FREQUENTLY ASKED QUESTIONS (FAQs)
What is an Alternate Investment
Fund ("AIF")?
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. AIFs are under the preview of SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations"), as amended from time to time. 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.
What are Category I AIFs?
AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which 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 other Alternative Investment Funds as may be specified.
What are Category III AIFs?
AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.
What is the 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.
What is the limit specified under
AIF regulations for number of investors?
No scheme of an AIF (other than angel fund) shall have more than 1000 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. AIFs shall raise funds through private placement by issue of information memorandum or placement memorandum.
Can an AIF raise any amount of
funds from any investor?
An AIF may raise funds from any sophisticated investor whether Indian, foreign or non-resident Indians, who inter alia undertake risk of investing in primarily unlisted or illiquid securities. However, AIF (other than angel fund) shall not accept from an investor, an investment of value less than INR One Crore. In case of investors who are employees or directors of the AIF or employees or directors of the Manager, the minimum value of investment shall be INR Twenty Five Lakh.
What kind of reports can an
investor expect from an AIF?
The AIF Regulations provides for general obligations, responsibilities and transparency requirements that are required to be complied by all AIFs. Chapter IV provides for specific disclosure obligations on the AIF to the investors including conflict of interest, information on fund investments, fees, various risks, valuation, etc. Further, AIFs, in addition to what is required under the AIF Regulations, may also provide for additional disclosures to investors in the placement memorandum.
In what categories can an applicant seek registration as
an AIF?
Applicants can seek registration as an AIF in one of the following categories:
- A. Category I AIF:
- B. Category II AIF
- C. Category III AIF
What are Category II AIFs?
AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. Various types of funds such as real estate funds, private equity funds (PE funds), funds for distressed assets, etc. are registered as Category II AIFs.
What is the 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.
In which legal forms can an AIF be
set up?
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.
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..
Can an AIF launch schemes?
Yes. An AIF may launch schemes subject to filing of placement memorandum with SEBI. Each scheme of the Alternative Investment Fund (other than angel fund) shall have corpus of at least INR Twenty Crores.
Whether an AIF can accept
investments from joint investors?
An AIF may accept the following as joint investors for the purpose of investment of not less than INR One Crore:
- A. an investor and his/her spouse
- B. an investor and his/her parent
- C. an investor and his/her daughter/son
Is the sponsor/management mandated
to have an interest in AIF?
In order to ensure that the interest of the Manager/Sponsor is aligned with the interest of the investors in the AIF, the AIF Regulations require that the sponsor/manager shall have a certain continuing interest in the AIF which shall not be through the waiver of management fees. For Category II AIFs, such interest must be not less than two and half percent of the corpus or five crore rupees, whichever is lesser.
Can an AIF opt to be close-ended or
open-ended, as it desires?
No. Category I and II AIFs are required to be close ended have a minimum tenure of three years. Category III AIFs may be open ended or close ended.
How is the tenure of any scheme of
AIF be calculated?
The tenure of any scheme of the AIF shall be calculated from the date of final closing of the scheme.