What are AIF and its pertinent regulations?

AIF registration simply stands for alternative investment funds established in India and governed by Securities and exchange board of India (alternative investment funds) regulations, 2012. These investment funds differ by and large from regular investment options like stocks etc. AIF pools funds from sophisticated investors (Indian or foreign) on a private placement basis for the purpose of investing it as per a given investment policy for the advantage of its investors.

The following are not included under the meaning of Alternative investment funds (AIF funds) as under the act:

• Family trust as under the Companies Act
• ESOP trusts
• Employee welfare trusts
• Holding companies as under section 4 of the company’s Act, 1956

AIF: Registration

• To act as an alternative investment fund, the person or entity must obtain the certificate of registration from SEBI. Provided that if any entity fails to submit an application for a certificate within the time frame stated must cease to operate as an Alternative Investment Fund.
• AIF can seek registration in either one of the categories:

1. Category 1 which focus on investing in early-stage ventures and startups
2. Category 2 which does not form part of either category 1 or category 3
3. Category 3 uses a variety of trading strategies and can use leverage, such as by investing in listed or unlisted derivatives.

• Form A  put to use to apply for a certificate in each of the above-mentioned categories, and it must be supplemented by a non-refundable payment fee.
• When deciding whether to grant registration, SEBI will take into account the criteria outlined in these regulations.
• The certificate of registration shall be valid until the Alternative Investment Fund is wound up, without prejudice to the Board’s powers to take action together under the Act or regulations promulgated thereunder.

Eligibility Criteria:

The Board will take into account the following eligibility criteria when deciding whether or not to award a certificate to an applicant:

• Whether the MOA of company, trust deed, or partnership deed enables it to engage in Alternative Investment Fund activities
• Whether the MOA or Trust deed prohibits the applicant from issuing a public call to subscribe to its securities.
• Whether or not the Manager or Sponsor has the requisite infrastructure and workforce to carry out its assigned responsibilities.
• Whether the Board has previously denied registration to the applicant or any entity formed by the Sponsor or Manager.

 Conditions pertaining to the certificate:

The certificate is subject to certain conditions which are as follows:

• The Act and the rules practiced by the Alternative Investment Fund.
• Other than approved operations, the Alternative Investment Fund shall not participate in any other activity.
• If any information or specifics earlier submitted to the board inaccurate or misleading in any matter involving or any significant change in the information already submitted, the Alternative Investment Fund promptly notify the Board in writing.

General obligation observed by AIF

• All Alternative Investment Funds required to review policies and procedures and their execution, continuously or as a result of market changes, to ensure that they remain appropriate.
• If the Alternative Investment Fund’s corpus is more than five hundred crore rupees, the Sponsor or Manager should then designate a custodian fully registered with the board for the safe custody of securities.
• Any change in the Sponsor, Manager, or Designated Partners, or any other substantial change from the information provided by the Alternative Investment Fund at the time of application for registration reported to the Board.
• The Alternative Investment Fund must obtain prior Board approval in the event of a change of ownership, Sponsor, or Manager.
• The Alternative Investment Fund’s books of accounts audited regularly by a professional auditor.

Winding up of AIF

A trust-based Alternative Investment Fund  wounded up subject to the following situations:

• Once the Alternative Investment Fund’s including all the Alternative Investment Fund’s schemes, as specified in the placement memorandum, have concluded their term. OR
• If the trustees or trustee corporation, as the case may be, decide that the Alternative Investment Fund should indeed be wound up in the best interests of holders of the unit. OR
• If 75% of the investors in the Alternative Investment Fund vote at a unitholder meeting to wind up the Alternative Investment Fund based on the valuation of their investment, the Alternative Investment Fund will be wound up.
• If the Board decides that it is in the best interests of investors.
• The certificate of registration surrendered to SEBI upon the winding up of the Alternative Investment Fund.

Conclusion

It observed that the alternative investment funds the funds incorporated in India and an investment vehicle that privately pooled.