SEBI Requirement for Registration of an Alternative Investment Fund

Posted by Raman Kumar on April 18th, 2018

According to the Securities and Exchange Board of India, Alternative Investment Funds in India means “any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.” For instance, Infrastructure Investment Fund is types of Alternative Investment Fund in India.

Eligibility Criteria

In order to gain recognition as an Alternative Investment Fund in India, a company has to meet a number of requirements that will be assessed by SEBI.

SEBI says that for the grant of a certificate to an applicant, the Board reviews and assesses the following conditions for eligibility, which include,

1. The memorandum of association in case of a company; or Trust Deed in case of a Trust; or the Partnership deed in case of a limited liability partnership permits it to carry on the activity of an Alternative Investment Fund; to check if an applicant is prohibited from making an invitation to public to subscribe to its securities;
2. In case the applicant is a Trust, the board evaluates if the instrument of trust is a deed which is duly registered under the provisions of the Registration Act, 1908;
3. In case the applicant is a limited liability partnership, the board evaluates if the partnership is duly incorporated and the deed is duly filed with the Registrar under the provisions of the Limited Liability Partnership Act, 2008;
4. In case the applicant is a body corporate, it is important to be set up or established under the laws of the Central or State Legislature and is permitted to work as an Alternative Investment Fund;
5. The SEBI insures the applicant, Sponsor and Managers fit the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
6. The Manager’s key investment team of Alternative Investment Fund has experience with at least one key personnel having not less than five years of experience in advising or managing large capital or fund or asset or portfolio or experience in the business of buying, selling and dealing of securities or financial assets;
7. The board evaluates whether the Manager or Sponsor has the necessary infrastructure and manpower to effectively perform its activities;
8. The applicant must also clearly have described at the time of registration, the investment objective, targeted investors, planned corpus, investment strategy and tenure of the fund or scheme;
9. The board also evaluates if the application or any other entity established by the Sponsor or Manager has earlier been rejected/refused registration by the Board before the current application.

Alternative Investment funds (AIFs) are assets that are non-conventional investments, such as stocks, bonds and cash. Alternative investments also include private equity funds, hedge funds, futures, real estate investments, commodities and derivatives contracts and much more.

Since, most alternative investment assets have complex nature and are held by institutional investors or, high-net-worth individuals, the performance and eligibility of the Investment fund is highly vital. Thus, one must ensure the AIF is registered with the SEBI and offer investors a wide range of investment opportunities and greatest return potential.

Author Bio:

The author of this article discusses eligibility criteria companies need to attain before being granted a licence by SEBI for alternative investment funds in India.