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    Alternate Investment Funds (AIF)

    What is Fund?

     

    A fund is a pooled investments collected from the group of investors which can be incorporated as a business entity by way of Trust, Company, Limited Liability Partnership, Partnership, Body Corporate and the entity is governed by the Manager.

     

    These funds are regulated by SEBI under Securities Exchange Board of India (Alternative Investment Funds) Regulations 2012.

     

    What is Alternate Investment Funds?

     

    As per Section 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

     

    ?Alternative Investment Funds is defined any fund incorporated in India as LLP, Company, Body Corporate, Partnership, Trust by pooling the investments from India or Foreign and invest the funds as defined in accordance with the Investment policy.

     

    ?ButInvestment made not in accordance with the provisions 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.

     

    Types of Funds

     

    ?OpenEnded – It is a type of fund where investors can redeem their investments at any point of time i.e. before the closing of the fund also.

     

    ?ClosedEnded – It is a type of fund where investors can redeem their investments only at the time of closing of the fund.

     

    Categories of AIF

     

    • Category I: Category I of AIF, shall invest the funds in start-up/ early stage ventures/ SMEs/ Social Ventures/ Infrastructure or other sectors or areas which the government or regulators would consider socially and economically desirable.
    • Category II: Category II of AIF, which does not fall underCategory I and III and which does not undertake leverage or borrowing other than to meet day-today operational requirements and as permitted in these regulations.

     

    • Category III: Category III of AIF, which employs complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

     

     

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    Eligibility Criteria

     

    ?Thereare different types of eligibility criteria for an LLP, Company, Body Corporate & Trust. ?Themanager is required to have interest in the fund of not less than 2.5% of the fund corpus or Rs.5

    Crore whichever is lower for Category I & II.

    ?Foracategory III fund, the manager must have interest of 5% of the fund corpus or Rs.10 Crores whichever is lower.

     

    ?Declarethe tenure of the funds, investor, objective & style of investment strategy in the registration process for proper decision making to the investors.

     

    ?Thefund shall inform to SEBI whether the investors have other funds registered with SEBI.

     

    Registration of AIF:

     

    ?Fromthe commencement of the regulations, no entity or person shall act as an AIF unless he has obtained a certificate of registration from the Board (SEBI).

    ?Thefunds registered as Venture Capital Fund under SEBI (Venture Capital Fund) Regulations, 1996 shall continue to be regulated by the said regulations till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations.

     

    ?Anyentity referred in sub-regulation (1) who fails to make an application for grant of certificate within the period specified therein shall cease to carry on activity as on AIF.

     

    • AIF shall seek registration on one the following category:Category I, Category II, Category III
    • An application for grant of certificate shall be made for any of the categories as specified in sub-regulation (4) in Form A as specified in the First Schedule to these regulations and shall be accompanied by a non-refundable application fee as specified in Part A of the Second Schedule to these regulations to be paid in the manner specified in Part B thereof.

     

    • The Board shall take into account requirements as specified in these regulations for the purpose of considering grant of registration.

     

    • Without prejudice to the powers of the Board to take any action under the Act or regulations made there under, the certificate of registration shall be valid till the AIF is wound up.

     

    • The Board may, in the interest of the investors, issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as an Alternative Investment Fund.

     

    • The Board may, in order to protect the interests of investors, appoint any person to take charge of records, documents, securities and for this purpose, also determine the terms and conditions of such an appointment.

     

    There are 209 Alternative Investment Funds registered under SEBI as on 31st March, 2016. Some of them are as follows:

     

     

     

     

     

     

     

     

     

     

     

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    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest

    www.sbsandco.com/digest

     

     

     

     

     

    S.No.

