Alternative Investment Funds?

In India, alternative investments account for 12% of the total AUM (Asset Under Management), whereas worldwide, they account for 17%.

In March 2023, a report stated that the Alternative Investment Fund (AIF) is breathing new life into the real estate market, with expectations of reaching 1 trillion USD by 2030, growing at a rate of 18% CAGR.

How Does Alternative Investment Fund Make Money?

AIFs generate profits by increasing capital in private equity and venture capital, earning from real estate and infrastructure, and utilizing trading tactics of hedge funds. They also benefit from unique assets such as commodities and art and receive various fees such as management and performance fees.

AIFs can put money into debt and distressed assets, employing diversification as a way to reduce risk. Although they have the potential for high profits, they come with increased risks and typically demand long-term commitments.

General Eligibility Criteria for the AIF Registration

The SEBI shall consider the following criteria for the grant of an AIF registration certificate to an applicant, which have been divided into two categories, i.e. general criteria & specific criteria.

The general eligibility criteria for all business structures are mentioned below:

  • The applicant, its sponsors, and managers must be fit and proper.
  • The key investment team of the AIF must have adequate experience
  • 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 he has been refused registration by the Board in the past.

Specific Eligibility Criteria for AIF Registration

A separate section has been made to specify the specific eligibility criteria for AIF registration:

Company

If an applicant is a Company, then the MOA of the company should permit it to carry out activities as an AIF.

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 permitted to carry on activities as an AIF.

Document Required for Alternative Investment Fund Registration

There are the documents required for the alternative investment fund registration mentioned below:

  • Certificate of Registration or Incorporation of the applicant business or entity.
  • Partnership deed in the case of the AIF registration by the partnership registered under the LLP Act, 2008.
  • 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
  • MOA & AOA of the applicant entity.
  • Information regarding controlling entities, persons, key management personnel & key investment team, etc.
  • Any other information regarding the type of business entity and expansion plans, if any.
  • Copy of the placement memorandum of the applicant company.

Alternative Investment Fund Registration Process in India

In India, Alternative Investment Funds have gained popularity in the last ten years as a different option to diversify successful investment portfolios. Furthermore, even individual investors of smaller means can now invest in AIFs through the SIP option provided by mutual funds.

There are the processes to be followed for Alternative investment fund registration in India:

1. Application under Form-A

If an applicant desires to get registered as an AIF, then he has to make an application under Form-A under the SEBI (AIF) Regulations, 2012, along with a cover letter and other supporting Documents. In the cover letter, the applicant must state details such as:

  1. Whether it is registered with SEBI as a Venture Capital or not, and if yes, then provide details in that regard;
  2. If the applicant has undertaken activities of an AIF earlier then details relating to that must be provided;
  3. Details regarding the application for registration of a new fund.
  4. Prepare Bank Draft Payable to SEBI

After the completion of Form-A & cover letter, the applicant needs to get a bank draft for the Rs 100,000 application fee payable to SEBI, with details that can be included in the cover letter to SEBI.

2. Application Evaluation by SEBI

SEBI will carefully examine the application upon receipt if the AIF has satisfied all the required criteria for eligibility under the SEBI Regulations. This is crucial for SEBI to approve AIF registration.

When SEBI is satisfied with the criteria in its evaluation process, it will approve the AIF application and inform the AIF applicant directly.

3. Payment of Registration Amount to SEBI

Upon receiving an intimation from SEBI confirming the AIF's successful application, it must get the AIF ready to make the payment of the registration fee of Rs.5,00,000 is required to acquire AIF status in India.

One important point to note is that if an AIF is already registered in India as a venture capital fund with SEBI, it only needs to pay SEBI a fee of Rs.1,00,000 for re-registration. Upon payment of the applicable registration fees, SEBI will provide the candidate with the Certificate of enrolment' for an Alternative Investment Fund in India.

4. Grant of Certificate of Registration

After reviewing the application and receiving the registration fee, if SEBI is satisfied that the application fulfils all the requirements as specified in the regulations then SEBI will grant a CoR in Form-B. SEBI may impose such conditions as may be deemed appropriate.

