Regulation 17 - Conditions for Category II Alternative Investment Funds - Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

Conditions for Category II Alternative Investment Funds. 17. The following investment conditions shall apply to Category II Alternative Investment Funds:- 2 [ (a) Category II Alternative Investment Funds shall invest in investee companies or in the units of Category I or other Category II Alternative Investment Funds as may be disclosed in the placement memorandum; Explanation. Category II Alternative Investment Fund shall invest primarily in unlisted companies directly or through investment in units of other Alternative Investment Funds; ] 3 [ **** ] 8 [ (c) Category II 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 II 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. ] (d) Notwithstanding clause (c), Category II Alternative Investment Funds may engage in hedging, subject to guidelines as specified by the Board from time to time; 6 [ (da) Category II Alternative Investment Funds may buy or sell credit default swaps in terms of the conditions as may be specified by the Board from time to time. ] (e) Category II Alternative Investment 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 4 [ Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 ] . 5 [ (f) Category II Alternative Investment 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. ] ************** NOTES:- 1 Substituted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013 for the word corpus 2. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/21 dated 05-05-2021 before it was read as, (a) Category II Alternative Investment Funds shall invest primarily in unlisted investee companies or in units of other Alternative Investment Funds as may be specified in the placement memorandum; 3. Omitted vide Notification No. SEBI/LAD-NRO/GN/2021/21 dated 05-05-2021 before it was read as, (b) Fund of Category II Alternative Investment Funds may invest in units of Category I or Category II Alternative Investment Funds: Provided that they shall only invest in such units and shall not invest in units of other Fund of Funds. 4. 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. 5. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/41 dated 13-08-2021 before it was read as: (f) Category II Alternative Investment 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. 6. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/113 dated 09-01-2023 7. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/168 dated 25-04-2024 8. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/198 dated 05-08-2024 before it was read as, (c) Category II Alternative Investment Funds may not borrow funds directly or indirectly and shall not engage in leverage except for meeting temporary funding requirements for not more than thirty days, not more than four occasions in a year and not more than ten percent of the 1 [investable funds]; 7 [ Provided that Category II 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. ]