Setting up Alternate Investment fund:
In India, alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of Securities Exchange Board of India (Alternative Investment Funds) Regulations, 2012. It refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership.
The AIF Regulations make it mandatory to obtain certificate of registration from SEBI for enabling AIFs to operate under one of the following 3 categories:
- Category I – AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure, Includes venture capital funds, SME funds, social venture funds, infrastructure funds, angel funds, etc.
Explanation- For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spill over effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as- venture capital company or- venture capital fund as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961.
- Category II – AIFs, which do not fall in Category I or Category III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements. Includes private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other regulator.
Explanation- For the purpose of this clause, Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator shall be included.
- Category III – AIFs, which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Includes hedge funds or funds, which trade for short term returns, or open ended funds, for which no specific incentives or concessions are given by the government or any other regulator.
Explanation- For the purpose of this clause, Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other Regulator shall be included.
As an integral part of the registration process, the applicant will submit the following
- Form A appropriately filled, numbered, duly signed and stamped.
- Application fees as may be prescribed by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
The Following is the eligibility criteria:
- Investors can be Indian, NRI or foreign. However, for angel funds, Investors should be angel investors only,
- Minimum corpus should be Rs. 20 Crores for each scheme and Rs. 10 Crores for angel funds,
- Minimum investment by each investor should be Rs. 1 Crore, or Rs. 25 Lakhs (in case of employees/directors/fund manager of AIF or angel investors), as applicable. There are however no minimum investment requirement on units of AIF issued to the employees of the manager for profit sharing,
- Maximum number of investors can be 1000 for each scheme and 49 in case of angel funds. However, the industry demand is to bring up the number to 200, in case of angel funds, in parity with the private placement provisions under the Companies Act, 2013,
- Category I and II AIFs can be close ended only, with a minimum tenure of three years, while Category III AIFs can be both open and close ended,
- The manager or sponsor shall have a continuing interest in the respective AIF,
- Units of close ended AIFs may be listed on stock exchange, subject to a minimum tradable lot of Rs. 1 Crore and such listing of AIF is permitted only after final close of the fund or scheme.