Market regulator the Securities and Exchange Board of India (Sebi) today proposed new rules for Alternative Investment Funds (AIFs) and other private equity funds, pooling in capital from HNIs and corporates, but suggested keeping retail investors out of their ambit.
As per the guidelines proposed by Sebi, AIFs can pool in the money from High Networth Individuals, institutional investors or corporates through private placement, but should not solicit money from retail investors.
The regulator has suggested a minimum contribution from investors for such funds at Rs one crore to keep retail investor out of these funds due to a higher level of risks attached to them.
Inviting public comments on its proposed regulations for AIFs, Sebi said it intends to regulate private pools of capital where institutions or HNIs invest as AIFs.
"While institutions and HNIs are expected to be savvy investors and need not be protected from market and credit risk, there is need for a framework to deter from fraud, unfair trade practices and minimise conflicts of interest.
"Mitigation of potential conflict and deterrence to fraud etc, will be addressed through disclosure, incentive structures, reporting requirement and legal agreements," it said.
Sebi said a more comprehensive legal framework was necessary to promote growth of private pools of capital such as PE (Private Equity), VC (Venture Capital), PE (Private Investment in Public Equity) and Real Estate Funds.
"There is a need to recognise AIFs such as PE or VC, as a distinct asset class apart from promoter holdings, creditors and public investors," it said, while adding that the alternate asset industry also needed to be regulated for fair and efficient functioning of financial market.
The decision to frame separate regulations for AIFs was taken at Sebi's board meeting on Friday last week.
The regulator said it proposed to create a structure where regulatory framework was available for all shades of private pool of capital or investment vehicles so that such funds were channelised in the desired space in a regulated manner without posing systemic risk.
"At one end of the spectrum, there will be Mutual Funds or Collective Investment Scheme (CIS) which are for retail investors with prudential regulation seeking to regulate all kinds of risks.
"On the other end there are private pools of capital of institutions or sophisticated investors who entrust pooled funds to a manager who himself needs to have own funds forming part of the corpus."
Sebi has also proposed to increase the minimum investment requirement in Portfolio Management Schemes to Rs 25 lakh, from Rs 5 lakh currently, which was making these products accessible to retail investors without necessary protection.
