Alternative Investment Fund Registration Made Easy - Corpbiz (2024)

What is an Alternative Investment Fund?

Alternative investments collectively represent the many asset classes that fall outside thetraditional investment instruments of direct investment in stocks and bonds. This category includeshedge funds, private equity, real estate, commodities, infrastructure, and other alternativeinvestment funds.

Alternative Investment funds represent a form of a pooled investment vehicle where collectiveinvestments are made into different nontraditional investment options. Any person who wants toinvest in an alternative investment fund in India can do it via SEBI-registered AIF entities.

Here, a group of qualified individuals form a fund and collect money from eligible investors toinvest them in lucrative investment opportunities.

These investors can be domestic or foreigners. The SEBI registered AIF can exist in the Form ofTrust, LLP, or body corporate. The nature and risk of investments made via AIF are different fromtraditional investment options. The registration of an AIF shall be valid till the lifetime of theAIF.

Types of AIFs registration in India

Category- I AIF:

AIFs which invest in start-up or early-stage ventures or social ventures or SMEs orinfrastructure or other sectors or areas which the government or regulators consider associally or economically desirable and shall include venture capital funds, SME Funds,social venture funds, infrastructure funds, and such other Alternative Investment Funds asmay be specified.

Category-II AIF:

These funds are not allowed to borrow for any purpose other than to carry day-to-daytransactions. These funds invest in any form of combination and include private equityfunds, real estate private equity funds, debt funds, etc.

Category-III AIF:

Under these funds, there are short-term investments made, and later they are sold as hedgefunds to make short-term benefits. Various hedge funds, PIPE funds, etc., form this categoryof AIFs.

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Eligibility for Alternative Investment Fund Registration

Following conditions are necessary to be fulfilled for getting registered as AIFs:

• An entity shall be restricted through its MOA & AOA to invite the public to subscribe to itsshares.
• A maximum number of investors shall not at any time exceed 1000.
• Trust deed duly registered under Registration Act 1908 shall also be furnished in case of anapplicant for AIF registration is registered trust.
• A partnership deed is compulsorily furnished in case the applicant is LLP, and such deed shallbe duly registered under the LLP Act 2008.
• Investors of AIF shall be either Indian or Non-Resident Indian.
• The minimum corpus for any AIF must be a minimum of 20 crores.

Prohibited entities for AIF registration

As per SEBI guidelines, the following entities are not permitted to be registered as AIFs:

• Trustor Gratuity registered whose principal objectives are of employee's benefits.
• Any family trust registered with the primary objective of providing benefits to the relatives.
• ESOP trust registered under SEBI.

What is the Fund size for AIFs?

Can an AIF raise any amount of funds from any investor? An AIF may raise funds from any sophisticatedinvestor, whether Indian, foreign or non-resident Indians, who inter alia undertake the risk ofinvesting in primarily unlisted or illiquid securities.

The minimum fund size should be INR 20 crores. However, AIF (other than angel fund) shall not acceptfrom an investor an investment of value less than one crore rupees. In the case of investors who areemployees or directors of the AIF or employees or directors of the Manager, the minimum value ofinvestment shall be twenty-five lakh rupees.

Necessary Papers required for AIF registration

• Details of registered addresses such as name, address, etc.
• Registration certificate of the company, in case of body corporate
• Name and Contact details of applicant such as contact number, E-mail Id, residential address
• Partnership deed, in case the applicant is registered LLP
• Trust deed, in case an applicant is a trust
• Business strategies and investment plans
• A draft copy of the placement memorandum
• Self-declaration by the directors/partner/members
• Financial statements of the previous years
• Sponsor or Directors are registered with the Board or not.
• Previously registered AIF by the sponsors.
• Past Work profile of the sponsors.

Business Plan for AIF registration

Details of Business Plan and Investment Strategy constitutes:

• Objective of the fund
• 2 Investment style/ strategy of the fund.
• Tenure of the Fund or scheme
• The target industries/ Sectors, if any
• Proposed Corpus
• The target Investors
• Proposed Fee structure to compensate the Sponsor and Manager
• Any regulatory proceeding against the sponsors or director.

Registration Process of AIF

Following are the step by a step registration process of Alternative Investment Fund:

Apply To SEBI:

An applicant shall apply in Form A of SEBI (Alternative Investment Funds) Regulations, 2012,along with necessary necessary papers and business plan.

Authorization Letter:

Furnish an authorization letter in case an applicant or entity has authorized anydirector/promoter/or any such officer to act as an authorized signatory.

