Private equity can be raised from domestic sources as well as sources from outside India. For very long period there was no separate rule of law governing the private equity firms. However, in 2012, SEBI put a legal umbrella by bringing in new SEBI (AIF) Regulations. SEBI (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as ‘AIF Regulations’) were notified on 21 May 2012 to provide a platform to the investor to pool their resources for investment in specified sectors such as start-ups, early-stage ventures, SME, infrastructure sector, subscribing to unsubscribed portion of Initial Public Offer (IPO), debt funds, and hedge funds. As per the regulation, registration with SEBI is compulsory for the funds.
Meaning of Alternative Investment Fund: Alternative Investment Fund means any fund established or incorporated in India
- in the form of a trust or
- a company or a
- limited liability partnership or a
- body corporate,
(i) is a privately pooled investment vehicle that collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors;
(ii) is not covered under 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.
Provided that the following shall not be considered as Alternative Investment Fund for the purpose of these regulations:
1) family trusts set up for the benefit of relatives, as defined under Companies Act, 1956;
2) ESOP Trusts set up under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999, or as permitted under Companies Act, 1956;
3) employee welfare trusts or gratuity trusts set up for the benefit of employees;
4) holding companies, within the meaning of s 4 of the Companies Act, 1956;
5) other special purpose vehicles not established by fund managers, including securitisation trusts, regulated under a specific regulatory framework;
6) funds managed by securitisation company or reconstruction company that is registered with the Reserve Bank of India under s 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
7) any such pool of funds that is directly regulated by any other regulator in India.
REGISTRATION OF FUND WITH SEBI
Under Regulation 3 of SEBI, AIF Regulations of a Fund may get registered in the following three categories:
(a) Category I – Alternative Investment Fund
It invests in start-up or early-stage ventures or social ventures or SMEs or infrastructure or other sectors or areas that the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME funds, social venture funds, infrastructure funds and such others in this category; alternative investment funds as may be specified. 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 that are formed as trusts or companies shall be construed as venture capital company or venture capital fund as specified under sub-s (23FB) of s 10 of the Income Tax Act, 1961.
(b) Category II – Alternative Investment Fund
It does not fall in Categories I and III and does not undertake leverage or borrowing other than to meet day-to- day operational requirements and as permitted in these regulations; 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 are included.
(c) Category III – Alternative Investment Fund
It employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. In this category, Alternative Investment Funds such as hedge funds or funds that trade with a view to make short-term returns or such other funds that are open ended and for which no specific incentives or concessions are given by the government or any other Regulator shall be included.
We provide following Services:
– Know if AIF is for you.
– Advisory of various Structures available for AIF
– Registration of AIF with SEBI
– Making the strategy of AIF
– Compliance of reporting requirements with SEBI
– Advisory in relation to investment outside India