Capital market regulator SEBI (Securities and Exchange Board of India) has issued norms for alternative investment funds (AIFs).

The regulator has said that only AIFs that have not made any investments under their existing category would be allowed to make application for changing their classification. AIFs is a class of pooled-in investment vehicles for real estate, private equity and hedge funds for change in their categories.

The AIFs have been divided into three categories. The Category I AIFs include those investing in start-ups, social ventures, SMEs, infrastructure or other areas that can get government incentives for being ‘socially or economically desirable’.

The Category II AIFs include private equity funds and debt funds which do not get any incentives or concessions from the government and do not undertake leverage or borrowing other than to meet day-today operational requirements.

The Category III include hedge funds or funds which trade with a view to make short-term returns.

Generally, an AIF has been granted registration under a particular category cannot change its category subsequent to registration, without the approval of Sebi.

Any AIF proposing to change its category shall make an application to SEBI for the same along with application fees of Rs. 1 lakh, SEBI said in a notification on 7th August.

If the AIF has received commitments / raised funds prior to application for change in category, the AIF shall be required to send letters/emails to all its investors providing them the option to withdraw their commitments/ funds raised without any penalties/charges, it added

Any fees collected from investors seeking to withdraw commitments/ funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF Regulations, the notification further said.

The AIF shall not make any investments other than in liquid funds / banks deposits until approval for change in category is granted by SEBI.

On approval of the request from SEBI, the AIF shall send a copy of the revised placement memorandum and other relevant information to all its investors.

 Source : Lokesh Shastri