SEBI Compliances:

To know whether an applicant is eligible or ineligible to be registered as AIF shall studythe SEBI guidelines thoroughly.

Cover Letter:

In case the applicant is registered with SEBI as a venture capital fund, it shall provide thedetails regarding the same in the cover letter as well as it needs to report in a coveringletter whether it has been undertaking any activity as AIF or is applying registration forthe new fund.

Final Submission of Application:

Online application is filed as per the guidelines of SEBI on this behalf. Properly filled,numbered, duly signed, and stamped Form A accompanied by necessary necessary papers andapplication fee of INR 100000 by way of a draft drawn in favor of The Securities andExchange Board of India, payable at Mumbai shall be submitted for the grant of certificateof registration.

Scrutinizing of Application:

SEBI, within 21 days of receipt of an application, shall verify and reply to the applicant.Application is evaluated for its correctness by SEBI, and SEBI, on being satisfied with thesame, shall approve the application.

Grant of Registration Certificate:

Once satisfied with the application, SEBI will grant the registration certificate against thecharge of registration fees.

Registration Fees for AIF

On receipt of approval of SEBI, an applicant shall submit the following registration fee for theissuance of Certificate of Registration:

• Application Fee: Rs. 1,00,000/-
• Registration Fee for Category I AIF (except Angel Funds): Rs. 5,00,000/-
• Registration Fee for Category II AIF (except Angel Funds): Rs. 10,00,000/-
• Registration Fee for Category III AIF (except Angel Funds): Rs. 15,00,000/-
• Scheme for AIF other than Angel Funds: Rs. 1,00,000/-
• Re-registration Fee: Rs. 1,00,000/-
• Registration Fee for Angel Funds: Rs. 2,00,000/-

Such a certificate is valid throughout the life of AIF until it is wound up.

Restrictions of AIFs

Restrictions on the fundraising of AIFs and investments

There are certain following restrictions on the fundraising of AIFs and investments made by suchAIFs:

• AIFs are allowed to raise funds through Private Placement.
• AIFs cannot accept an investment of value less than INR 1 Crore from the investor.
• Not more than 1000 investors are allowed under this fund, with the corpus limit of each schemeshall be INR 20 Crore.
• Promoter, sponsors, or manager shall have the continuing interest at least of the following:
• 2.5% Of The Initial Corpus
  OR
  Invest minimum 5 crore. For Category AIF category III , the continuing interest shall be notless than 5% of the corpus or Rs. 10 crores, whichever is lower.
• AIFs registered under Category-I and Category-II are not allowed to invest 25% or more of theirinvestment fund in a single investee company. In contrast, the same limit is 10% forCategory-III AIFs.
• Close-ended AIFs are allowed to be listed on the stock exchange up to a minimum of INR 1 Croreof a trading lot after the closure of the scheme or fund.

Restriction on number of Investors/Members of AIFs

Following are the limits imposed on the number of investors or members under AIF regulations:

• AIF (other than Angel Funds) cannot have more than 1000 investors at any time.
• In the case of Angel Funds, no scheme can have more than 49 investors at any time.
• AIF is permitted to raise funds through Private Placement and cannot invite the public for thesubscription of its shares.

Complaint Redressal Mechanism

Investors who have any grievances or complaints against AIFs shall redress the same. SEBI, for thispurpose, has established a web-based centralized grievance redressal system known as SCORES (SEBIComplaint Redressal System).

AIF shall resolve the dispute through its manager/sponsor/promoter in the Form of arbitration or suchother mechanism as decided on mutual terms between investors and AIF.

Post- Registration compliance

AIF needs to comply with the reporting norms of SEBI:

• Quarterly: by Category-I, II & III(not employing leverage)
• Monthly: by Category-III (employing leverage)
• In addition to these, Category-III AIFs shall comply with the norms of risk management,compliance, redemption, etc., as mentioned in the circular.
• Leverage for Category-III shall not exceed two times the gross exposure after hedging offset.

Other Compliance Requirements

• The AIF must be compliant with the reporting requirement of SEBI.
• AIF shall report to the SEBI in case of any material changes made in detail already furnished toSEBI at the time of application.
• AIF must keep the regular follow up with the SEBI website for any updates on the latestcirculars, amendments, or new guidelines issued
• AIF must appoint a custodian for funds protection in case the corpus surpasses
• the 500 crore mark.
• The books of accounts of AIF must be annually audited by a qualified auditor.
• The sponsors or managers must disclose their conflict of interests.

Frequently Asked Questions