Registration of Alternative Investment Funds
Chapter II - Registration of Alternative Investment Funds
Regulation 3. Registration of Alternative Investment Funds
3(1).
These regulations apply from the date on which they come into force.
From that date onwards, no person or entity can act as an Alternative Investment Fund (AIF) without registration.
To operate as an AIF, the person or entity must first obtain a certificate of registration from the Board.
Registration with the Board is therefore a mandatory prerequisite for carrying on the activities of an Alternative Investment Fund.
Any person or entity acting as an AIF without obtaining such registration would be in contravention of the regulations.
Existing Funds Allowed to Continue Temporarily
With respect to funds that already existed when the AIF Regulations came into force and fall within the definition of an Alternative Investment Fund:
Such funds may not have been registered with the Board at the time the regulations commenced.
To facilitate a smooth transition to the new regulatory framework, these existing funds are permitted to continue operating for six months from the commencement of the regulations.
If the fund submits an application for registration under sub-regulation (5) within this six-month period, it may continue to operate even after the expiry of the six months.
In such a case, the fund can continue its operations until the Board disposes of the registration application.
Example:
The AIF Regulations come into force on 1 January.
An existing fund that is not registered may continue operating until 30 June.
If the fund applies for registration on 15 May, it can continue operating beyond 30 June until the Board decides whether to grant or reject the application.
Extension of the Transition Period
Existing unregistered funds are ordinarily permitted to continue operating for six months from the commencement of the regulations.
However, in special cases, the Board may grant an extension of this period.
The extension is granted at the discretion of the Board after considering the circumstances of the case.
The total period for which the fund may continue to operate cannot exceed twelve months from the date of commencement of the regulations.
Accordingly, the maximum extension available is up to an additional six months beyond the initial six-month period.
Existing Schemes May Continue Until Their Expiry
Existing schemes of a fund are allowed to continue and complete their agreed tenure.
The commencement of the AIF Regulations does not require such schemes to be terminated before the end of their contractual term.
However, until registration is granted under Regulation 6, the fund cannot raise any fresh monies from investors.
The fund may continue to draw down or receive amounts only from commitments that were already made before the regulations came into force or before registration is granted.
Accordingly, the fund can continue operating its existing schemes, but it cannot seek or accept new investment commitments until it obtains registration.
Example:
A scheme has a tenure of 8 years and still has 3 years remaining when the regulations come into force.
The scheme may continue for those remaining 3 years.
If investors had already committed ₹100 crore, the fund may call and receive those committed amounts.
However, the fund cannot raise an additional ₹50 crore from new investors until registration is granted.
Existing Funds Not Accepting Fresh Commitments
With respect to existing funds that were already operating when the AIF Regulations came into force:
Such funds may decide not to accept any fresh commitments from investors after the commencement of the regulations.
Where a fund does not propose to raise any new commitments, it is not required to obtain registration under the AIF Regulations.
However, the exemption from registration is subject to a condition.
The fund must submit information regarding its activities to the Board.
Such information must be furnished in the manner specified by the Board.
So , while the fund may continue without registration, it remains subject to the Board's oversight through the reporting requirements.
Example:
A fund had already raised ₹200 crore before the regulations came into force.
The fund decides that it will not seek any additional commitments from investors.
In such a case, the fund may continue operating without obtaining AIF registration, provided it submits the required information to the Board as prescribed.
Exemption from Strict Compliance
With respect to existing funds that are unable to comply with one or more conditions prescribed under the AIF Regulations:
In such cases, the fund may apply to the Board seeking an exemption from strict compliance with the relevant requirements.
The application must explain why compliance is not possible or practical in the circumstances of the fund.
Upon receiving the application, the Board may examine the facts and circumstances of the case.
After such examination, the Board may grant appropriate exemptions from the regulatory requirements.
Alternatively, the Board may issue specific directions or instructions that the fund must follow.
The relief is therefore not automatic and depends on the Board's assessment of the case.
3(2).
With respect to funds that were already registered as Venture Capital Funds (VCFs) under the SEBI (Venture Capital Funds) Regulations, 1996:
Such funds are not immediately brought under the AIF Regulations.
Instead, they continue to be regulated by the Venture Capital Funds Regulations, 1996.
This regulatory treatment continues until the existing fund or scheme managed by the VCF is wound up.
Accordingly, existing investments and schemes are allowed to run their course under the regulatory framework under which they were originally established.
However, after the notification of the AIF Regulations, these VCFs cannot launch any new schemes under the old Venture Capital Funds Regulations.
So, while existing schemes may continue until their completion, no fresh schemes can be started under the old VCF regime.
Example:
A Venture Capital Fund registered in 2010 has two existing schemes.
Those schemes may continue and remain governed by the Venture Capital Funds Regulations, 1996 until they are wound up.
However, after the AIF Regulations come into force, the fund cannot launch a third scheme under the old VCF framework.
Restriction on Increasing the Targeted Corpus
With respect to existing Venture Capital Funds and their schemes that are allowed to continue under the old regulatory regime:
After the notification of the AIF Regulations, the existing fund or scheme cannot increase its targeted corpus.
The targeted corpus refers to the amount of capital that the fund or scheme originally intended to raise from investors.
