Alternative Investment Fund Registration Under SEBI Regulation
Alternative Investment Fund is a fund established or an entity incorporated in India by way of company or trust or a limited liability partnership or such other form of a body corporate which, is engaged in the collection of funds from investors. It is basically a privately pooled vehicle to collect fund.
According to the applicable defined policy for the benefit of its investor, the AIF collects fund from Indian or foreign. AIF is governed by SEBI- Alternative Investment Fund 2012 Act.
Following acts are not applicable to an AIF:
- The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,
- Securities and Exchange Board of India (Collective Investment Schemes)
- Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
However, ESOP, Family trusts, gratuity trust, employer welfare, SPV, such other RBI regulated entities as specified by it is not covered under AIF.
What are the Preconditions to Obtain Alternative Investment Fund Registration?
- New registration
The new entities shall obtain Alternative Investment Fund Registration before collecting any borrowing from the board.
- Already existing Entities
They are required to obtain Alternative Investment Fund Registration within 6 months from the commencement of the Act. However, the maximum extension of 12 months can be given by the board.
In the case where such an entity does not have any plans to raise monies further, such entities can skip the registration, by submitting the information about present ongoing commitments in the requisite format to the Board.
- For Venture Capital
The applicable rules and regulation for such already existing venture capital entities shall be SEBI (venture capital Funds) Regulation 1996.
The venture capital may seek re-registration by taking approval of 2/3 rd investors.
Note that ―Board means the Securities and Exchange Board of India established under Section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
What are the types or categories of the Alternative Investment Fund Registration?
- Category I
It consists of investors which usually invest in the following:
- 1. Startup or early stage ventures or social ventures or
- 2. SMEs or
- 3. Infrastructure or other sectors or
- 4. Areas which the government or regulators consider as socially or economically desirable
- 5. Venture capital funds,
- 6. SME Funds,
- 7. Social venture funds,
- 8. Infrastructure funds
- 9. Or as may be specified as AIF
Category II consists of the AIF which do not fall in any of the Category I and III and at the same time do not leverage or borrowing except for operational requirements and in cases where it is permitted in these regulations.
- Category III
It has complex trading strategies and may employ leverage and may include through investment in listed or unlisted derivatives.
Such investments target for short-term returns includes generally open-ended investments, no government incentives are provided.
- Form A is required to be filled for all category specified in Schedule –I.
- For Fees for submitting the Form A (Non- refundable) is specified in Schedule- II (part-A).
- The manner of paying specified in Schedule II (part-B).
Powers of Board
The Board has the power to issue the directions in respect of transfers of the records, documents or securities or disposal of investments relating to its activities as an Alternative Investment Fund registration in the interest of the investors.
The Board may appoint any person to take charge of records, documents, securities in order to protect the interests of investors. It also has the right to this purpose, to determine the terms and conditions of such an appointment.
Criteria for checks by Board
- Agreement check: The Board checks the applicant’s MOA, partnership Deed, Trust deed as the case may be.
- Applicable rules check: At the same time it also checks that whether the regulating law permits to engage in such activity or not is also checked. At the same time, it is also checked if it is eligible for making an invitation to the public to subscribe to the securities. The registration certificates such other related documents are checked.
- Management check: It is also verified that the required applicant or the sponsor along with the Manager(s) are fit and fulfills the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
- Experience Requirement check: The key investment team of the Manager of Alternative Investment Fund should have adequate experience, say at least one of the key personnel must not have less than five years experience in advising or managing the following:
- 1. Pools of capital or in fund or asset or
- 2. Wealth or portfolio management or
- 3. In the business of buying, selling and dealing
- 4. of securities or
- 5. Other financial assets and
- 6. has relevant professional qualification;
- Infrastructure: The Manager or Sponsor must have adequate infrastructure and manpower in order to effectively discharge its activities;
- Business Description: The detailed description by the applicant must be done at the time of Alternative Investment Fund Registration about the investment objective, the targeted investors, proposed corpus, investment style or strategy and proposed tenure of the fund or scheme;
- Prior rejection if any: In case the applicant or any entity established by the Sponsor or Manager has earlier been refused Alternative Investment Fund registration by the Board, such fact with the reason of rejection must be stated.
