Securities and Exchange Board of India or Sebi on Thursday reduced the number of categories of Alternative Investment Funds (AIFs) to three from nine. All the AIFs will mandatorily have to register with Sebi under the AIF regulations. Existing Venture Capital Funds (VCF) shall continue to attract existing regulations till the existing fund or scheme managed by the fund is wound up. Existing VCFs, however, shall not raise any fresh funds now that new regulations are in place unless commitments have already been made by investors. These VCFs may also seek to register themselves again subject to the new rules provided they get the approval of 66.67% of their investors by value.
The first category will broadly cover venture capital funds, SME funds, social venture funds and infrastructure funds and shall be eligible for concessions. This category will be close ended and have a minimum tenure of three years. The second category will include private equity funds, debt funds and fund of funds. These funds will not be eligible for any concessions. The third category of AIFs will include hedge funds that can be both open and close-ended.
?There is total flexibility between funds that want concessions and those who don’t want it,? says Mahendra Swarup, president at India Venture Capital Association.
SEBI has also set the rules for investment by a particular general partner of the fund. The manager or sponsor shall have a continuing interest in the AIF of not less than 2.5% of the initial corpus or R5 crore whichever is lower and such interest shall not be through the waiver of management fees. ?Ninety percent of funds survive with 2% of general partner contribution anyways so the 2.5% is only little more,? says a fund manager. The AIF shall not accept from an investor an investment of value less than R1 crore. It should have a minimum corpus of R20 crore. The fund is only allowed to have upto 1000 investors. AIFs shall not be permitted to invest more than 25% of the investible funds in one investee company. Further, AIFs shall not invest in associate companies.