Accordingly, the fund must operate within the corpus size that was contemplated before the notification of the regulations.
The fund cannot revise its fund-raising target upward after the regulations come into force.
Example:
A Venture Capital Fund scheme was launched with a targeted corpus of ₹500 crore.
After the notification of the AIF Regulations, the scheme may continue to raise commitments up to ₹500 crore if permitted under its existing terms.
However, it cannot revise its targeted corpus to ₹700 crore or any higher amount.
Option to Register as a Migrated Venture Capital Fund
With respect to Venture Capital Funds (VCFs) that are registered under the old Venture Capital Funds Regulations, 1996:
Such Venture Capital Funds are given an option to migrate to the AIF regulatory framework.
To do so, they may apply for registration as Migrated Venture Capital Funds under Chapter III-D of the AIF Regulations.
The application for migration must be made within twelve months from the date of notification of the SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2024.
Migration is not automatic and requires registration under the procedure prescribed in Chapter III-D.
Upon successful registration, the Venture Capital Fund becomes a Migrated Venture Capital Fund.
It is thereafter governed by the provisions applicable to such funds under the AIF Regulations.
Additional Requirements for Non-Migrated Venture Capital Funds
With respect to Venture Capital Funds that choose not to register as Migrated Venture Capital Funds under Chapter III-D.
Such funds may continue under their existing status, but they may become subject to additional regulatory requirements.
The Board is empowered to prescribe enhanced regulatory reporting for these funds.
Enhanced reporting may require the funds to provide more frequent, detailed, or comprehensive information to the Board.
The Board may also specify other regulatory measures that it considers necessary.
These requirements may be introduced to have a regulatory oversight of Venture Capital Funds that remain outside the migrated VCF framework.
Accordingly, a Venture Capital Fund that does not migrate may continue to operate, but:
It may be required to comply with additional reporting and compliance obligations as specified by the Board.
3(3).
With respect to entities referred to in 3(1), namely:
Funds that were already in existence when the AIF Regulations came into force.
Funds which fall within the definition of an Alternative Investment Fund.
Such funds were given a transitional period to either obtain registration or apply for registration under the AIF Regulations.
During this period, they were permitted to continue their operations even though they were not yet registered with the Board.
However, to avail themselves of this transitional benefit:
They were required to submit an application for grant of a certificate of registration within the period prescribed under the regulations.
The filing of the application within the prescribed period is therefore a mandatory requirement.
If the fund fails to submit the application within the specified period, it becomes ineligible to continue operating under the transitional arrangement.
In such a case, the fund must cease carrying on any activity as an Alternative Investment Fund.
So, the fund can no longer hold itself out as an AIF or conduct activities that require AIF registration.
It cannot continue raising capital from investors as an AIF.
It cannot launch new investment activities in the capacity of an AIF.
It also cannot continue carrying on its business as an Alternative Investment Fund without the required registration.
3(4).
Every Alternative Investment Fund (AIF) is required to obtain registration under one of the categories prescribed in the regulations.
The applicant must choose the category that corresponds to the nature, objectives, and investment strategy of the fund.
Accordingly, an AIF must seek registration as a Category I AIF, Category II AIF, or Category III AIF, or a Specified Alternative Investment Fund as applicable.
Where the applicant seeks registration as a Category I AIF, an additional classification is required.
In such a case, the applicant must also specify the relevant sub-category within Category I.
(a). Category I Alternative Investment Fund
A Category I Alternative Investment Fund (AIF) is a fund that invests in sectors or areas considered socially or economically desirable.
The fund may invest in:
Start-ups.
Early-stage ventures.
Social ventures.
Small and Medium Enterprises (SMEs).
Infrastructure projects.
Other sectors or areas that the Government or regulators consider socially or economically desirable.
The objective of this category is generally to channel capital into sectors that contribute to economic growth, innovation, employment generation, infrastructure development, or social welfare.
Category I AIFs specifically include:
Venture Capital Funds.
SME Funds.
Angel Funds.
Social Impact Funds.
Infrastructure Funds.
Special Situation Funds.
The Board may also specify additional types of Alternative Investment Funds that will be included within Category I.
Understanding Angel Funds & Special Situation Funds
Angel Funds
An Angel Fund is a sub-category of a Category I AIF.
It pools money from angel investors and invests in start-ups and early-stage businesses.
These businesses are often at a very early stage and may not yet have access to traditional sources of financing.
Angel Funds typically invest in companies with innovative business models, products, or technologies that have significant growth potential.
Because the companies are at an early stage, the investments are generally high-risk but may also generate high returns if the business succeeds.
The objective is to provide capital to promising start-ups during their initial stages of growth.
Example:
A technology start-up develops a new AI-based software product but lacks funds to expand its operations.
An Angel Fund may invest in the company in exchange for equity, helping it grow until it can attract larger investors.
An Angel Fund is a pooled investment vehicle through which experienced investors collectively invest in very early-stage start-ups.
Special Situation Funds
A Special Situation Fund (SSF) is a sub-category of a Category I AIF.
It invests in assets or companies facing a special situation, such as financial distress, insolvency, restructuring, stressed assets, or other exceptional circumstances.
