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Alternative Investment FundsSEBI (Alternative Investment Funds) Regulations, 2012AIF Regulations are applicable to all privately pooled investment vehicles:Exemption:mutual funds,collective investment schemes, family trusts, ESOP Trusts, employee welfare trusts, holding companies,funds managed by securitization companies or asset reconstruction companies, other special purpose vehicles not established by fund managers including securitization trusts or any such pool of funds which is directly regulated by any other regulator in IndiaCategories of AIFs based on investment philosophy(a) Venture Capital Funds: These funds will primarily invest in unlisted securities of start ups, emerging or early stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property rights based activities or a new business model.(b) Hedge Funds: Hedge Funds will employ diverse or complex trading strategies and invests and trades in securities having diverse risks or complex products, including listed and unlisted derivatives.(c) Private Equity (PE) Funds: PE funds will invest primarily in equity or equity linked instruments or partnership interests of investee companies.(d) Infrastructure Funds: These funds will primarily invest in unlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or special purpose vehicles engaged in or formed for, the purpose of operating or holding infrastructure projects.(e) Debt Funds: These funds will primarily make investments in debt or debt securities of listed or unlisted investee companies.(f) Small and medium enterprises (SME) Funds: These funds will invest primarily in unlisted securities of investee companies which are SMEs or securities of those SMEs which are listed or proposed to be listed on a SME exchange or SME segment of an exchange.(g) Social Venture Funds: These funds will invest primarily in securities or units of social ventures and which satisfy social performance norms laid down by the fund and whose investors may agree to receive restricted or muted returns.
Categories- for registration with SEBICategory - IFunds which invest in start-up or early stage ventures social venturesSMEsInfrastructureother sectors or areas which the government or regulators consider as socially or economically desirable and shall include Venture Capital Funds, SME Funds, Social Venture Funds and Infrastructure Funds andsuch other AIF as may be specified. Such funds formed as a trust or a company will be construed as a venture capital company or venture capital fund, as specified under Section 10 (23FB) of the Income Tax Act, 1961.Category - IIThis is the residual category and is for those funds which cannot be classified either as Category I or III and which do not undertake leverage or borrowing, other than to meet day to day operational requirements and as permitted under these regulations. This category will include PE Funds or Debt Funds for which no specific incentives or concessions are given by the government or any other regulators.Category - III Funds in this category would adopt diverse or complex trading strategies and may employ leverage (including through investment in listed/ unlisted derivatives). This category will include Hedge Funds or funds which trade with a view to make short term returns or such other funds which are open-ended and for which no specific incentives or concessions are given by the government or any other regulators.Registration RulesAIFs shall seek registration in one of the categories mentioned and in case of Category I AIF, in one of the subcategories thereof. An AIF which has been granted registration under a particular category cannot change its category subsequent to registration, except with the approval of SEBI.
8PROCEDUREFORREGISTRATIONapplySee requirementsvalidity Certificate of registration to be valid till the AIF is wound up. Board to consider all the requirements laid down in AIF Regulations for the purpose of grant of certificate Application in Form A Accompanied by non-refundable application fee as specified in Part A In the manner as in Part BChange in control change in control within the meaning of Reg 2 (1) (e) ofSEBI (SAST) Regulations, 2011 control includes the right to appoint majority of thedirectors or to control the management or policy decisions in any other case, change in the controlling interest orchange in legal form controlling interest means an interest, whether direct or indirect, to the extent of more than fifty percent of voting rights or interestTherefore, the Regulations are very stringent not to allow controlling interest to be exercised unless 50% interest is therefeaturesThe fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units.Investors in AIF Each scheme of AIF shall have minimum corpus of INR 200 million ; Minimum investment ticket size from a single investor is INR 10 million. However, for investors who are employees or directors of AIF / Manager minimum ticket size would be INR 2.50 million; Investment into AIF would be only by way of private placement by issue of information memorandum or placement memorandum; AIF can launch schemes subject to filing of placement memorandum with SEBI 30 days prior to launch of the scheme; and No material alteration to the fund strategy can be made unless consent of at least 2/3 of unit holders by value of their investment is obtained.
