Regulation 16 - Conditions for Category I Alternative Investment Funds - Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

Conditions for Category I Alternative Investment Funds. 16. (1) The following investment conditions shall apply to all Category I Alternative Investment Funds:- 9 [ (a) Category I Alternative Investment Fund shall invest in investee companies, venture capital undertakings, special purpose vehicles, limited liability partnerships 11 [,] in units of other Category I Alternative Investment Funds of the same sub category 12 [ or in units of Category II Alternative Investment Funds as specified in this regulation ]] ; 25 [ (aa) Category I Alternative Investment Funds may engage in hedging, including credit default swaps in terms of the conditions as may be specified by the Board from time to time. ] 10 [ **** ] 27 [ (c) Category I Alternative Investment Funds shall not borrow funds directly or indirectly or engage in any leverage for the purpose of making investments or otherwise, except for borrowing funds to meet temporary funding requirements and day-to-day operational requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the investable funds and subject to such conditions as may be specified by the Board from time to time: Provided that Category I Alternative Investment Funds may create encumbrance on equity of investee company, which is in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure issued by the Central Government, only for the purpose of borrowing by such investee company and subject to such conditions as may be specified by the Board from time to time. ] (2) The following investment conditions shall apply to venture capital funds in addition to conditions laid down in sub-regulation (1):- 13[ (a) at least seventy five percent of the investable funds shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange: Provided that the investment conditions specified in clause (a) shall be achieved by the fund by the end of its life cycle. ] 14 [ (b )******] (c) such funds may enter into an agreement with merchant banker to subscribe to the unsubscribed portion of the issue or to receive or deliver securities in the process of market making under 15 [Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the provisions of clause (a) of sub-regulation (2)] shall not apply in case of acquisition or sale of securities pursuant to such subscription or market making. 16 [ (d) such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions: (i) the fund shall disclose any trading in securities pursuant to such due-diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed; (ii) such investment shall be locked in for a period of one year from the date of investment. ] . (3) The following conditions shall apply to SME Funds in addition to conditions laid down in sub-regulation (1):- (a) atleast seventy five percent of the 4 [investable funds] shall be invested in unlisted securities or partnership interest of venture capital undertakings or investee companies which are SMEs or in companies listed or proposed to be listed on SME exchange or SME segment of an exchange 12 [ or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies ] ; (b) such funds may enter into an agreement with merchant banker to subscribe to the unsubscribed portion of the issue or to receive or deliver securities in the process of market making under 17 [Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 ] ; 18 [(c) such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions: (i) the fund shall disclose any trading in securities pursuant to such due-diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed; (ii) such investment shall be locked in for a period of one year from the date of investment.] (4) The following conditions shall apply to social 19 [ impact ] funds in addition to the conditions laid down in sub-regulation (1):- 20 [ At least seventy-five percent of the investable funds shall be invested in unlisted securities or partnership interest of social ventures or in units of social ventures or in securities of social enterprises: Provided that an existing social impact fund may invest the remaining investable funds in securities of not for profit organizations registered or listed on a social stock exchange with the prior consent of atleast 75% of the investors by value of their investment; ] (b) such funds may accept grants, provided that such utilization of such grants shall be restricted to clause (a) 6 [:] 7 [Provided that the amount of grant that may be accepted by the fund from any person shall not be less than 21 [ ten lakh rupees ] : 13 Provided further that the minimum amount of grant shall not apply to accredited investors: ] Provided further that no profits or gains shall accrue to the provider of such grants.] 22 [ (ba) Notwithstanding the provisions of clauses (a) and (b), a social impact fund or schemes of a social impact fund launched exclusively for a not for profit organization registered or listed on a social stock exchange, shall be permitted to deploy or invest hundred percent of the investable funds in the securities of not for profit organizations registered or listed on a social stock exchange. ] (c) such funds may give grants to social ventures 23 [ or social enterprises ] , provided that appropriate disclosure is made in the placement memorandum. 24 [ **** ] (5) The following conditions shall apply to Infrastructure Funds in addition to conditions laid down in sub-regulation (1):- (a) atleast seventy five percent of the 8 [investable funds] shall be invested in unlisted securities or units or partnership interest of venture capital undertaking or investee companies or special purpose vehicles, which are engaged in or formed for the purpose of operating, developing or holding infrastructure projects 12 [or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies or special purpose vehicles ] ; (b) notwithstanding clause (a) of sub-regulation (5), such funds may also invest in listed securitized debt instruments or listed debt securities of investee companies or special purpose vehicles, which are engaged in or formed for the purpose of operating, developing or holding infrastructure projects. ************** NOTES:- 1 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 2 Ibid. 3 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 4 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 5 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 6 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the symbol . . 