These investments are usually made where the fund believes value can be unlocked through turnaround, restructuring, recovery, or resolution.
Special Situation Funds often acquire assets that other investors may be unwilling to invest in because of the associated risks.
The objective is to generate returns by purchasing such assets at an attractive valuation and benefiting from their recovery or resolution.
Special situations may include:
Distressed companies.
Insolvency proceedings.
Non-performing loans (NPLs).
Stressed assets acquired from banks or financial institutions.
Companies undergoing restructuring.
Example:
A manufacturing company enters insolvency proceedings due to financial difficulties.
A Special Situation Fund purchases the company's debt at a discount and later profits if the company is successfully restructured and its value improves.
Explanation:
For the purpose of determining which Alternative Investment Funds (AIFs) fall within this category:
Certain AIFs are regarded as having positive spillover effects on the economy.
These funds are considered beneficial because their activities may promote:
Economic growth.
Innovation.
Investment.
Employment generation.
Development of specific sectors.
Since these funds are viewed positively, SEBI, the GOI , or other Indian regulators may decide to provide them with incentives, benefits, or regulatory concessions.
Such AIFs are therefore included within the scope of this clause.
If these eligible AIFs are established in the form of a trust, then:
They are treated as a venture capital fund for the purposes of Section 10(23FB) of the Income-tax Act, 1961.
If these eligible AIFs are established in the form of a company, then:
They are treated as a venture capital company for the purposes of Section 10(23FB) of the Income-tax Act, 1961.
As a result, these AIFs are construed and recognized as either a venture capital fund or a venture capital company, depending on their legal structure.
(b). Category II Alternative Investment Fund.
A Category II Alternative Investment Fund (AIF) is a fund that does not fall within Category I or Category III.
It serves as the residual category for AIFs that do not satisfy the characteristics of the other two categories.
Such funds are generally not focused on sectors that receive special regulatory encouragement or incentives, as is the case with Category I AIFs.
At the same time, they do not employ the complex trading strategies typically associated with Category III AIFs.
A Category II AIF is generally prohibited from undertaking leverage or borrowing.
However, borrowing may be undertaken to the limited extent specifically permitted under the AIF Regulations.
The fund is therefore expected to operate primarily using the capital contributed by its investors rather than borrowed funds.
Common examples of Category II AIFs include:
Private Equity Funds.
Debt Funds.
Example:
A fund that raises ₹1,000 crore from investors and uses that capital to acquire stakes in unlisted companies would generally be classified as a Category II AIF.
Since it does not invest in socially desirable sectors like a Category I AIF and does not employ leveraged trading strategies like a Category III AIF, it falls within Category II.
So , Category II AIFs are funds that occupy the middle ground between Category I and Category III & generally operate without leverage except where specifically permitted by the regulations.
Explanation:
These are the types of funds that are generally included within Category II AIFs:
Category II AIFs include funds that do not fall within Category I or Category III.
Private Equity Funds and Debt Funds as examples of Category II AIFs.
These funds are generally not established for sectors that receive special regulatory encouragement or incentives.
Unlike Category I AIFs, they are not considered funds for which the Government or regulators typically provide specific incentives or concessions.
Accordingly, no special regulatory or fiscal benefits are ordinarily associated with these funds merely because of their category.
A Private Equity Fund investing in unlisted companies for capital appreciation would generally fall within Category II.
A Debt Fund investing in debt securities or lending to businesses would also generally fall within Category II.
So, Category II AIFs primarily include conventional investment funds, such as Private Equity Funds and Debt Funds.
These funds also do not receive special incentives and do not employ the leveraged or complex trading strategies associated with Category III AIFs.
(c). Category III Alternative Investment Fund
A Category III Alternative Investment Fund (AIF) is a fund that employs diverse or complex trading strategies to generate returns.
Unlike Category I and Category II AIFs, these funds often engage in active trading and sophisticated investment techniques.
The fund may adopt multiple investment and trading strategies depending on market opportunities.
A Category III AIF is permitted to employ leverage, subject to the conditions prescribed under the regulations.
Leverage involves using borrowed funds or other mechanisms to increase investment exposure beyond the capital contributed by investors.
The fund may obtain such leverage through various means, including investments in derivatives.
The fund may invest in listed derivatives traded on recognized stock exchanges.
It may also invest in unlisted derivatives.
The use of leverage and derivatives generally increases both the potential returns and the risks associated with the fund.
Explanation:
These are the types of funds that are generally included within Category III AIFs.
Category III AIFs typically employ diverse or complex trading strategies and may use leverage.
Hedge Funds is an example of Category III AIFs.
It also includes funds that actively trade securities with the objective of generating short-term returns.
Unlike traditional long-term investment funds, these funds often seek to profit from short-term market movements and trading opportunities.
It also includes open-ended funds that possess the characteristics of Category III AIFs.
An open-ended fund is a fund in which investors are generally allowed to enter and exit the fund during its life, subject to the terms of the fund.
These funds are generally not established for sectors that receive special regulatory encouragement or incentives.
Accordingly, no specific incentives or concessions are ordinarily provided by the Government or other regulators merely because such funds fall within this category.