Therefore, an AIF can invest even in LLP13Minimum interestListing15InvestmentAIF shall not invest in associates except with the approval of 75% of investors by value of their investment in the Alternative Investment Fund. AIF shall not invest in associates except with the approval of 75% of investors by value of their investment in the Alternative Investment Fund.
P L AC E M E N T M E M O R A N D U M[R EG U L AT I O N 11]
Funds to be raised by issue of Information Memorandum/ Placement IM to contain information, the key being: Material information about AIF and Manager Background of key investment team of manager Tenure of AIF or scheme Targeted investors Investment strategy Risk management tools and parameters employed Conflict of interest and procedures to identify and address them Manner of winding up of the Alternative Investment Fund or the schemeThe points so covered in the AIF Regulations are only inclusive in nature. AIFs to share other relevant information as required to help investors take an informed decision. The procedure contemplated here, is similar to that of public offering of equity shares. AIFs may launch schemes subject to filing of PM.PM to be filed with SEBI atleast 30 days before the launch of the scheme along with the fees prescribed in Second Schedule Scheme Fees is Rs. 1 lakh Payment of scheme fees not applicable for launch of first schemeExisting FundsExisting VCFs will be permitted to continue and shall be governed by the VCF Regulations till such fund or scheme managed by the fund is wound up.VCFs will not be permitted to raise any fresh funds after notification of these regulationsExisting funds (falling within the definition of an AIF) not registered with SEBI may continue to operate for 6 months from the date of commencement of the AIF Regulations
INVESTMENTCONDITIONSFOR16]CATEGORY 1[REGULATION Shall invest in VCU or SPV or LLPs or other units of AIFs May invest in units of Category I AIFs of same sub-category Shall not borrow funds or engage in any leverage except: For meeting temporary funding requirements: Not more than 30 days Not more than 4 occasions in a year Not more than 10% of corpus Therefore, Category I can fund in another fund tooCATEGORYI-SECTORALCAPS[REGULATION16]shares or equity linked instrumentsVCFS Additional conditions for VCFs- same as VCF Regulations two-thirds/66.67% of the corpus shall be invested in unlisted equity Not more than 1/3rd of corpus in: IPO of VCU Debt or dent instrument in which investment already made by way of equity or contribution towards partnership interests Preferential allotment of equity shares of listed company- lock in period of 1 year Equity shares of a listed financially weak company or sick industrialcompany SPVCONTD.SMEsInvest atleast 75% of corpus in unlisted securities or partnerships of VCUs or listed or proposed to be listed SMEsSuch funds may enter into an agreement with Merchant Banker to subscribe to unsubscribed portion of issueSuch funds exempt from Regulations 3 and 3A of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in case of investment in companies listed on SME exchange subject to conditions prescribed.CONTD.mutedtheirSocial Venture FundsAtleast 75% of corpus in unlisted securities or partnership interest of social venturesMay accept grants, subject to limit provided aboveMay give grants to social ventures, subject to disclosure in IMMay accept returns for investorsInfra fundCONTD.Atleast75% ofcorpus inpartnership interest of ventureinvolved in operating, developingmay alsoinvest insecurities of investee companiesinvolved in operating, developingCATEGORYII-SECTORALCAPS[REGULATION17]borrow funds,any leveragewith Merchant Banker toportion of issueExempt from Regulations 3 and 3A from Insider Trading Regulations in case of investment in companies listed on SME exchange subject to conditions prescribed.May engage in hedging, subject to guidelines specified by SEBIMay enter into an agreement subscribe to unsubscribedShall notor engage inexcept-For meeting temporary fund requirements For not more than 30 days, not more than4 occasions in a year, not more than10% of the corpusInvest p