How to Start a Alternative Investment Fund Registration

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An Overview of Alternative Investment Fund Registration

An Alternative Investment Fund or AIF invests in different forms of start-ups and companies. The applicant or candidate would require registering with SEBI or Securities and Exchange Board of India before commencing an Alternative Investment Fund (AIF).

SEBI (Alternative Investment Fund) Regulations, 2012 refers to a set of regulations which were initiated by SEBI or Securities and Exchange Board of India in the year 2012, for the objective of regulating joint investment funds in India, such as private equity real estate, and hedge funds. Such regulations were introduced to get unregistered funds under the influence of law. In this law, ALFs refers to a fund formed in the form of an entity, Trust, LLP (Limited Liability Partnership), or body corporate. The following entities would be regulated by the provisions concerning the Alternative Investment Fund Registration.

  • A privately joint investment vehicle collects funds from investors as per the defined investment policy for the benefit of the investor, whether foreign or Indian.
  • Not covered in the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the SEBI to regulate all the activities related to the fund management.

What are the Different Categories of Alternative Investment Funds?

Following are the different categories of Alternative Investment Funds (AIF):

  • Category-1

    Such types of funds invest in start-ups and receive incentives from the Securities and Exchange Board of India, Government or other governing agencies. This includes venture capital funds, social venture funds, SME funds, and infrastructure funds;

  • Category-2

    Such types of funds are permitted to invest in any grouping anywhere, but they are not permitted to undertake borrowings except for the purpose of daily operations. This consists of different funds such as debt.

  • Category-3

    This category of funds also consist of funds that make short-term investments and then sell such funds as hedge funds.

Which forms of entities wouldn't be deemed for Alternative Investment Fund Registration?

When analysing the provisions regarding the SEBI, the following types of entities will not be eligible for an Alternative Investment Fund Registration:

  • Family Trusts set up for the benefits of “relatives” as stated under the Companies Act, 1956;
  • Holding companies under Section 4 of the Companies Act, 1956;
  • Any pool of funds which is directly controlled by another regulator in India;
  • ESOP Trust established under the SEBI (Employee Stock Purchase Scheme and Employee Stock Option Scheme), Regulations, 1999 or as allowed under Companies Act, 1956;
  • Any other special-purpose vehicles not introduced by fund managers comprising securitisation Trusts, controlled by a particular regulatory framework;
  • Employee interests Trusts established for the employees' benefit;
  • Funds managed by securitisation or reconstruction company which is registered with the RBI under Section 3 of the Securitisation and Reconstructing of Financial Assets & Enforcement of Security Interest Act, 2002.

What are the Criteria for Alternative Investment Fund Registration in India?

Following are the important criteria that should be fulfilled by the application for Alternative Investment Fund Registration:

  • Trust Deed

    In case the Alternative Investment Fund is established as a Society or a Trust, and the original Trust Deed should also be provided in the application for AIF Registration;

  • Any Entity

    If any entity is planning to go for the registration of Alternative Investment Fund has to make sure that the MOA (Memorandum of Association) and AOA (Article of Association) are limited from inviting public from investing in the entity;

  • Partnership Deed

    If the Alternative Investment Fund is registered under the LLP (Limited Liability Partnership) Act, 2008 has to provide all the original documents regarding the deed for the process of Alternative Investment Fund Registration;

  • Investors have to be a Specific Amount

    For the registration of Alternative Investment Fund, there have to be the least amount of investors. But, the number of investors in an Alternative Investment Fund should not surpass 1000;

  • Residential Status

    Any individual, be it an NRI, Indian, or a foreigner, can invest in any Alternative Investment Fund.

What are the Essential Documents Required for Alternative Investment Fund Registration?

Following are some vital documents required for the registration of an Alternative Investment Fund:

  • Submit a Certificate of Registration of the entity;
  • Submit a copy of the Placement Memorandum of the entity;
  • In case the registration of AIF is carried out by a Partnership registered under the LLP Act, 2008, then you have to submit a Partnership Deed;
  • Provide detailed address and information related to the registered office;
  • Submit the information of Directors and Shareholders concerning the Alternative Investment Fund;
  • Submit an original Trust Dees in case the registration of an Alternative Investment Fund is carried out by a Society or a Trust which is incorporated under the Trusts Act;
  • Information of any other type of business concerning the expansion plans of the entity;
  • Submit an MOA (Memorandum of Association) and AOA (Articles of Association) of the company;
  • Information related to the applicant’s contact and other information.

Procedure for Alternative Investment Fund Registration with SEBI

Following is the step by step process for an AIF Registration with SEBI:

  • Form-A Application

    According to the SEBI (Alternative Investment Funds) Regulations, 2012, for the registration of an Alternative Investment Fund Registration, the applicant will have to make an application with the regulation of SEBI in Form A along with the cover letter and with other vital documents.

  • Inspection by SEBI

    Once the applicant filed and submitted the application to SEBI, then SEBI will respond within 21 working days to the applicant. But, the process of AIF Registration is based on the applicant. If the compliances are filed by the applicant within the time, then the process would be flawless.

  • Ensure the Compliances of SEBI

    To speed up the registration process, the applicant must go through the SEBI (Alternative Investment Funds) Regulations, 2012.

