All you need to know about Alternative Investment Funds

An Alternative Investment Fund (AIF) is a kind of investment fund in India. Investors use it for investing and getting benefits. In AIF investors collect the fund. Further, they invest it under different categories of investments as per the Securities and Exchange Board of India (SEBI) for the benefit of investors. In this present blog, we will deal with all about Alternative Investment Funds Registration.

Alternative Investment Funds- meaning

The definition of Alternative Investment Funds (AIF) is under Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012. According to regulation 2(1)(b), AIF is a fund established or incorporated in India in the form of a Limited Liability Partnership (LLP) or trust or company or body corporate which- 

• is a privately shared investment vehicle that collects funds from investors, including Indian as well as foreign investors, to invest it according to definite investment policy to benefit its investors.
• It does not include funds covered under the SEBI (Collective Investment Schemes) Regulations, 1999, SEBI (Mutual Funds) Regulations, 1996 or any other regulations of SEBI (Securities and Exchange Board of India) regulating fund management activities.

In simple, AIF comprises investment funds that are private pools that invest in private equity, venture capital, hedge funds, managed funds, and many more. This type of investment differs from conventional investments, for example, debt securities, stocks, etc.

The following are not an AIF- 

• Family trust set up for benefitting the ‘relatives’ as per the Companies Act, 2013. 
• The funds that are in control of a securitization company or reconstruction company registered with the Reserve Bank of India under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. 
• ESOP (Employee Stock Ownership Plan) trust set up under the SEBI (Share Based Employee Benefits) Regulations, 2014 or as allowed under the Companies Act, 2013. 
• The holding companies under Section 46(2) of the Companies Act, 2013.
• Any, other special-purpose vehicles not established by fund managers, like securitization trusts, which are regulated under a specific regulatory framework.
• Any such pool of funds is directly regulated under another regulator in India.

Categories of Alternative Investment Funds

According to the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, an Alternative Investment Funds shall seek registration in one of the three categories mentioned below:

Category I 

This category mainly talks about investment in start-ups, SME’s or any other sector that which government dim fit as economically and socially viable.

Category II 

This category includes alternative investment funds like private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other regulator in India.

Category III 

Alternative Investment Funds like hedge funds or funds which trade intending to make short term returns or other funds which are open-ended and for which no specific incentives or concessions are given by the government or any other regulator in India come under this category.

Tenure of Alternative Investment Funds

Following are the tenure of the AIF scheme:

• Category, I & II shall be close-ended, the tenure shall be determined at the time of application and shall be for a minimum of three years.
• Category III Alternative Investment Fund may be open
• ended or close-ended.

Extension of the tenure of the close-ended alternative investment fund may be allowed for up to two years subject to the approval of two-thirds of the unitholders by the value of their investment in the alternative investment fund.

However, in the absence of consent of unitholders, the alternative investment fund shall fully liquidate within one year following the expiration of the fund tenure or extended tenure.

Advantages and Disadvantages of Alternative Investment Funds

Following are some of the advantages and disadvantages of this fund:

Advantages:

• It helps in modification in terms of market strategies and investment styles
• It May help in decreasing volatility which commonly connects traditional investments as their performances are not depending on the ups and downs of a stock market.
• Has strong potential in improving performance.

Disadvantages:

• These funds are complex funds and due diligence is necessary before deciding to invest in them.
• In this a high investment amount is there and sometimes small-scale investors can’t invest.

Registration of Alternate Investment Fund

Following is the process for grant of AIF registration:

• The grant application is made to the SEBI for Categories I, II and III AIF in Form A as per the First Schedule of the Regulations along with all the necessary documents. 
• The application should be supplemented by a non-refundable application fee as per Part A and paid in the manner according to Part B of the Second Schedule of the Regulations. 
• The SEBI will take into account the requirements stated in the Regulations before considering the grant of the Registration Certificate to the applicant. 
• Usually, after receipt of the registration application, the applicant receives a reply from the SEBI within 21 days of working days. Nevertheless, the time for granting registration depends on how quickly applicants submit the requirements. 
• The applicant must state in the covering letter of the application whether the applicant-
  • has registration under SEBI as a Venture Capital Fund. If the answer is yes, then give. 
  • It has been undertaking the activities of AIF before applying for registration. If the answer is yes, then give details. 
  • is applying for registration of a new fund. 
• The applicant shall file an online application from time to time in terms of the SEBI guidelines.

Necessary Documents for AIF Registration

Following are the necessary documents for registration are-

• Certificate of Incorporation or Registration
• Partnership Deed (if the AIF registration is by a Partnership under the Limited Liability Partnership Act, 2008)
• Original Deed of Trust (if the AIF registration is by a society or trust registered under the Trusts Act, 1882)
• Information about the directors and shareholders
• Copy of the Placement Memorandum
• Contact and other details of the applicant entity
• Any other business details relating to the expansion plans of the company/LLP
• Address and particulars of the Registered Office
• Copy of Memorandum of Association and Articles of Association

Grants of Registration of AIF

The grant of registration of AIF will be when:

• SEBI will take into account all the requirements stated in the Regulations before considering the grant of a Registration Certificate.
• After the satisfaction SEBI will approve the application and inform the applicant about the same.
• If the applicant has no registration under SEBI as a Venture Capital Fund. Then the applicant will pay a registration fee of Rs.5 lakhs to the SEBI on receipt of approval of the registration application.
• And if the applicant has registration under SEBI as a Venture Capital Fund. Then the applicant will pay a registration fee of Rs.1 lakh to the SEBI upon receipt of the registration application’s approval. 
• After getting the receipt of the registration fee. SEBI will grant the certificate of registration of the alternative investment fund in Form B. Further, the registration certificate will be valid till the alternative investment fund is wound up.

Compliances after Alternate Investment Fund registration

Following compliances, the applicant shall follow after getting the AIF registration certificate:

• The AIF has to comply with the reporting requirements as per SEBI guidelines from time to time. 
• AIF must regularly check the SEBI website for any new circulars, updates or guidelines issued.
• The AIF must send SEBI any material changes in the details already supplied to it within a reasonable time. 

Conclusion

Therefore, In AIF investors collects the fund. Further, they invest it under different categories of investments as per the Securities and Exchange Board of India (SEBI) for the benefit of investors. This type of investment differs from conventional investments, for example, debt securities, stocks, etc. There are three categories under this fund. There are certain advantages along with certain disadvantages of AIF.

This was brief information about the Alternative Investment Fund. However, if you need a detailed explanation about the same contact our team.