Example:
A hedge fund that uses derivatives, leverage, and short-selling strategies to generate returns would generally be a Category III AIF.
A fund that frequently buys and sells securities to profit from short-term price fluctuations would also typically fall within Category III.
(d). Specified Alternative Investment Fund
Specified Alternative Investment Fund refers to a category of Alternative Investment Fund recognized under Regulation 19 of the AIF Regulations.
Whether an AIF qualifies as a Specified Alternative Investment Fund is determined by the conditions and requirements laid down in Regulation 19..
Accordingly, whenever the regulations refer to a Specified Alternative Investment Fund, reference must be made to Regulation 19 to determine which funds are covered by that expression.
3(5).
Any person or entity seeking registration as an Alternative Investment Fund must submit an application for the grant of a certificate of registration.
The application must be made for the specific category of AIF under which registration is sought, as specified in 3(4).
Accordingly, the applicant must indicate whether it seeks registration as a Category I, Category II, or Category III Alternative Investment Fund.
The application must be submitted in Form A prescribed under the First Schedule to the regulations.
The application must be accompanied by the prescribed application fee.
The application fee is non-refundable, meaning it will not be returned even if the application is rejected or withdrawn.
The amount of the application fee is specified in Part A of the Second Schedule to the regulations.
The fee must be paid in the manner prescribed in Part B of the Second Schedule.
3(6).
Upon receiving an application for registration, the Board examines whether the applicant satisfies the requirements prescribed under the AIF Regulations.
The Board takes into account all relevant eligibility conditions, registration requirements, and regulatory criteria specified in the regulations.
The assessment is carried out to determine whether the applicant is suitable to operate as an Alternative Investment Fund.
The Board does not grant registration automatically upon receipt of an application.
Instead, registration is considered only after evaluating the applicant's compliance with the applicable requirements.
The decision to grant or refuse registration is based on the Board's assessment of whether the applicant meets the requirements laid down in the regulations.
3(7).
Once granted, the certificate of registration remains valid for the entire existence of the Alternative Investment Fund.
The certificate does not require periodic renewal during the life of the fund.
The registration continues to remain in force until the Alternative Investment Fund is wound up.
Accordingly, the validity of the certificate is linked to the existence of the fund itself.
However, the continuation of the certificate does not restrict the Board's regulatory powers.
The Board continues to retain all powers available to it under the Act and the regulations.
So, if the fund violates the law or fails to comply with regulatory requirements:
The Board may still take appropriate action notwithstanding the validity of the registration.
3(8).
The Board may exercise this power when it considers it necessary to protect the interests of investors.
In such circumstances, the Board may issue directions relating to the records, documents, securities, or investments of the Alternative Investment Fund.
The Board may direct the transfer of records and documents relating to the fund.
It may also direct the transfer of securities held in connection with the fund's activities.
In addition, the Board may issue directions regarding the disposal or liquidation of investments held by the fund.
These directions may be issued so that the affairs of the fund are managed in a manner that safeguards investor interests.
3(9).
The Board may exercise this power when it considers it necessary to protect the interests of investors.
For this purpose, the Board may appoint any person to take charge of the fund's records, documents, or securities.
The appointed person may be entrusted with the custody, management, or control of such records, documents, and securities.
The appointment is made to make sure that these assets are properly preserved, managed, and dealt with in the interests of investors.
The Board has the authority to decide who should be appointed for this role.
The Board may also determine the terms and conditions governing the appointment.
Such terms and conditions may specify the scope of the person's responsibilities, powers, duties, and manner of functioning.
Regulation 4. Eligibility Criteria.
Before granting a certificate of registration, the Board examines whether the applicant satisfies the prescribed eligibility requirements.
These conditions are used by the Board to assess the suitability of the applicant for registration as an Alternative Investment Fund.
The conditions for eligibility are as follows:
(a). Governing Documents Must Authorise AIF Activities
The Board must be satisfied that the applicant's constitutional documents permit it to carry on the activity of an Alternative Investment Fund.
The relevant document depends on the legal form of the applicant.
In the case of a company; The Memorandum of Association (MOA) must authorize the company to undertake the activities of an Alternative Investment Fund.
In the case of a trust: The Trust Deed must permit the trust to operate as an Alternative Investment Fund.
In the case of a Limited Liability Partnership (LLP): The Partnership Deed must authorize the LLP to carry on the activities of an Alternative Investment Fund.
The authority to act as an AIF must be expressly or sufficiently reflected in the relevant governing document.
The Board examines these documents to ensure that the proposed AIF activities are within the legal powers and objects of the applicant.
Example:
If a company's Memorandum of Association only permits it to engage in real estate development & contains no object relating to fund management or investment activities then:
The company may be required to amend its MOA before registration can be granted.
Similarly, if a trust deed does not authorize the trust to establish and operate an investment fund, the trust may need to amend the deed before seeking registration.
(b).
The Board must be satisfied that the applicant is prohibited from making a public invitation to subscribe to its securities.
This restriction must be contained in the applicant's governing documents.
In the case of a company: The restriction should be reflected in its Memorandum of Association (MOA) and Articles of Association (AOA).
In the case of a trust: The restriction should be contained in the Trust Deed.
