Alternative Investment Fund Regulations

Narendra Kumar

18 Dec, 2020

Alternative investment AIFs included under this category are SME Funds, Venture Capital Funds, Social Venture Funds, and Infrastructure Funds

What is Alternative Investment fund?

Alternative Investment fund is a privately pooled investment fund, incorporated in India in the form of Trust, companies or limited liability partnership which is presently not covered, under the framework of any RBI Regulation, SEBI, IRDA etc. for a purpose of collecting funds, from Indian or foreign investors and investing them as per pre-decided policy for their benefits. As they are entirely differentiable, from the traditional forms of investment such as bonds, cash, property, listed stocks, mutual funds, insurance companies etc. They have basically regulated under the framework of SEBI (Alternative Investment Fund) Regulations, 2012. Some of its forms are Hedge Funds, Commodity Funds, Venture Capital Funds, Debt Funds, Private Equities, Infrastructure Funds etc.

How to get registered as an Alternative Investment Fund?

AIF is regulated by security exchange board of India. Alternative investment funds, whose main aim is to utilize investment opportunities. As per SEBI has issued guidelines for ALTERNATIVE INVESTMENT FUND, an applicant who is seeking to get registered as AIFs can apply in any of the three prescribed categories:

Category 1: Forms of AIFs included under this category are SME finance, Venture Capital Funds, Social Venture Funds, and Infrastructure Funds etc. These forms of AIFs get incentives from the government because they invest in such early stages ventures or start-ups, SME’s or other areas which are considered socially and economically desirable by the government and other regulators.

Category 2: Forms of AIFs included under this category are Private Equity Funds, Debt Funds etc.This category basically involves AIFs, which doesn’t fall under the other two respective categories. They did not engage in any leverage, other than to meet day to day operational requirements. These forms of the fund don’t receive any kind of special incentives or concessions from the government.

Category 3: AIFs covered under this category employ complex or diverse trading strategies and even include leverage also while investing in listed or unlisted derivatives. AIFs like hedge funds also, included in this category for making an investment in listed or unlisted derivatives.

Moreover, if any scheme of AIFs is launched under category 1& 2, it should be close-ended, means its tenure should be decided at the time of filling application itself and shall be for minimum three years. Its tenure can also be expanded up to two years but, subjected to the approval of two-thirds of the unitholders by the value of their investment in AIFs.But, if no consent is received from their side then AIFsshall be fully liquidated, within one year following the expiration of fund tenure or extended tenure. Whereas, in case of Category 3 it may be open-ended or close-ended. In the Year 2017, SEBI has Amended alternative investment funds regulations 2012.

In case of close-ended AIFs, units of funds can be listed on the stock exchange with a minimum tradable lot of Rupees One crore but, only after the closure of scheme or fund.

Procedure for the registration of AIF with SEBI: AIF Regulations has been made keeping in mind of the investment-friendly atmosphere in India. 

• As per the SEBI AIF regulation 2017 For AIF Registration firstly, the applicant must file an application in Form A, along with prescribed documents. It should be properly filled, signed, stamped and duly dated. This Application can be made online along with the fees of INR 100,000/- which can be payable only by way of bank draft in favor of “The Securities and Exchange Board of India” payable at Mumbai.
• On receipt of the application, the obligation is upon the SEBI, to reply to the applicant within 21 working days. There is no prescribed time period, in which registration is completed therefore it is advisable for the applicant to go through the eligibility criteria and such other detail which may help them to expedite the registration process
• After receiving the application for AIF registration if, SEBI is satisfied that all requirements required as per the regulations are compiled, then they may grant its approval and also intimate the same to the applicant.
• On the receipt of approval, the applicant must pay a registration fee of INR5,00,000 if it is not registered with SEBI as Venture Capital Fund and if it is then having to pay INR 1,00,000 as its registration fee. For complying this requirement, the applicant has to mention in its covering letter, whether they are registered with SEBI as Venture Capital fund or not, or they are carrying on any AIFs activity before applying or not, or they are applying for the new fund.
• After receiving the registration fees for Alternative investment fund registration, Certificate of registration will be issued by the SEBI to the concerned applicant in a time frame of 90-150 days.

After getting registered as AIFs, it’s the duty of AIFs to comply with the entire reporting requirement as specified under regulations. They have to keep themselves updated as per the circulars or guidelines issued by the department from time to time. Moreover, also has to intimate if any material changes occur in respect of information which has been already submitted to the department.

Enterslice is a legal technology Company, involved in providing a service of Alternate Investment Fund Registration. The applicant who is seeking to get registration service may contact us through email info@enterslice.com. Detail procedure described on our website www.enterslice.com