Effective from 15 th November 2022
Ever since the introduction of regulations for Alternative Investment Funds in 2012, SEBI has been curating the same to match the dynamic trends and environment. An active concern for a more
regulated mechanism can be witnessed with every amendment introduced. In its recent update, SEBI
vide its notification No. SEBI/LAD-NRO/GN/2022/105 (“the Notification”) followed by circular number
SEBI/HO/AFD-1/PoD/P/CIR/2022/155 (“the Circular”), illustrated the new guidelines for Alternative
Investment Funds.
With a view to maintaining a stricter check on Alternative Investment Funds, SEBI has clarified the
following changes, effective immediately. With these amendments, more discretion and flexibility is
granted to the SEBI Board to regulate and monitor AIFs activities and suggest changes from time to time
as may be needed.
- Amendment in the calculation of Tenure: The explanation to the definition of “Investible funds”
(Regulation 2(1)(p)) explaining the term “Tenure”; is amended and now to calculate the tenure
of an investible fund, AIFs will have to consider duration from the date of the first close till the
last date of the term as specified in the fund documents. Earlier, the above tenure was
calculated from the day of its launch to the last day. - Amendment to the provisions of the requirement of declaring the first close of the scheme: As
a new insertion to the provisions of “Filing of scheme with SEBI” (Regulation 12(4)&(5)), it is now
provided that an AIF must define the “first close of the scheme” in its scheme document and it
further provides that the same shall be declared in the manner as may be provided by SEBI from
time to time. The provision thus gives discretion to SEBI to not only provide the manner for
declaration of the first close but also to modify the same according to the changing
requirements. The amended provisions also specify that if an AIF fails to declare the first close in
the manner specified, then it will be required to file a fresh application with fresh fees for the
launch of the scheme to SEBI.
In furtherance to the powers so accorded, vide the aforementioned Circular, SEBI has further
provided the timelines for declaring the first close in the following manner:
a. The first Close of a scheme shall be declared not later than 12 months from the date of
SEBI communication for taking the PPM of the scheme on record. Further, the existing
schemes, who have yet not declared their first close, shall so declare their first close
within 12 months from the date of notification, i.e., 17 th November 2022.
b. It is also provided that schemes whose PPMs were taken on record prior to 12 months
(from the date of the Circular) and who have not yet declared their first close; shall re-
submit their PPM (along with Merchant Banker due diligence certificate).
c. For an open-ended scheme (Category III), the first close shall be considered as the close
of their initial offer period.
d. Corpus at the time of declaring the first close shall not be lower than the minimum
corpus prescribed for the respective fund.
e. It is further provided that the commitment provided by the sponsor or manager at the
time of declaration of first close to meet the minimum corpus requirement, shall not be
reduced post the declaration of first close.
f. For a Large Value Fund for Accredited Investor, the first close shall be declared not later
than 12 months from:
i. Date of grant of registration
ii. Date of filing of PPM of the scheme with SEBI (Whichever is later)
- Amendments to the provisions of Tenure: The Notification also amends the provisions w.r.t.
Tenure of an AIF by inserting a new provision (Regulation 13(4)); whereby further discretion has
been provided to SEBI to provide the manner of calculation of tenure for a close-ended scheme
and the manner for the modification of the same.
In furtherance to the powers so accorded, vide the aforementioned circular, SEBI has provided
that:
a. the Tenure of a close-ended scheme is to be calculated from the date of declaration of
the first close.
b. Further an AIF can modify the tenure of the scheme anytime only before proclaiming
the first close of the scheme.
c. It is also specifically provided now that before the first close, an investor may withdraw
or reduce the commitment provided by them in the said scheme.
d. It is also clarified that the existing schemes which have declared their first close may
continue to calculate their tenure from the date of final close (in terms with earlier
circular dated October 1 st, 2015); although the scheme which is yet to declare their final
close, will do so as provided them in the PPM but AIF/manager shall not have any
discretion to extend the said timelines. - Approval of SEBI for Changes in AIF: vide the Notification, it is now provided that only any
material changes in the information provided by AIF at the time of application for registration
will be informed to SEBI (Regulation 20(12)) and it is now further mandated that any proposed
change of sponsor or manager or change in control of AIF/sponsor/manager shall only be with
the prior approval of SEBI (Regulation 20(13)). It is further provided that any such change will be
subject to levy of such fees and other conditions as may be specified by the board from time to
time.
Consequently, vide the aforementioned Circular, SEBI has provided that:
a. In case of change in manager/sponsor or in case of change in control of
manager/sponsor, the fee shall be equal to the registration fee levied on the specific
category/sub-category of the AIF. It is further clarified that if change in both the
manager and sponsor is happening simultaneously then also the fee shall be equal to
the single registration fees.
b. However, no fee shall be payable in the following cases:
i. Manager acquiring the control or replacing the sponsor
ii. Exit of sponsors (in case when AIF has multiple sponsors)
c. The fees is to be paid within 15 days of effecting the proposed change.
d. It is now specifically provided that the cost incurred towards such change, shall not be
passed ont to the investors of AIF in any manner.
e. It is also provided that in case of any pending application for aforesaid changes, the fees
will be payable only if none of the schemes of AIFs have declared their first close.
- Ring Fencing of each Scheme: Vide the Notification, SEBI also adds (Regulation 20(16)) that the
manager and the trustee/board of directors/designated partners shall ensure that the assets
and liabilities of every scheme of an AIF are segregated and ring-fenced from other schemes. It
clarifies further that the bank accounts and securities accounts of each such scheme must be
segregated and ring-fenced.
Transique Corporate Advisors
Disclaimer:
The information contained in this note is provided for informational purposes only and is not intended to substitute for professional advice. The author expressly disclaims any financial or other responsibility arising due to any action taken by anyperso n on basis of this note.