In the case of an LLP: The restriction should be contained in the Partnership Deed.
The applicant must therefore operate as a privately placed investment vehicle and not as a fund that raises money from the general public.
This requirement is consistent with the nature of Alternative Investment Funds, which raise capital through private placement rather than public offerings.
The constitutional documents must make it clear that the applicant cannot invite the public at large to subscribe to its units, securities, or interests.
(c).
If the applicant seeking registration as an AIF is constituted as a trust then:
The trust must be created through a formal trust deed.
Accordingly, the instrument creating the trust must be in the form of a deed and not merely an informal arrangement.
The trust deed must be validly executed in accordance with applicable law.
In addition, the trust deed must be duly registered under the provisions of the Registration Act, 1908.
The Board must be satisfied that the trust has been legally constituted and properly documented before granting registration.
Registration of the trust deed provides legal recognition and authenticity to the trust structure.
Example:
If a fund proposes to operate as a trust-based AIF, it must submit a registered trust deed evidencing the creation of the trust.
An unregistered trust deed would not satisfy this eligibility requirement.
(d).
If the applicant seeking registration as an AIF is constituted as a Limited Liability Partnership (LLP) then:
The LLP must be duly incorporated under the provisions of the Limited Liability Partnership Act, 2008.
So, the LLP must have been legally formed and registered with the appropriate authority.
The LLP must possess a valid certificate of incorporation evidencing its legal existence.
In addition, the partnership deed (LLP Agreement) must have been duly filed with the Registrar in accordance with the requirements of the LLP Act, 2008.
The Board must be satisfied that both the LLP and its governing agreement comply with the applicable legal requirements.
This condition ensures that the applicant has a valid legal structure and proper constitutional documentation before being granted registration as an AIF.
Example:
An LLP applies for registration as a Category II AIF.
The LLP must demonstrate that it has been incorporated under the LLP Act and that its LLP Agreement has been filed with the Registrar.
Failure to comply with either requirement may result in the applicant not satisfying the eligibility conditions for registration.
(e).
If The applicant seeking registration as an AIF is a body corporate then:
The body corporate must be validly established under a law enacted by either:
The Central Legislature, or
A State Legislature.
The entity must therefore derive its legal existence from a statutory framework.
Mere existence as a body corporate is not sufficient.
The law under which the entity is established, or its governing documents, must permit it to carry on the activities of an Alternative Investment Fund.
The Board must be satisfied that the entity has the legal authority to undertake fund management and investment activities as an AIF.
This condition makes sure that the applicant's proposed activities are within the scope of its legal powers.
Example:
A statutory corporation established under a Central Act may seek registration as an AIF.
However, it would satisfy this condition only if the legislation governing it permits investment fund activities or activities consistent with operating an AIF.
(f). Fit and Proper Person Requirement
The Board must be satisfied that the applicant, the Sponsor, and the Manager are all fit and proper persons.
This assessment is made in accordance with the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.
The requirement applies not only to the applicant entity but also to the persons responsible for establishing and managing the fund.
The idea of the condition is that only trustworthy, competent, and responsible persons are permitted to operate an Alternative Investment Fund.
While assessing whether a person is fit and proper, the Board may consider factors such as:
Integrity and honesty.
Reputation and character.
Fairness in conduct.
Competence and capability.
Financial soundness.
The Board may also examine whether the person has:
Been involved in fraud, misrepresentation, or dishonest conduct.
Been subject to regulatory or disciplinary action.
Been convicted of offences involving moral turpitude or financial misconduct.
Demonstrated conduct that may adversely affect investors or the securities market.
The assessment is intended to protect investors and maintain confidence in the securities market.
(g).
(i). Certification Requirement for the Key Investment Team
The key investment team of the Manager must include at least one key personnel who possesses a relevant certification.
The certification must be one that is specified by the Board from time to time.
The idea of this requirement is to make sure that:
The investment team includes a person with recognized knowledge and expertise in fund management, investments, and securities markets.
The certified individual should be part of the key personnel responsible for managing the investment activities of the AIF.
The Board may prescribe, modify, or update the required certifications through circulars, guidelines, or other regulatory directions.
Compliance with this requirement is assessed at the time of registration and must generally be maintained on an ongoing basis.
Exception for Accredited Investors Only Funds
This certification requirement does not apply to an Accredited Investors Only Fund.
Accordingly, where an AIF or scheme is exclusively offered to accredited investors, the Manager is not required to satisfy this particular certification requirement.
The rationale is that accredited investors are considered financially sophisticated and capable of evaluating investment risks independently.
Example
A Category II AIF applies for registration.
The Manager's key investment team includes a senior investment professional who holds a certification recognized by SEBI.
The requirement under clause (i) is satisfied.
However, if the AIF is an Accredited Investors Only Fund, the absence of such certification would not, by itself, result in non-compliance with this clause.
(ii). Professional Qualification Requirement for the Key Investment Team
The key investment team of the Manager must include at least one key personnel possessing a prescribed professional qualification.
The purpose of this requirement is to ensure that the Manager has suitably qualified individuals responsible for managing the investments of the Alternative Investment Fund.
The key personnel must possess a qualification in one of the following fields:
Finance.
