Introduction
The alternative investment fund is a fund that is invested in asset classes other than stocks, bonds, and cash. A fund will be classified as AIF, if following conditions are fulfilled:
- It is an “investment vehicle”;
- It is pooling funds from multiple investors;
- Funds are pooled other than by way of capital;
- There is a segregation of management and the manager of the fund;
- It is not a mutual fund or collective investment scheme (CIS).
Categories of AIF:
CATEGORY I AIF – Primarily Invests in Start-up and unlisted entities. Sub- categories include: Venture capital funds, SME Funds, Social venture funds, Infrastructure funds.
CATEGORY II AIF – AIFs which do not fall in Category I and III. These AIFs are not permitted to borrow except for day to day operational requirements.
CATEGORY III AIF – AIFs which employ diverse or complex trading strategies such as hedge funds, PIPE Funds, etc. These AIFs may employ leverage including through investment in listed or unlisted derivatives.
Eligibility criteria for registration:
- Provision in the incorporation document (i.e memorandum of association in case of a company; or the Trust Deed in case of a Trust; or the Partnership deed in case of a limited liability partnership) to carry on the activity of AIF;
- The applicant is prohibited by its incorporation document from making an invitation to the public to subscribe to its securities.;
- The Charter instruments to be duly registered under the respective Acts;
- The applicant, Sponsor and Manager are fit and proper persons;
- Manager and sponsor to have adequate infrastructure and manpower;
- The investment objective, the targeted investors, proposed corpus, investment style or strategy and proposed tenure of the fund or scheme to be specified upfront.
Registration process
- The Applicant should make an application to SEBI in Form A along with all the necessary documents.
- Generally, the applicant will receive a reply from SEBI within 21 working days.
- The applicant must mention following in the covering letter:
- Whether it is registered with SEBI as a Venture Capital Fund. If yes, details must be provided.
- Whether it has been undertaking the activities of an AIF prior to such application. If yes, details must be provided.
- Whether it is applying for registration of a new fund.
- Form A shall be duly signed and stamped.
- Application fees of Rs.1,00,000/- by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
- The applicant shall also make an online application.
Registration Fee
- Category I AIF (except Angel fund) = Rs. 5, 00,000.
- Category II AIF = Rs. 10, 00,000.
- Category III AIF = Rs. 15, 00,000.
- Angel funds = Rs. 2,00,000.
Grant of Certificate of Registration
- If satisfied that the applicant fulfills the requirements as specified in the Regulations, SEBI shall approve the application and inform the applicant of the same.
- On receipt of approval from SEBI, the applicant must pay proper registration fee.
- After receiving the registration fees, SEBI will grant the certificate of registration.
Prior to seeking AIF registration from SEBI, an entity must be established either as a Company, Trust or LLP. Structuring of business entity is an important decision to be made by the investors. In making such decision, fund governance and income tax impact are primary factors that needs to be balanced.
For any queries/comments and professional assistance with respect to registration and compliance for AIF, feel free to reach us at cakevalm@gmail.com.
Disclaimer: This article is for the purpose of general awareness and does not represent professional opinion of the author.