Alternative Investment Funds in India

Alternative Investment Funds In India

Sebi alternative investment funds

 An alternate investment fund is a collective investment vehicle that invests in real estate, private equity, and hedge funds. The most common types of alternative investment funds are hedge funds, private equity funds, venture capital funds, and real estate funds.

Alternate investment funds are also known as non-traditional asset classes. They typically have higher risk-reward profiles than traditional asset classes such as stocks, bonds, or cash.

The main purpose of an alternate investment fund is to provide investors with additional return potential over other investments such as stocks or bonds. In exchange for this additional risk, investors will receive higher returns than they would receive with traditional investments.

In what categories can an applicant seek registration as an AIF?

Applicants can apply to become an AIF in one of the following categories, as well as subcategories within those categories, as applicable:

  1. Category I AIF: 
    1. Venture capital funds (Including Angel Funds)
    2. SME Funds
    3. Social Venture Funds
    4. Infrastructure funds
  2. Category II AIF
  3. Category III AIF

In details

  1. What are Category I AIFs?

AIFs that invest in early-stage or start-up ventures, social ventures, SMEs, infrastructure, or other sectors or areas that the government or regulators deem socially or economically desirable, including venture capital funds, SME funds, social venture funds, and infrastructure funds.

  1. What are Category II AIFs?

AIFs that are not categorized as Category I or III and do not use leverage or borrow only to satisfy day-to-day operational needs, as approved by the SEBI (Alternative Investment Funds) Regulations, 2012. Real estate funds, private equity funds (PE funds), distressed asset funds, and other types of funds are all classified as Category II AIFs.

  1. What are Category III AIFs?

AIFs use a variety of trading strategies and may use leverage, such as by investing in listed or unlisted derivatives. Various types of funds such as hedge funds, PIPE Funds, etc.

List of alternative investment funds

  • VCF (Venture Capital Fund) 
  • Infrastructure Fund (IF)
  • Private Equity Fund (PE)
  • Debt Fund
  • Funds of Funds
  • Hedge Funds
  • Angel fund
  • Social Venture Funds

What is the procedure of obtaining registration as an AIF from SEBI?

The applicant must submit an application in Form A, as prescribed by the SEBI (Alternative Investment Funds) Regulations, 2012, along with all required supporting documentation. Along with the application to SEBI, a fee of Rs. 1,00,000/- must be paid. Registration/re-registration fee/scheme fee, as applicable, may be paid upon receipt of SEBI approval.

The completed Form A application should be sent to the following 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

What is the registration fee to be paid by an AIF?

The registration fee to be paid by an AIF is as under: 

  1. Category I Alternative Investment Funds Rs. 5,00,000 
  2. Category II Alternative Investment Funds Rs. 10,00,000
  3. Category III Alternative Investment Funds Rs. 15,00,000
  4. Angel Funds Rs. 2,00,000 

What are the reporting requirements to SEBI for AIFs registered with SEBI?

As a registered AIF, you are required to submit audited financial statements and other information to SEBI annually. You may also be required to submit other reports on a quarterly or monthly basis. The reporting requirements for your fund will depend on whether it is an FPI or a QFII. In addition to the above requirements, FPIs are also required to have their accounts audited by an independent auditor.

Can an AIF raise any amount of funds from any investor?

 Yes, an AIF can raise any amount of funds from any investor. However, the AIFM is required to monitor the activity of each investor.