What does Registration for the Alternative Investment Fund (AIF) mean?
AIF Registration is a trouble-free procedure to set up Angle Fund, VC, etc. in India.
Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 applies to a set of regulations adopted in 2012 by the Indian Securities and Exchange Board (SEBI) to govern pooled investment funds in India, such as real estate, private equity, and hedge funds.To order to bring unregistered funds under the law, these rules were adopted.
It applies to a fund set up in the form of a trust, a corporation, a limited liability partnership or a corporate body.
- A private investment vehicle that collects funds from investors for the benefit of investors, whether Indian or international, in accordance with a given investment policy.
- Not bound by the Regulations of the Securities and Exchange Board of India (Mutual Funds), 1996, the Regulations of the Securities and Exchange Board of India (Collective Investment Schemes), 1999 or any other regulations of the Board governing fund management activities.
Alternative Investment Funds (AIF) is grouped into three groups:
- Category I
Investing in start-ups and obtaining benefits from SEBI, government or other regulatory agencies.
- Category II
Such types of funds are allowed to invest anywhere in any mix, but are not permitted to borrow except for day-to-day operations. This covers funds like private equity and debt funds.
- Category III
It also involves funds making short-term investments and selling them like hedge funds.
For SEBI rules, so that the Alternative Investment Fund is not regarded as the following:
- Family trusts formed for the benefit of ' relatives ' as specified by the Companies Act of 1956;
- ESOP Trusts formed under the Indian Securities and Exchange Board (Employee Stock Option Scheme and Employee Stock Purchase Scheme), 1999 Guidelines or as allowed under the 1956 Company Act;
- Employee welfare trusts or gratuitous trusts set up for employees ' benefit;
- 'Holding companies' within the scope of Section 4 of the Companies Act, 1956;
- Other special purpose funds not set up by fund managers, like securitization trusts, governed under a different regulatory framework;;
- Funds controlled by a securitization or reconstruction company registered with the Reserve Bank of India under Section 3 of the Securitization and Reconstruction of Financial Assets and Security Interest Enforcement Act, 2002; and
- Any such pool of funds directly supervised by any other regulator in India;
What is the registration process of Alternative Investment Fund with SEBI?
- Submission of Application in Form A
According to the 2012 Alternative Investment Fund Regulations of the Securities and Exchange Board of India (Alternative Investment Funds), the applicant must apply to SEBI in compliance with the regulations in Form A together with the cover letter and other required documents.
- Examination of Application by SEBI
Upon receipt of the applications, SEBI shall respond to the applicant within 21 working days. Nonetheless, for the purpose of registration, it depends on the applicant's requirements.
- Complying with the Securities Exchange Board of India (SEBI) Compliances
The applicant will pass the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 to speed up the registration process.
- Cover Letter
The following information must be indicated in the cover letter by the applicant:
- Whether or not it is listed as a Venture Capital Fund with SEBI, and if so, give details.
- Before the inquiry, whether an AIF's activities were undertaken. If yes, the details will be given.
- Request to open a new fund.
- Letter of Authorization
In the case of an approved signatory, the Directors / Trustees / Designated Partners of the Fund must send an authorization document.
- Registration fee payment to Securities Exchange Board of India (SEBI)
An electronic application shall be submitted for registration in compliance with the guidelines prescribed by SEBI. An applicant shall submit a form A, which shall be duly filled out, numbered, duly signed and stamped with the application fee of Rs.1,00,000/-as a bank draft in support of the "India Securities and Exchange Board" payable at Mumbai.
- Registration Certificate
- SEBI shall consider the criteria stated in the regulations for the issuance of certificates of registration. The application shall be accepted by the SEBI after compliance and shall notify the applicant of the same.
- Upon receiving SEBI approval, the applicant is expected to pay the registration fee of Rs. 5, 00,000/-(If the applicant is not registered with SEBI as a Venture Capital Fund) and the registration fee of Rs. 1,00,000/-(If the applicant is registered with SEBI as a Venture Capital Fund) to SEBI as a bank draft in favour of the "India's Securities and Exchange Board" payable to Mumbai.
3. SEBI must issue the applicant registration certificate as an Alternative Investment Fund upon receipt of registration / re-registration fees.
What Compliances are required to be complied with?
- Upon registration, the Alternative Investment Fund must from time to time comply with SEBI's reporting requirements.
- The AIF shall check the SEBI website at regular intervals for any updates / circulars / guidelines provided by SEBI with respect to the Alternative Investment Fund operation.
- AIF will notify SEBI within a reasonable period of time in the event of any material change in the information already given to SEBI.
What are the criteria defined for raising funds and restrictions under investment?
- Alternative Investment Fund raise funds through private placement and are not allowed to accept a value contribution of less than Rs. 1 Cr from an investor. Within this fund, more than 1000 investors are not allowed and each scheme should have a Rs. 20 Crore corpus.
- Another condition is that the AIF manager or sponsor / promoter should have an ongoing interest of no less than 2.5% of the initial corpus or Rs.5 crore, whichever is lower in the AIF.
- In Categories I and II of AIFs, it is not allowable to invest more than 25% of the investment funds in a single Investee Organization, whereas it is 10% for Category III AIFs.
- Closed AIF units may be listed on a stock exchange subject to a minimum tradable lot of 1Crore rupees but only after the fund or scheme has been closed.
All AIFs are required to meet the SEBI reporting requirements on a quarterly basis (for Category I, II AIFs and Category III AIFs that do not use leverage) or on a monthly basis (for Category III AIFs that use leverage).
In addition, Category III AIFs must comply with the requirements for risk management, security, redemption and leverage as set out in the Circular. Category III AIF leverage is defined to not exceed 2 times i.e. gross exposure after hedging and portfolio rebalancing transactions should not exceed 2 times the fund's NAV.
Legal forms defined for setting up Alternative Investment Fund
Under the SEBI (Alternative Investment Funds) Regulations, 2012, Alternative Investment Funds can be set up or formed in the form of a trust or a corporation or a limited liability partnership or corporate body. In general, most AIFs recorded as trusted with SEBI.
Corpus of the Alternative Investment Fund
"Corpus “is the total amount of funds pledged to the AIF by investors on a specific date by means of a written contract or any such document.
What Limits are defined for number of investors listed under Alternative Investment Fund regulations?
- No AIF scheme (other than angel fund) will have more than 1000 investors.
- (Provided that, when established as a corporation, the rules of the Companies Act extend to the AIF).No scheme shall have more than forty-nine angel investors in case of an angel fund.
- However, AIF can raise funds only through private placement from sophisticated investors and cannot allow the general public to subscribe to its units.
Sponsor of Alternative Investment Fund
‘Sponsor ' is a person who establishes Alternative Investment Funds and includes a promoter for a company and a designated partner for a limited partnership.
What is the Validity of registration certificate of an Alternative Investment Fund?
Until the Alternative Investment Funds (AIF) is wound up, an Alternative Investment Funds registration certificate shall be valid.
What is the procedure defined for Redressal of Complaints?
SEBI has a "SEBI Complaint Redress System (SCORES)" web-based centralized grievance redress system where investors can lodge grievances against AIFs.
In order to resolve disputes, it is important that Alternative Investment Funds (AIF), or through its Manager or Sponsor, create a process for resolving disputes between investors, AIF, Manager or Sponsor by means of arbitration or any method mutually agreed between investors and Alternative Investment Funds (AIF).