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How to start an Alternative Investment Fund and get registration from SEBI?

Regulatory Background:

SEBI (Alternative Investment Funds) Regulations, 2012 regulates various types of private pool of capital or investment vehicles so as to channelize and regulate the funds where institutions or HNIs can invest. These investment vehicles are called Alternative Investment Funds (AIFs).

Entity Type:

An AIF can be setup in any of the 3 types viz.

  • A Trust

  • A Company

  • A Limited Liability Partnership (LLP)

Categories of AIF:

AIFs are categorized into 3 categories based on their objects:

  1. Category I - AIFs with positive spill-over effects on the economy, for which certain incentives or concessions might be considered by SEBI or GOI or other regulators in India; and which shall include VCFs, SME Funds, Social Venture Funds and Infrastructure Funds. It includes those AIFs that invest in sectors which are considered socially and economically relevant for the country.

  2. Category II - AIFs that are not Category I or Category III AIFs are Category II AIFs.

  3. Category III - AIFs including public market fund, hedge funds that take leverage or execute transactions under complex trading strategies.

Steps for Registration:

Application to SEBI in Form A of SEBI (Alternative Investment Funds) Regulations, 2012 along with necessary details/documents. Important details are as under:

  • Co-ordinates such as name, address, email Id, phone numbers etc.

  • Memorandum and Article of Association in case of Company, Partnership deed in case of a LLP, Trust deed in case of a Trust.

  • Shareholder/Partner/Trustee details of the Applicant/Investment Manager/Sponsor.

  • Business strategies and investment plans.

  • Detail of key investment team.

  • Experience of Investment Manager/Sponsor.

  • A draft copy of Private Placement Memorandum (PPM).

  • Authorization letter to act as an authorized signatory.

Application Fee: Rs. 1,00,000/-

Processing by SEBI:

  • On receipt of an application, SEBI verifies the documents and seeks clarification / further information as deemed fit.

  • In few cases SEBI prefers a personal meeting with officials of the AIF.

  • SEBI may also carry out inspection of office to confirm that the AIF has the wherewithal to function.

  • Intimation for grant of registration is sent by SEBI upon satisfying that the applicant fulfills all the requirements in the regulation.

Payment for final fee for grant of registration:

  • Rs. 500000 for Category I.

  • Rs. 100000 for Category II.

  • Rs. 1500000 for Category III.

Validity of certificate: The certificate of registration is valid throughout the life of AIF.

Fee for additional scheme: Rs. 1,00,000/-

Investment Limit:

  • Each investor in AIF has to invest a minimum amount of Rs. 1 Crore.

  • Employees / Directors of AIFs can invest a minimum amount of Rs. 25 Lakhs.

Important Points:

  • An AIF may launch schemes after filing Private Placement Memorandum (PPM) with SEBI.

  • PPM is a document that contains all the necessary information about the scheme of AIF for a prospective investor so that the investor can take an informed decision.

  • Sponsor is required to have a continuing interest in AIF (Category I & II - 2.5% of corpus or Rs. 5 Crores whichever is less. Category III - 5% of the corpus or Rs. 10 Crores whichever is less).

  • Category I & II AIFs can be only close ended, whereas Category III can be open ended or close ended.

  • Category I & II AIF shall have minimum tenue of 3 years (maximum 5 years for Angel Fund)

  • Angel Fund is a sub-category of Venture Capital Fund under Category I AIF that raises funds from angel investors. Angle fund have certain relaxation in AIF regulatory requirement which include reduce corpus, commitment from investor etc. and have to follow the prescribe guidelines while investing.

  • 100% FDI is permitted under Automatic route in all the Categories of AIFs.

  • AIF can invest overseas subject to following required compliance of SEBI and RBI.

  • All AIFs shall have Qualified Institutional Buyer (‘QIB’) status as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

How can SecMark assist you?

  • Advising on optimum structure amongst Company, Trust or LLP with efficient tax impact for AIF.

  • Advising on matters related to entity to be used for SEBI registration, Investment Management, Sponsorship, Investment team etc.

  • Assistance in applying to SEBI for registration.

  • Assistance in preparation of fund documents viz. Private Placement Memorandum, Contribution Agreement, Investment Management Agreement etc.

  • Advising on qualification and experience required for getting the licenses.

  • Online and Physical application to SEBI which would include filling of Form A.

  • Responding to queries of SEBI, Getting Certificate of Registration.

  • Coordination with various professional agency viz. Trustee, Registrar, Custodian.

  • Assistance in setting up operations.

  • Designing policies, procedures and operation processes.

  • Assistance in co-ordination with Benchmarking Agencies and Auditors.

  • Outsourcing of non-critical functions like accounting, regulatory filings etc.