ALTERNATIVE INVESTMENT FUNDS (AIFs)
CA Manish Mish?a
Building CA Manish Mish?a , GenZCFO ? and GenZPe as NBFC Advisor with FinTech Expertise | India Entry Specialist.
ALTERNATIVE INVESTMENT FUNDS (AIFs)
Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. Further, certain exemptions from registration are provided under the AIF Regulations to family trusts set up for the benefit of 'relatives‘ as defined under Companies Act, 1956, employee welfare trusts or gratuity trusts set up for the benefit of employees, 'holding companies‘ within the meaning of Section 4 of the Companies Act, 1956 etc.
CATEGORY OF AIF
Applicants can seek registration as an AIF in one of the following categories, and in sub-categories thereof, as may be applicable: [Ref. Regulation 3(4)]
Category I AIF:
Category II AIF
Category III AIF
What is 'Angel Fund'?
“Angel fund” is a sub-category of Venture Capital Fund under Category IAlternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter III-A of AIF Regulations. In case of an angel fund, it shall only raise funds by way of issue of units to angel investors. "Angel investor" means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
(a) an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:
(i) has early stage investment experience, or
(ii) has experience as a serial entrepreneur, or
(iii) is a senior management professional with at least ten years of experience; ('Early stage investment experience' shall mean prior experience in investing in start-up or emerging or early-stage ventures and 'serial entrepreneur' shall mean a person who has promoted or co-promoted more than one start-up venture.)
(b) a body corporate with a net worth of at least ten crore rupees; or
(c) an AIF registered under these regulations or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996.
Angel funds shall accept, up to a maximum period of 3 years, an investment of not less than `25 lakh from an angel investor.
What is 'debt fund'?
Debt fund is an Alternative Investment Fund (AIF) which invests primarily in debt or debt securities of listed or unlisted investee companies according to the stated objectives of the Fund. [Ref. Regulation 2(1)(i)]. These funds are registered under Category II.
In this regard, it is clarified that, since Alternative Investment Fund is a privately pooled investment vehicle, the amount contributed by the investors shall not be utilised for purpose of giving loans.?
What is Fund of Funds?
Fund of Funds, in general parlance as gathered from publicly available sources s an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. In the context of AIFs, a Fund of Fund is an AIF which invest in another AIF.
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Legal forms of an AIF
An AIF under the SEBI (Alternative Investment Funds) Regulations, 2012 can be established or incorporated in the form of a trust or a company or a limited liability partnership or a body corporate. Most of the AIFs registered with SEBI are in trust form. [Ref. Regulation 2(1)(b)]
Corpus of the AIF
“Corpus’’ is the total amount of funds committed by investors to the AIF by way of a written contract or any such document as on a particular date. [Ref. Regulation 2(1)(h)]
Limit specified under AIF regulations for number of investors
No scheme of an AIF (other than angel fund) shall have more than 1000 investors. (Please note that the provisions of the Companies Act, 1956 shall apply to the AIF if it is formed as a company). In case of an angel fund, no scheme shall have more than forty-nine angel investors.
However, an AIF cannot make invitation to the public at large to subscribe its units and can raise funds from the sophisticated investors only through private placement.
Who is the Sponsor of the AIF?
‘’Sponsor’’ is any person(s) who set up the AIF and includes promoter in case of a company and designated partner in case of a limited liability partnership. [Ref. Regulation 2(1)(w)]
?Procedure of obtaining registration as an AIF from SEBI
The applicant shall make an application in Form A as provided in the SEBI (Alternative Investment Funds) Regulations, 2012 along with necessary supporting documents. Application fees of Rs. 1,00,000/- must be paid along with the application to SEBI. On receipt of approval from SEBI, Registration/re registration fee /scheme fee as applicable, may be paid. [Ref. Regulation 3(5) read with SEBI (Payment of Fees) (Amendment) Regulations, 2014]
The application in Form A shall be submitted to the below mentioned address:
Investment Management Department Division of Funds- 1
Securities and Exchange Board of India SEBI Bhavan,
3rd Floor A Wing, Plot No. C4-A, ‘G’ Block, Bandra-Kurla Complex,
Bandra (E), Mumbai - 400 051.
Validity of the certificate of registration of an AIF
The certificate of registration of an AIF shall be valid till the AIF is wound up. [Ref. Regulation 3(7)]
Reporting requirements to SEBI for AIFs registered with SEBI
As per circular No.CIR/IMD/DF/10/2013 dated 29th July, 2013, Category I and II AIFs and the Category III AIFs which do not undertake leverage are required to submit report to SEBI on a quarterly basis while Category III AIFs which undertake leverage are required to submit the reports on a monthly basis. The formats for such reports are provided as a part of the said circular. All AIFs shall submit the report irrespective of whether or not the AIF has started activity.
Currently, all AIFs shall send reports to SEBI by email to [email protected]. No physical reports are required to be filed with SEBI. The reports are required to be submitted within 7 calendar days from the end of quarter/ end of month as the case maybe. [Ref. circular No.CIR/IMD/DF/10/2013 dated 29th July, 2013]