SEBI Issues Guidelines for AIFs for Declaration of First Close of Scheme

Nikhil Mogha

30 May, 2024

The Alternative Investment Fund or AIFs acts as a privately pooled investment vehicle wherein the funds collected from specified investors are invested in accordance with a pre-determined investment policy. They are different from conventional investments such as fixed-income securities or equities. SEBI regulates the Alternative Investment funds in India in accordance with the SEBI (AIF) Regulations 2012 which aim at regulating the activities of unregulated privately pooled investment undertaken through the Alternative Investment Route. The said regulation has undergone various amendments from the date of its effect; SEBI issued one such amendment on 15^th November 2022, which brings new provisions for the declaration of first close of schemes, calculation of tenure & change of sponsor or manager and change in control of sponsor or manager. Therefore, to provide more details on the said provisions, the SEBI has issued a circular “Guidelines for AIFs for declaration of first close, calculation of tenure & change of sponsor or manager or change in control of sponsor or manager” on 17^th November 2022 which is discussed in the later part of this article.

Timeline for declaration of First Close of schemes of AIFs

The regulation-12 (4) of the amended SEBI (AIF) regulation 2012 provides that the Alternative Investment Fund shall declare the first close of the scheme in the manner specified by SEBI from time to time. Henceforth, in relation to the declaration of first close of scheme, the following provisions are specified by the SEBI under the guidelines:

• The declaration of first close of scheme shall take place within 12 months from the date of communication by SEBI for taking the Private Placement Memorandum (PPM) of the scheme on record.
• In the case of open-ended schemes in Category III AIFs, the first close shall be the closing of their Initial Offer Period.
• The corpus of scheme at the time of declaration of first close of schemes shall not be less than the minimum corpus enumerated in the AIF regulation for the respective category or sub-category of AIF.
• The minimum requirement committed by the manager at the time of declaration of first close of scheme shall not be withdrawn or reduced after first close.
• In the existing scheme of Alternative Investment Funds, the AIFs who have not declared their first close of the scheme shall declare it within 12 months from the circular date, i.e. 17^th November 2022.
• In the existing scheme of Alternative Investment Funds, the AIFs have to submit updated PPM through a registered merchant banker along with a due diligence certificate and circulate such PPM to investors before declaring first close where the Private Placement Memorandum was taken before 12 months from the date of circular and there is no declaration of first close.
• The declaration of first close of LVF or Large value Fund for Accredited investor scheme shall take place within12 months from the date or whichever is later:
• Grant of registration certificate of AIF
• Date of filing PPM Scheme with SEBI
• The existing large-value funds shall declare their first close within 12 months from the circular date.

Payment of requisite fee in case of non-declaration: Moreover, if the first close of scheme is not declared within the timeline provided above, in that case, the AIF can file a fresh application for the launch of scheme in the manner prescribed under regulation by the payment of a requisite fee.  

Calculation of tenure for Close-ended Scheme of AIFs

The regulation-13 (4) of the amended SEBI (AIF) regulation 2012 provides that the manner of calculation and modification of the tenure for closed ended scheme of AIF may be specified by SEBI at such intervals. Henceforth, in relation to the tenure, the following provisions are specified by the SEBI under the guidelines:

• The tenure of the close ended scheme of Alternative Investment funds (AIF) shall be calculated from the date of declaring its first close.
• The AIF may modify the scheme’s tenure prior to the declaration of first close. Further, the investor may reduce or withdraw the commitment given to such a scheme before the declaration of first close.
• In existing schemes of AIFs, the AIF that declared there final close is allowed to calculate its tenure from the date of its final close.
• In the existing scheme of AIFs, the AIFs who have not declared their final close shall declare it in accordance with the timeline provided under the Private placement memorandum of the scheme. Further, the AIF or managers cannot extend the timeline provided under PPM.

Fee for change in control of manager or sponsor/change in manager or sponsor of AIFs

The regulation-20 (13) of the amended SEBI (AIF) regulation 2012 provides that the AIF shall take approval from the board before making any changes in manager or sponsor or change in control of the manager or sponsor and subject to the payment of requisite fee & conditions specified by SEBI at such intervals. Henceforth, in relation to change, the following provisions are specified by the SEBI under the guidelines:

• The fee levied in the case of a change in the sponsor or manager or a change in control of the sponsor or manager shall be equivalent to the registration fee applicable to the respective category or sub-category of AIF. Moreover, any fees paid in lieu of such change shall not be passed on to the investors in any way.
• If the change of manager or change in control of manager and change of sponsor or change in control of sponsor is proposed simultaneously, the fee levied shall be equivalent to a single registration fee.
• In case the applications are pending with SEBI till the date of this circular, the fee shall be applicable only on those applications where none of the schemes managed or sponsored by the manager or sponsor have declared their first close.
• Any application approved by SEBI before the date of this circular shall be valid for 6 months from its approval by SEBI.

Exemption for Fee: The fee shall not be levied in the following cases:

a. The manager is replacing or acquiring control of the sponsor.

b. The sponsors exit due to the existence of multiple accounts.

Time-Period for payment of fee: The fee shall be paid within 15 days from the date of change in manager or sponsor or change in control of manager or sponsor.

Conclusion

The guidelines on timeline for declaration of first close, calculation of tenure of close ended scheme and change in manager or sponsor or change in control of manager or sponsor shall come into force with immediate effect. The SEBI, through this circular, has made it mandatory that the AIF shall declare its first close of scheme within 12 months from the date of communication to SEBI about its PPM. Further, the tenure for the close ended scheme shall be calculated from the date of declaration of its first close. Moreover, any change in the manager or sponsor or change in the control of the manager or sponsor shall attract a fee equivalent to the registration fee of AIF.

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