Accountancy.
Business Management.
Commerce.
Economics.
Capital Market.
Banking.
The qualification must be obtained from any of the following:
A university recognized by the Central Government.
A university recognized by a State Government.
An institution recognized by the Central Government.
An institution recognized by a State Government.
A recognized foreign university.
Alternatively, the key personnel may hold a CFA Charter awarded by the CFA Institute.
The Board may also recognize and specify other qualifications from time to time.
The requirement is intended to ensure that the investment team possesses the necessary educational and professional expertise to manage investor funds effectively.
Same Person May Satisfy Both Requirements
Regulation 4(g) contains two separate requirements for the key investment team:
Regulation 4(g)(i): At least one key personnel must possess the prescribed certification specified by the Board.
Regulation 4(g)(ii): At least one key personnel must possess the prescribed professional qualification.
These two requirements do not necessarily have to be fulfilled by two different individuals.
The same key personnel may satisfy both requirements simultaneously.
Accordingly, if one individual possesses both:
The required certification under Regulation 4(g)(i); and
The required professional qualification under Regulation 4(g)(ii),
the Manager will be deemed to have complied with both requirements.
There is no obligation to appoint separate persons solely to satisfy each condition.
Continuity of Certification Requirement
With respect to certification requirement prescribed under Regulation 4(g)(i):
The required certification must remain valid at all times.
If the certification has a limited validity period, the concerned key personnel must obtain a fresh certification before the existing certification expires.
The renewal or fresh certification must be obtained in advance to avoid any gap in compliance.
The Manager cannot allow the certification to lapse and then seek renewal at a later date.
Accordingly, there should be no period during which the key investment team lacks the required valid certification.
Example
A key investment team member holds a certification that is valid until 31 December 2026.
To maintain compliance, the individual must obtain the fresh or renewed certification before 31 December 2026.
If the certification expires on 31 December and is renewed only in February 2027, the fund may be non-compliant during the intervening period.
In this case , the intervening period is from January 1 , 2027 until the day the certificate is renewed in February 2027.
(h). Adequate Infrastructure and Manpower Requirement
The Board must be satisfied that the Manager or Sponsor possesses the necessary infrastructure to carry out the activities of the Alternative Investment Fund.
The Manager or Sponsor must also have adequate manpower to effectively manage and operate the fund.
The infrastructure should be sufficient to support the fund's proposed operations, compliance obligations, investor servicing, record-keeping, and investment management activities.
The manpower should include personnel with the skills, experience, and expertise required for managing the fund and its investments.
The requirement makes sure that the fund is not merely established on paper but has the operational capability to function effectively.
The Board may consider whether the Manager or Sponsor has appropriate:
Office facilities.
Technology systems.
Compliance mechanisms.
Administrative support.
Investment management personnel.
The adequacy of infrastructure and manpower may be assessed having regard to the size, nature, and complexity of the proposed fund activities.
(i).
Clear Disclosure of Fund Details at the Time of Registration
The applicant must provide clear and complete information about the proposed fund at the time of seeking registration.
The Board must be able to understand the nature, purpose, and proposed operations of the fund from the information submitted by the applicant.
The applicant must clearly describe the following:
Investment Objective
The applicant must specify the purpose for which the fund is being established.
This explains what the fund seeks to achieve through its investments.
The purpose of the fund could be:
Investing in early-stage technology start-ups.
Generating long-term capital appreciation through private equity investments.
Investing in infrastructure projects.
Targeted Investors
The applicant must identify the category of investors to whom the fund will be offered.
This enables the Board to understand the intended investor base of the fund.
The category of investors could be:
High Net Worth Individuals (HNIs).
Institutional investors.
Accredited investors.
Family offices.
Proposed Corpus
The applicant must disclose the amount of capital it intends to raise for the fund or scheme.
The proposed corpus represents the target size of the fund.
Example:
A proposed corpus of ₹500 crore.
A proposed corpus of ₹1,000 crore.
Investment Style or Strategy
The applicant must explain how the fund intends to invest and manage its portfolio.
This helps the Board understand the risk profile and operational characteristics of the fund.
This could include:
Private equity investing.
Venture capital investing.
Distressed asset investing.
Debt financing.
Hedge fund strategies.
Proposed Tenure
The applicant must specify the duration for which the fund or scheme will operate.
This informs investors and the Board about the expected life of the fund.
Example:
A close-ended fund with a tenure of 8 years.
A fund with an initial tenure of 5 years and an extension option.
Why This Requirement Exists
The Board cannot evaluate an AIF application without understanding what the fund intends to do.
These disclosures help the Board assess whether the proposed fund fits within the category for which registration is sought.
They also promote transparency and makes sure that the fund's objectives, investor base, strategy, size, and duration are clearly defined from the outset.
(j). Previous Refusal of Registration by the Board
While considering an application for registration, the Board may examine whether the applicant has previously been refused registration by the Board.
The Board may also examine whether any other entity established by the Sponsor or Manager has previously been refused registration.
This assessment helps the Board understand the regulatory history and track record of the persons behind the proposed fund.
A previous refusal of registration does not automatically result in rejection of the current application.