    Name of the Alternative Investment Fund

    Category

     

     

     

     

     

    1

    UtthishtaYekkum Fund

    Category – I (Venture Capital Fund)

     

     

     

     

     

    2

    Indiaquotient Investment Trust

    Category – I (Venture Capital Fund)

     

     

     

     

     

    3

    Sarbe partners Trust

    Category – II

     

     

     

     

     

    4

    Real Estate Opportunities Trust

    Category – II

     

     

     

     

     

    5

    Forefront Alternative Investment Trust

    Category – III

     

     

     

     

     

    6

    DICCI Trust

    Category – I (SME Capital Fund)

     

     

     

     

     

    7

    IIFL Opportunities Fund

    Category – III

     

     

     

     

     

    8

    Incube Connect Fund

    Category – I (Social Venture Fund)

     

     

     

     

     

    9

    L&T Infrastructure Fund

    Category – I (Infrastructure Fund)

     

     

     

     

     

    10

    Ankur Capital Fund

    Category – I (Angel Fund)

     

     

     

     

     

     

    Below is the link for the list of Alternative Investment Funds:

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1461124238814.pdf

     

    Investment Conditions

     

    The following are the investment conditions for all categories of AIF:

     

    • AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.

     

    • Category I & Category II of AIF shall invest not more than 25% of the corpus in one Investee Company.
    • Category III shall invest not more than 10% of the corpus in one investee company.
    • Co-Investment in an investee company by a manager or sponsor shall not be in terms more favourable as than issued by any other AIF.
    • AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.
    • Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs (Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.
    • AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
    • Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

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    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest

     

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    Investment Conditions for each Category:

     

     

     

     

     

    Category of Fund

     

    Investment Conditions

     

     

     

     

    Category I

    1.  Shall invest in investee companies/ venture capital/ special purpose

     

     

     

    vehicle/ LLP/ partnerships or in units of other AIF as specified in the

     

     

     

    regulation.

     

     

    2.

    May invest in units of Category I of AIF of sub – category but cannot invest in

     

     

     

    the units of Fund of Funds.

     

     

    3.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus.

     

     

    4.

    In addition, AIF Regulations may also prescribe a set of investment

     

     

     

    conditions in respect of each sub-category under Category I AIFs.

     

     

     

     

    Category II

    1.  Shall invest primarily in unlisted investee co. or in units of other AIFs as

     

     

     

    specified in the Placement Memorandum.

     

     

    2.

    May invest in the units of Category I & Category II but cannot invest in the

     

     

     

    units of Fund of Funds.

     

     

    3.

    May engage in the hedging subject to the guidelines as prescribed by SEBI.

     

     

    4.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus

     

     

     

     

    Category III

    1.  May invest in securities of listed or unlisted investee companies or

     

     

     

    derivatives or complex or structured products.

     

     

    2.

    May invest in the units of Category I or II but they should invest solely in such

     

     

     

    units and shall not invest in units of other fund of funds.

     

     

    3.

    May engage in leverage and borrow subject to consent from the investors in

     

     

     

    the fund and subject to a maximum limit, as may be specified by the Board.

     

     

    4.

    shall be regulated through issuance of directions regarding areas such as

     

     

     

    operational standards, conduct of business rules, prudential requirements,

     

     

     

    restrictions on redemption and conflict of interest as may be specified by

     

     

     

    the Board.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest                                                                                                                          www.sbsandco.com/digest

     

    Investment Conditions for all categories:

     

    1. AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.
    2. Category I & Category II of AIF shall invest not more than 25% of the corpus in one investee company.

     

    1. Category III shall invest not more than 10% of the corpus in one investee company.
    2. Co-Investment in an investee company by a manager or sponsor shall not be on terms more favorable than those offered to other AIF.

     

    1. AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.

     

    1. Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs(Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.

     

    1. AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

     

    1. Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

    Placement Memorandum

     

    A memorandum containing the details of the private placement which may be necessary for the investor for the informed decision making on whether to invest in AIF with the board and shall be filed with the board within 30 days prior to launch of scheme with the fees as may be prescribed in the second schedule. Payment of fees shall not require for the first launch of scheme.

     

    Below is the link for the SEBI (AIF) Regulations, 2012

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1337601524196.pdf

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