After scrutiny and submission of fees as prescribed, the registration certificate will be granted and it can be granted with certain terms and conditions.
Can monies be accepted after in principle approval?
No, in cases wherein an AIF which has obtained in principle approval cannot accept any monies till registration under applicable rules of this regulation has been granted, however, it can take up the commitments from investors.
General Conditions of a Certificate Issued
- The Alternative Investment Fund is required to obey all the applicable provisions of the Act and regulations.
- The Alternative Investment Fund shall not carry on any other activity other than permitted activities.
- In case of any change in the information or particulars previously submitted to the Board, the (AIF) Alternative Investment Fund shall forthwith inform the Board in writing. Also in cases wherein the information provided is false or misleading in any material particular or if there is any material change in the information already submitted, it must be informed and applied for correction.
Can one change the category of AIF after obtaining the registration certificate in the one category?
An Alternative Investment Fund which has been granted registration under a particular category cannot change its category subsequent to registration, except with the approval of the Board.
- The (AIF)Alternative Investment Fund is allowed to raise the funds from any investor which could be either an Indian, foreign or non-resident Indians through the issuance of such units.
- The scheme of Alternative Investment Fund shall have a collection of at least twenty crore rupees.
- The AIF must not accept an investment of value less than one crore rupees from an investor. However, in the case of the investors being employees or directors of the Alternative Investment Fund or employees or directors of the Manager, can provide an investment of the value minimum twenty-five lakh rupees.
- The Manager or Sponsor must have a continuing interest in the Alternative Investment. However, it should not be in way of fund of whichever is lower of the following:
- 1. two and a half percent of the corpus or
- 2. five crore rupees,
- Note that the form of investment in the Alternative Investment Fund and such interest should not anytime be waiving the management fees.
- In case of the Category III AIF, the continuing interest should not be not less than five percent of the corpus or ten crore rupees, whichever is lower.
- The disclosure of the Manager or Sponsor of their investment in the Alternative Investment Fund to the investors of the Alternative Investment Fund;
- Maximum investors in any scheme of the Alternative Investment Fund shall not be more than one thousand investors
- Only in case of the Private placement the fund shall not solicit or collect funds.
How AIF raises the fund?
The AIF is raised through the issuance of the Placement Memorandum, which is nothing but raising the funds through private placement by the issue of information memorandum or placement memorandum.
What is all the information mentioned in the Placement memorandum or the information memorandum?
The following information is required to be furnished in Placement memorandum or information memorandum
- All material information about the Alternative Investment Fund and the Manager,
- Background of key investment team of the Manager,
- targeted investors,
- fees and all other expenses to be charged,
- tenure of the Alternative Investment Fund or scheme,
- key service providers,
- conflict of interest and procedures,
- disciplinary history,
- the terms and conditions on which the Manager offers investment services,
- it's affiliations with other intermediaries,
- conditions or limits on redemption,
- investment strategy,
- risk management tools and parameters employed,
- the manner of winding up of the Alternative Investment Fund or
- The scheme and such other information which could be important for the investor so that an informed decision can be reached by the investor so as to invest in the Alternative Investment Fund or not.
What is the Tenure of such investments?
- Category I and Category II Alternative Investment Fund should be close-ended and the tenure of fund or scheme as the case may be should be mentioned at the time of application pursuant to the applicable rules of this regulation.
- Minimum tenure of three years should be there in case of the Category I and II Alternative Investment Fund or schemes launched by such funds.
- Category III AIF can be open-ended or close-ended.
- However, the extension of the tenure of the close-ended Alternative Investment Fund may be allowed up to two years after the approval of two-thirds of the holders.
Note that in case of expiration of fund tenure the AIF is required to fully liquidate within one year following the expiration of the fund tenure or extended tenure.
The expert team of Enterslice will help you and provide end to end solution with regard to establishment of AIF including after registration compliances, to know more or learn more and contact.