Securities and Exchange Board of India proposed Regulations for Alternative Investment Funds

The Securities and Exchange Board of India (SEBI) proposed to create regulations for alternative investment funds under the title SEBI (Alternative Investment Fund) Regulations on 1 August 2011.

These alternative investment fund (AIF) raise capital from a number of high networth investors (HNIs) with an objective of investing in accordance with a defined investment policy for the benefit of those investors.

The funds which would come under the proposed regulation include- Venture Capital Funds, PIPE Funds, Private Equity Fund, Debt Funds, Infrastructure Equity Fund, Real Estate Fund, SME Fund, Social Venture Funds, Strategy Fund.

SEBI made it mandatory for all types of private pools of capital or investment funds to seek registration with SEBI. The funds could be formed as companies, trusts or body corporate including LLP structure.

The fund manager/ asset management company or trustees of the fund is required to be specified, and change of such entities is to be reported to SEBI. The fund at the time of application would specify the category under which it is sought registration, the targeted size of the proposed fund and its life cycle and the target investor.

SEBI proposed that the funds would be close-ended. Fund size can be revised upward up to XX per cent giving SEBI suitable reasons. Minimum investment amount would be specified as 0.1 per cent of fund size subject to a minimum floor of Rs.1 crore.

In case of an AIF constituted as company or LLP, the number of shareholders or partners would not be permitted to exceed 50. The size of units issued will not be less than Rs.10 lakh. Funds may be raised only through private placement through information memorandum.

For PE funds, investments would be mainly in unlisted companies or companies proposed to be listed. For debt funds, the entire investment would be made in unlisted debt instruments. For infrastructure equity funds, minimum two-thirds of the investment would be in equity of infrastructure projects/companies. For Real Estate Funds, investment could be in real estate projects or shares in the SPVs undertaking real estate projects. The fund for strategy fund would be guided by the strategy it specifies at the time of registration with no other restrictions. Social Venture Funds will be targeted towards social investors willing to accept muted returns. SME funds would be for investing in unlisted entities in the SMEs in manufacturing services sector as also businesses providing infrastructure or other support to SMEs.