  • Cover letter

    Following are some important details that should be mentioned by the applicant in the cover letter:

    • Apply for the registration of a new fund;

    • Whether it is incorporated with SEBI as a Venture Capital Fund or not and if it is registered, then provide details;

    • Before the application, whether it has been undertaking activities of an Alternative Investment Fund. If yes, then submit details.

  • Letter of Authorisation

    In the case of an authorised signatory, there is a need to submit a letter of authorisation from the proposed Partners or Trustees or Directors of the fund.

  • Fee Payment

    For the registration, the applicant will submit Form A, which has been accurately filed, duly signed, numbered, and stamped along with the application fee of Rs. 1 Lakh through a demand draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.

  • Registration Certificate

    For granting the registration certificate, SEBI shall consider needs specified in regulations. After fulfilment, the application shall be approved by the SEBI and inform the applicant of the same.

    After attaining SEBI consent, it is necessary for an applicant to pay the registration fee of Rs, 5 lakhs (If the applicant failed to register with SEBI as a Venture Capital Fund) and re-registration fees of Rs. 1 lakhs (in case the applicant is registered with SEBI as a VCF) to Securities and Exchange Board of India by way of demand draft in favour of “The Securities and Exchange Board of India” payable at Mumbai. Securities and Exchange Board of India, on the receipt of re-registration or registration fees, will issue the registration certificate to the applicant as an AIF.

Compliance for AIF Registration

  • After the registration of an Alternative Investment Fund should obey the reporting necessities mentioned by SEBI from time to time;
  • For any notification / updating / guidelines issued by the Securities and Exchange Board of India concerning the activity of AIF, an Alternative Investment Fund should check on the website of SEBI on a regular basis;
  • In case of change in the details already provided to SEBI, Alternative Investment Fund should be intimate to SEBI within a reasonable time.

Restrictions for AIFs Investment and Fund Raising

  • During private placement, Alternative Investment Funds or AIFs raise funds, and they are not permitted to accept an investment of value not more than Rs. 1 crore from an investor. More than a thousand investors are not permitted under such fund, and each regime should have a corpus of Rs. 20 crore;
  • In Category I and II of AIFs are not allowed to invest more than 25% of the investible funds in 1 investee company while it is 10% for Category III of AIFs;
  • Another requirement is that the promoter or manager of the Alternative Investment must have a progressing interest of more than 2.5% of the starting amount of Rs. 5 crores, whichever is low;
  • It is needed for all alternative Investment Funds to obey the reporting norms of SEBI on a quarterly basis (for Category I, II and for those Category III AIFs which don't employ leverage or a monthly basis for Category III of ALFs which employ control);
  • Units of close finished Alternative Investment Funds are permitted to be listed on stock exchange subject to a minimum tradable of Rs. 1 crore but only after the final close of the scheme or fund;
  • Category III also have to additionally obey norms pertaining to compliance, risk management, redemption and leverage, as mentioned in the circular. The Category III leverage for prevarication and portfolio rebalancing transactions must not surpass two times the NAV of the fund.

Other Points Regarding the Alternative Investment Fund Registration

  • AIF’s Sponsor

    Sponsor is an individual who established an Alternative Investment Fund and consists of a promoter in case of company and proposesd partner in case of an LLP.

    Alternative Investment Fund Registration Certificate shall be valid till the AIF is wound up. But the certificate of an Alternative Investment Fund Registration would be valid for a lifetime.

  • Corpus

    It is the total amount of funds that are dedicated by investors on a specific date to the Alternative Investment Fund by way of a written agreement or any such document.

  • Limit specified regarding the number of investors under the Regulations of AIF

    No scheme of an Alternative Investment Fund (other than angel funds) shall have not less than 1000 investors. In the case of an angel fund, no scheme shall have more than 49 angel investors. But, an Alternative Investment Fund can raise funds from the complicated investors only through private placement and cannot make an invitation to the public at great to pledge its units.

  • Redressal of Grievances

    Securities and Exchange Board of India has a web-based centralised complaint redress system called “SEBI Complaint Redress System (SCORES)” where investors can file their complaints against Alternative Investment Funds. For argument resolution, it is required for AIF or Sponsor or Manager to lay down the procedure for resolving arguments between the investors, Manager, AIF, or Sponsor through arbitration or any such mechanism as jointly decided between the AIF and the investors.

Frequently Asked Questions

AIF or Alternative Investment Fund means any fund registered or established in India, a privately pooled investment vehicle that collects investors' funds, whether they are India, Non-Resident Indian, or foreign.

It is a sub-category of VCF or Venture Capital Fund under Category I of AIF that raises funds from angel investors and invests as per the requirements of Chapter III-A of the regulations of Alternative Investment Fund.

It is an AIF that invests mainly in debt securities of listed/unlisted investee entities as per the prescribed objectives of the fund.

Alternative Investment Fund Registration Certificate shall be valid till the AIF is wound up. But the certificate of an Alternative Investment Fund Registration would be valid for a lifetime.

  • First Application fee- Rs. 1, 00,000
  • Category I registration fee- Rs. 5, 00,000/-
  • Category II registration fee- Rs. 10, 00,000/-
  • Category III registration fee- Rs. 15, 00,000/-.

The minimum size of an AIF Scheme is Rs. 20 crores.

Securities and Exchange Board of India has a web-based centralised complaint redress system called “SEBI Complaint Redress System (SCORES)”, where investors can file their complaints against Alternative Investment Funds.

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