Post Compliance After Alternative Investment Fund Registration

The post-compliances to be followed by the applicant after obtaining the alternative investment fund registration are as follows:

  • The alternative investment fund must comply with the reporting requirements stated by the SEBI from time to time.
  • The AIF needs to frequently monitor the SEBI website for any circulars, updates, or guidelines released periodically by SEBI regarding AIF operations.

The alternative investment fund has to inform SEBI of any material changes in the details that are already provided to it within a reasonable time.

Alternative Investment Fund Registration Fee

The fee structure prescribed for Alternative Investment Fund Registration is as follows:

  1. Application Fee- Rs. 1,00,000/- (Approx.)
  2. Registration Fee for Category I AIF (except Angel Funds)- Rs. 5,00,000/-
  3. Registration Fee for Category II AIF (except Angel Funds)- Rs. 10,00,000/-
  4. Registration Fee for Category III AIF (except Angel Funds)- Rs. 15,00,000/-
  5. Scheme for AIF other than Angel Funds- Rs. 1,00,000/-
  6. Re-registration Fee- Rs. 1,00,000/-(Approx)
  7. Registration Fee for Angel Funds- Rs. 2,00,000/-

Tenure of Alternative Investment Funds

The tenure of alternative investment funds based on the category:

  1. Category-I AIF- Minimum 3 years + 2 years extension.
  2. Category-II AIF- Minimum 3 years + 2 years extension.
  3. Category-III AIF- Minimum 3 years + 2 years extension (in case of closed-ended AIFs).

Timeline for AIF Registration

Normally, the applicant can expect a response from SEBI within 21 business days of submitting their application. The length of the AIF registration process, on the other hand, relies on how quickly the applicant meets the requirements.

Why Choose Enterslice for AIF Registration?

We, at Enterslice, guarantee strict compliance with SEBI regulations from our experts for AIF registration. We will take responsibility on your behalf from the filing of the application till the attainment of AIF registration. We will also take care of post-compliance requirements.

Here are the following advantages of choosing us such as:

1- Expertise

We have a team of experts to avoid the complexity of AIF registration and ensure compliance with SEBI (Securities and Exchange Board of India) regulations.

2- Regulatory Compliance

Our team stays updated on the most recent regulatory updates to ensure that your AIF meets all existing requirements. We assist in recognizing and handling possible regulatory risks linked to AIF operations.

3- Client-Centric

We customize our services to address individual client requirements, guaranteeing efficient solutions. They provide strong customer assistance to quickly resolve any inquiries or problems, improving the overall customer experience.

4- Post-registration

We help with continuous compliance and reporting obligations after registration, making sure your AIF stays in good standing. They provide consulting services for strategic planning and optimization of the AIF.

Frequently Asked Questions

AIF means privately pooled investment fund established or incorporated in India to collect funds from investors, whether Indian or Foreign, and invest it as per the specified investment policy for the benefit of the investor.

Angel Fund is a sub-category of venture capital fund under Category-I AIF which raises funds from angel investors and invests it per the provisions of SEBI (AIF) Regulations, 2012.

A certificate of registration of an AIF shall be valid till the AIF is wound up.

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.

No, a scheme for AIF shall have more than 1000 investors except for Angel funds which can have not more than 200 angel investors.

No, as the AIFs are privately pooled investment vehicles, they shall raise funds only through private placement by the issue of an information memorandum or placement.

Category I and II AIFs are close-ended whereas Category III AIFs may be open-ended or close-ended.

Yes, an AIF can change its category under registration, but only those AIFs can change who have not made any investments under the category in which they are registered.

The minimum capital required for AIF is Rs.1 Crore for investors. For employees, directors and fund managers, the limit is Rs.25 Lakh.

The AIFs usually target affluent investors with higher risk and more complex planning, whereas the MFs are appropriate for general investors seeking more stable portfolios.

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