However, it is a relevant factor that the Board may take into account while assessing the applicant's suitability for registration.
The Board may consider the reasons for the earlier refusal and whether those issues continue to exist.
Regulation 4(j) enables the Board to identify cases where the same Sponsor or Manager may be attempting to establish a new fund after an earlier registration refusal.
Regulation 5. Furnishing of Information.
5(1).
While considering an application for registration, the Board may require additional information or clarifications from the applicant.
The Board may seek information relating to the Sponsor of the fund.
It may also seek information relating to the Manager of the fund.
The Board may require further details regarding the nature of the fund, including its structure, objectives, or proposed activities.
It may also seek clarifications regarding the fund management activities proposed to be carried out by the applicant.
The Board is not limited to these matters and may request information on any other issue connected with the application.
The purpose of seeking such information is to enable the Board to properly assess whether registration should be granted.
This power is not confined to the registration stage.
Even after registration has been granted, the Board may require the fund to furnish further information or clarifications regarding these matters.
Accordingly, applicants and registered AIFs must be prepared to provide additional information whenever requested by the Board.
5(2).
During the process of considering an application for registration:
The Board may require a personal appearance from the applicant, Sponsor, or Manager.
If such a requirement is made, the concerned person must appear before the Board.
The appearance is for the purpose of personal representation.
During the personal representation, the Board may seek explanations, clarifications, or additional details regarding the application.
The applicant, Sponsor, or Manager may be required to address concerns raised by the Board and provide information relevant to the registration process.
Regulation 6. Procedure for grant of Certificate.
6(1).
After examining the application, the Board assesses whether the applicant satisfies the requirements prescribed under the AIF Regulations.
The Board considers the eligibility conditions, registration requirements, and other relevant criteria specified in the regulations.
If the Board is satisfied that the applicant has complied with the applicable requirements, it may grant registration.
The registration may be granted under the specific category for which the applicant qualifies.
Accordingly, the applicant may be registered as a Category I AIF, Category II AIF, or Category III AIF, depending on the nature and characteristics of the fund.
So , The grant of such registration is based on the Board's satisfaction that the applicant meets the requirements applicable to the relevant category.
6(2).
Once the Board decides to grant registration, the applicant is required to pay the prescribed registration fee.
The amount of the registration fee is specified in the Second Schedule to the AIF Regulations.
The grant of registration is contingent upon receipt of this fee by the Board.
After receiving the prescribed registration fee, the Board shall issue the certificate of registration.
The certificate is issued in Form B, as prescribed under the regulations.
The issuance of Form B serves as the formal recognition that the applicant has been registered as an Alternative Investment Fund under the applicable category.
6(3).
The Board may grant registration to an applicant after being satisfied that the requirements of the AIF Regulations have been fulfilled.
However, the registration need not be unconditional.
The Board has the discretion to impose additional conditions while granting registration.
Such conditions may be specified if the Board considers them necessary or appropriate in the circumstances of the case.
The conditions imposed become part of the terms on which the registration is granted.
The Alternative Investment Fund is required to comply with any such conditions in addition to the requirements prescribed under the regulations.
6(4).
While examining an application for registration:
The Board assesses whether the applicant complies with the requirements / eligibility criteria prescribed under Regulation 4.
In some cases, the applicant may satisfy all the requirements of Regulation 4 except those contained in clause (c) or clause (d), as applicable.
If the Board is otherwise satisfied with the application, it is not required to reject the application solely because clause (c) or clause (d) has not yet been complied with.
Instead, the Board may grant an in-principle approval to the applicant.
An in-principle approval is a provisional approval indicating that the applicant is broadly eligible for registration, subject to fulfillment of the remaining requirement.
It signifies that the Board is satisfied with the applicant's compliance with the other eligibility conditions under the regulations.
However, an in-principle approval is not the same as a certificate of registration.
The applicant does not become a registered Alternative Investment Fund merely upon receiving in-principle approval.
The applicant must still comply with the outstanding requirement under clause (c) or clause (d), as the case may be, before a certificate of registration can be granted.
Example:
An applicant satisfies all eligibility requirements relating to the Sponsor, Manager, investment strategy, and other regulatory conditions.
However, a trust deed or partnership deed required under Regulation 4(c) or 4(d) has not yet been completed.
In such a case, the Board may grant in-principle approval and allow the applicant time to complete the remaining requirement before granting final registration.
Compliance After In-Principle Approval
Under circumstances , the Board has granted an in-principle approval to an applicant:
The applicant must comply with the outstanding requirement under Regulation 4(c) or Regulation 4(d), as applicable.
Such compliance must be completed within six months from the date on which the in-principle approval is granted.
The six-month period gives the applicant an opportunity to complete the remaining legal or structural formalities required for registration.
Until the outstanding requirement is fulfilled, the applicant does not receive a certificate of registration.
Once the applicant complies with the applicable requirement within the prescribed period, the Board may proceed to grant registration.
The certificate of registration is then granted under sub-regulation (2).
Example:
An applicant receives in-principle approval on 1 January because all requirements have been met except the registration of a trust deed.
The applicant must complete the registration of the trust deed within six months, i.e., by 30 June.
