Alternative Investment funds in India’s economy has got a boost ever since came into existence in India in 2012. There has been a steady hike in the number of investors...
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Every investor who is interested to invest fund in India should know about Alternative Investment Fund. The concept of Alternative Investment Fund (AIF) is becoming quite popular and is advantageous to the public at large. Moreover, Alternative Investment Fund registration helps in providing better returns to the investors. It is regulated under Regulation 2 (1) (b) SEBI (Alternative Investment Funds) Regulation, 2012.
Here, in this blog, we will discuss this newly launched registration fund in detail.
Definition of Alternative Fund Investment
Alternative Investment fund/AIF is one of the best types of investment funds in India that investors can utilize for investing as well as gaining benefits.
The alternative Investment fund is a fund that is invested in asset classes other than stocks, bonds and cash. It collects funds from the investors and later on invests the funds for the benefit of investors.
What is Alternative Investment Fund Registration?
Alternative Investment Fund Registration is a permit which enables every investor to avail a number of benefits whether for investing or getting funds. In India, AIF is defined under Regulation 2(1) (b) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
Alternative Investment Fund is a private fund which doesn’t fall under the jurisdiction of any regulatory agency. It’s a fund that invites investors from India or outside of India to invest funds for the benefit of other investors. Alternative Investment fund does not include those funds which are covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. Alternative Investment fund includes venture capital fund, private equity funds, debt funds etc.
Categories under which you can seek Alternative Investment Fund Registration
An applicant/entity can seek Alternative Investment Fund registration under the following three categories:
- Category – I AIF
- Category – II AIF
- Category – III AIF
1. Category – I AIF
This Category deals with AIFs which invest the fund in a start-up or early-stage ventures or social ventures. Venture capital funds, SME fund, social ventures funds, infrastructure funds etc. fall under this category.
2. Category – II AIF
Under this category, AIFs are not permitted to undertake to borrow except for day to day operational requirements.
3. Category – III AIF
Alternative Investment funds, like hedge funds and funds which trade to make short-term returns, fall under this category.
Eligibility criteria for Alternative Investment Fund Registration
Following criteria needs to be fulfilled for registration of Alternative Investment Fund:
- An applicant or entity is prohibited by its memorandum and articles of association from inviting public to subscribe to its securities.
- Maximum number of investors could be 1000.
- If the applicant is a trust, then the applicant has to furnish the trust deed duly registered under provisions of the Registration Act, 1908.
- In case, the applicant is a limited liability partnership, then a partnership deed duly filed with the Registrar under the Limited Liability Partnership Act, 2008 has to be furnished.
- The investor must be an Indian or NRI.
Documents required for AIF Registration
An applicant who is interested to obtain AIF registration must submit all the documents mentioned below:
1) Name and address of the registered office;
2) Company registration certificate, if any;
3) E-mail address of the applicant;
4) Partnership deed, if any;
5) Trust deed, if any;
6) Copy of the draft placement memorandum;
7) Details of the business plan and investment strategy.
Process of Alternative Investment Fund Registration
To obtain AIF registration, an entity has to follow the below steps:
Step 1 – The Applicant requires to make application to the Security and Exchange Board of India in Form A as provided in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. Applicant along with the application needs to attach all the necessary documents and fess.
Step 2 – Upon receipt of the application, within 21 working days, the applicant will receive a reply from the Security and Exchange Board of India/SEBI.
Step 3 – For checking the eligibility criteria, the applicant should go through the SEBI Regulations.
Step 4 – It is mandatory on part of the applicant to mention in the covering letter that it is registered with SEBI as a Venture capital fund or not. If the applicant is registered as a Venture capital fund, then it needs to provide all the details.
Prior to filing application for registration, if the applicant has already undertaken the activities of AIF, then it has to provide details.
In cover letter applicant has to state that it is applying for registration of a new fund.
Step 5 – As an important part of the registration process, the applicant has to submit Form A duly signed and stamped, application fees by way of bank draft.
Grant of Registration Certificate
- Security and Exchange Board of India shall consider the requirements as prescribed in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 for purpose of grant of registration.
- If SEBI is satisfied that applicant fulfills all the requirements as mentioned in the regulation, then only SEBI will approve the registration application and convey the same to the applicant.
- Upon receipt of approval from SEBI, the applicant needs to pay the proper registration fee by way of the bank
- After receiving the registration fees, SEBI will grant the certificate of registration.
AIF registration fees
An applicant needs to pay the registration fee as prescribed under SEBI Regulations. Following is the fee structure for AIF registration.
Application fee- Rs.1, 00,000
- The registration fee for Category I Alternative Investment Fund is Rs. 5, 00,000.
- The registration fee for Category II Alternative investment Fund is Rs. 10, 00,000.
- The registration fee for Category III Alternative investment Fund is Rs. 15, 00,000.
Validity of AIF registration certificate
AIF registration certificate is valid until the company is wound up.
Post registration compliance
After obtaining registration, an applicant has to comply with the following requirements:
1) AIF needs to comply with the reporting requirements as specified by SEBI.
2) AIF has to check the SEBI website for any circulars, guidelines of SEBI.
3) If AIF wants to make changes in the details submitted to SEBI, then AIF must intimate the same to SEBI.
From the above discussion, we can conclude that the Alternative Fund Investment Registration is mandatory for investors seeking to set up the business of Angel Funding, Venture Capital, etc. At present, among the investors, AIF registration is in high demand. Due to better returns and all other facilities, AIF attracts Investors to obtain registration. As we have observed, the registration process of AIF is hassle-free if you fulfill all its eligibility criteria and have all the required documents. Once SEBI has scrutinized the records and is satisfied with every detail, it will grant the applicant with the certificate of registration of AIF. After receiving the AIF license, the applicant is strictly advised to follow up with the post-compliance to avoid any obstacle arising in business operation in the future.
If you have any doubt relating to AIF, then kindly contact us.