7 Inserted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 8 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 9. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/21 dated 05-05-2021 before it was read as, (a) Category I Alternative Investment Fund shall invest in investee companies or venture capital undertaking or in special purpose vehicles or in limited liability partnerships or in units of other Alternative Investment Funds as specified in these regulations; 10. Omitted vide Notification No. SEBI/LAD-NRO/GN/2021/21 dated 05-05-2021 before it was read as, (b) Fund of Category I Alternative Investment Funds may invest in units of Category I Alternative Investment Funds of same sub-category: Provided that they shall only invest in such units and shall not invest in units of other Fund of Funds: Provided further that the investment conditions as specified in sub-regulations (2), (3), (4) or (5) shall not be applicable to investments by such funds. 11. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as or 12. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 13. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as, (a) at least two-thirds of the 2 [investable funds] shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange; 14. Omitted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as (b) not more than one-third of the 3 [investable funds] shall be invested in: (i) subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed; (ii) debt or debt instrument of a venture capital undertaking in which the fund has already made an investment by way of equity or contribution towards partnership interest; (iii) preferential allotment, including through qualified institutional placement, of equity shares or equity linked instruments of a listed company subject to lock in period of one year; (iv) the equity shares or equity linked instruments of a financially weak company or a sick industrial company whose shares are listed. Explanation . For the purpose of these regulations, a financially weak company means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than fifty percent but less than hundred percent of its net worth as at the beginning of the previous financial year. (v) special purpose vehicles which are created by the fund for the purpose of facilitating or promoting investment in accordance with these regulations: Provided that the investment conditions and restrictions stipulated in clause (a) and clause (b) of sub-regulation (2) shall be achieved by the fund by the end of its life cycle. 15. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as: Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the provisions of clause (a) and clause (b) of sub-regulation (2) 16. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as: (d) such funds shall be exempt from regulation 3 and 3A of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in respect of investment in companies listed on SME Exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions: (i) the fund shall disclose any acquisition or dealing in securities pursuant to such due-diligence, within two working days of such acquisition or dealing, to the stock exchanges where the investee company is listed; (ii) such investment shall be locked in for a period of one year from the date of investment.: 17. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as: Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 18. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as: (c) such funds shall be exempt from regulation 3 and 3A of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in respect of investment in companies listed on SME Exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions: (i) the fund shall disclose any acquisition or dealing in securities pursuant to such due-diligence, within two working days of such acquisition or dealing, to the stock exchanges where the investee company is listed; (ii) such investment shall be locked in for a period of one year from the date of investment. 19. Substituted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 before it was read as, venture 20. Substituted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 before it was read as, (a) atleast seventy five percent of the 5 [investable funds] shall be invested in unlisted securities or partnership interest of social ventures. 21. Substituted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 before it was read as, twenty-five lakh rupees 22. Inserted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 23. Inserted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 24. Omitted vide F. No. SEBI/LAD-NRO/GN/2022/89 dated 25-07-2022 before it was read as, (d) such funds may accept muted returns for their investors i.e. they may accept returns on their investments which may be lower than prevailing returns for similar investments. 25. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/113 dated 09-01-2023 26. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/168 dated 25-04-2024 27. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/198 dated 05-08-2024 before it was read as, (c) Category I Alternative Investment Funds shall not borrow funds directly or indirectly or engage in any leverage except for meeting temporary funding requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the 1 [investable funds]. 26 [ Provided that Category I Alternative Investment Funds may create encumbrance on equity of investee company, which is in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure issued by the Central Government, only for the purpose of borrowing by such investee company and subject to such conditions as may be specified by the Board from time to time. ]