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Alternative Investment Fund Registration

Alternative Investment Fund invest in startups and receive incentives Under SEBI Regulation.

  • Startup or early stage ventures or social ventures
  • SMEs
  • Infrastructure or other sectors
  • Areas which the government or regulators consider as socially or economically desirable
  • Venture capital funds,
  • SME Funds,
  • Social venture funds,
  • Infrastructure funds
  • Or as may be specified as AIF

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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. 1. Startup or early stage ventures or social ventures or
    2. 2. SMEs or
    3. 3. Infrastructure or other sectors or
    4. 4. Areas which the government or regulators consider as socially or economically desirable
    5. 5. Venture capital funds,
    6. 6. SME Funds,
    7. 7. Social venture funds,
    8. 8. Infrastructure funds
    9. 9. Or as may be specified as AIF
  • Category-II

    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.

Forms/Schedules

  • 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. 1. Pools  of  capital  or  in  fund  or  asset  or
    2. 2. Wealth or portfolio management or
    3. 3. In the business of buying, selling and dealing
    4. 4. of securities or
    5. 5. Other financial assets and
    6. 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.

Certificate Grant

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. 1. two and a half percent of the corpus or
    2. 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.

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