Upon furnishing proof of compliance, the Board may grant the certificate of registration under Regulation 6(2).
6(5).
Under circumstances there is an Alternative Investment Fund that has received in-principle approval from the Board:
Upon receiving in-principle approval, the fund is permitted to approach investors and obtain their commitments.
A commitment is a promise by an investor to invest a specified amount in the fund when called upon to do so.
Accordingly, the fund may complete its fund-raising process and secure investor commitments during this stage.
However, the fund cannot actually receive or collect investment money from investors at this point.
The acceptance of any monies from investors is prohibited until the fund receives its final certificate of registration under 6(2).
So, there is a distinction between:
Accepting commitments (permitted), and
Accepting money (not permitted).
The restriction remains in place until the Board grants the formal certificate of registration.
Example:
A fund receives in-principle approval from the Board.
Investor A signs a commitment agreeing to invest ₹20 crore in the fund.
The fund may record this commitment and include it in its corpus planning.
However, the fund cannot collect the ₹20 crore from Investor A until the certificate of registration is actually granted by the Board.
Regulation 7. Conditions of certificate.
7(1).
Conditions Attached to Registration
The certificate of registration granted under Regulation 6 is subject to certain continuing conditions that must be complied with by the Alternative Investment Fund.
The following are the minimum conditions prescribed.
SEBI may impose additional conditions at the time of granting registration under Regulation 6(3).
(a). Compliance with the Act and Regulations
The Alternative Investment Fund must comply with the provisions of the Act.
It must also comply with all requirements prescribed under the AIF Regulations.
Compliance is an ongoing obligation and must be maintained throughout the life of the fund.
The fund is required to conduct its activities in accordance with the applicable legal and regulatory framework.
(b). Restriction to Permitted Activities
The Alternative Investment Fund must restrict its operations to activities that are permitted under the Act and the AIF Regulations.
The fund cannot engage in businesses or activities that fall outside its permitted scope of operations.
Its activities must remain consistent with its registration, investment objectives, and the regulatory framework applicable to AIFs.
Carrying on unauthorized activities would amount to a breach of the conditions of registration.
(c). Duty to Report False Information or Material Changes
The Alternative Investment Fund must make sure that the information and particulars submitted to the Board are accurate and complete.
If the fund discovers that any information previously submitted is false or misleading in any material respect, it must immediately inform the Board in writing.
The fund must also notify the Board in writing if there is any material change in the information already submitted.
A material change refers to a significant change that may be relevant to the Board's supervision or regulation of the fund.
7(2).
Every Alternative Investment Fund is registered under a specific category, such as Category I, Category II, or Category III.
The category is determined based on the fund's investment objectives, strategy, and characteristics at the time of registration.
Once registration is granted, the fund is expected to continue operating within the category under which it was registered.
The fund cannot unilaterally change its category after registration.
A change in category is permitted only with the prior approval of the Board.
Accordingly, if a fund wishes to move from one category to another, it must first seek and obtain the Board's approval.
Regulation 8. Procedure where registration is refused.
8(1).
After receiving an application made under Regulation 3:
The Board examines the application and the materials submitted by the applicant.
The Board assesses whether the applicant satisfies the requirements prescribed under the AIF Regulations.
Upon such examination, the Board may form the opinion that the applicant is not eligible for registration or that a certificate should not be granted.
However, the Board cannot reject the application immediately upon reaching that view.
Before rejecting the application, the Board must give the applicant a reasonable opportunity of being heard.
So , the applicant must be given an opportunity to present its case, provide explanations, furnish additional information, or respond to the concerns raised by the Board.
The objective of the hearing is that:
The applicant is not denied registration without being given a fair chance to address the Board's objections.
Only after providing such opportunity and considering the applicant's submissions may the Board decide whether to reject the application.
8(2).
The Board decides to reject an application for registration.
Once the decision to reject the application has been made, the Board must communicate that decision to the applicant.
The communication must be made within a specified time limit.
The Board is required to inform the applicant of its decision within thirty days.
8(3).
Under circumstances , the Board rejects an application for registration as an Alternative Investment Fund then:
Once the application is rejected, the applicant cannot continue operating as an Alternative Investment Fund.
The applicant must cease carrying on all activities that are undertaken in the capacity of an AIF.
The applicant can no longer hold itself out to investors as a registered or proposed Alternative Investment Fund.
It cannot continue raising funds, accepting commitments, making investments, or conducting fund management activities as an AIF.
The right to continue operations under any transitional arrangement also comes to an end upon rejection of the application.
Liabilities Towards Existing Investors Continue
Even where the applicant's registration application has been rejected and :
Although the applicant must cease carrying on activities as an Alternative Investment Fund, its obligations towards existing investors do not come to an end.
Any liability arising under applicable law continues to remain enforceable against the applicant.
Any obligations undertaken under agreements with investors also continue to remain binding.
The applicant cannot avoid its legal or contractual responsibilities merely because it is no longer permitted to operate as an AIF.
Investors continue to retain their rights under law and under the agreements entered into with the applicant.
Example:
A fund has raised money from investors and is contractually obligated to distribute proceeds from investments.
Even if its application for registration is later rejected, the fund must still honour those obligations and comply with its agreements with investors.
