The Securities and Exchange Board of India (Sebi) said on Monday an existing fund falling within the definition of an Alternative Investment Fund (AIF), but not registered with it, may continue to operate for only six months more.
To bring unregulated funds like hedge funds, private equity and venture capital under its ambit, Sebi, in April had come out with a proposed framework for AIFs, which was notified on Monday.
An AIF will be any fund established or incorporated in India in the form of a trust, company, limited liability partnership or body corporate, which is a privately pooled investment vehicle that collects funds from investors. Such funds are not covered under the Sebi (Mutual Funds) Regulations, 1996, Sebi (Collective Investment Schemes) Regulations, 1999 or any other rules to regulate fund management activities.
| GOING BY THE RULE BOOK |
| * Existing funds will have to register under new AIF rules within six months |
| * Existing schemes will be allowed to complete their tenure, but cannot raise fresh funds |
| * Funds registered under Sebi VC norms can operate till these are wound up |
| * Funds qualifying as AIFs, if not registered, will cease to exist |
Funds that will not fall under the ambit of AIF include family trusts, ESOP trusts, employee welfare trusts, holding companies and pool of funds directly regulated by any other regulator in India. Sebi has said it may extend the registration deadline by up to 12 months in some special cases.
The regulator has further stated that existing schemes will be allowed to complete their agreed tenure. However, these schemes will not be allowed to raise any fresh funds other than commitments already made till the AIF registration is granted.
Sebi has also said if such existing funds are not able to comply with conditions specified under AIF regulations, they may apply for exemption from strict compliance. The regulator, upon examination, may provide exemptions or instructions.
Funds registered as a venture capital fund under Sebi (Venture Capital Funds) Regulations, 1996 shall continue to be regulated by the said regulations till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of AIF regulations. Such funds will not be allowed to increase their targeted corpus. They may be allowed to re-register under AIF regulations, subject to approval of two-thirds of their investors (by value of their investment).
Sebi, in the notification, has said any entity which qualifies as an AIF shall cease to carry on any activity if it fails to make an application for grant of certificate within the specified period. The regulator has said the certificate of registration will be valid till the scheme is wound up.