PROCEDURE FOR GRANT OF CERTIFICATE:
The following is the procedure for granting of certificate to Alternate Investment Funds:
- An application for grant of certificate shall be made in Form A for any of the categories;
- The fee payable is as detailed below:
- Application fee – Rs. 1 lakh;
- Registration fee – Rs. 5 lakh;
- Scheme fee – Rs. 1 lakh;
- Re-registration fee – Rs. 1 lakh
- The Board may consider the following while considering the application for registration:
- The memorandum of association in case of a company; or the partnership deed in case of LLP, or a trust deed in case of a trust;
- Whether the applicant is prohibited by its memorandum and articles or association or trust deed or partnership deed from making an invitation to the public to subscribe to subscriber to its securities;
- Whether the trust deed is duly registered;
- In case of LLP, whether the partnership is duly incorporated and the partnership deed has filed with the Registrar of LLP;
- In case of a body corporation, whether it is set up or established under the laws of Central or State legislature and is permitted to carry on the activities of alternative investment fund;
- Whether the applicant, sponsor and the Manager are fit and proper persons based on the criteria specified in Schedule II of SEBI (Intermediaries) Regulations, 2008;
- Whether the key team of the Manager of the fund has adequate experience, with at least one key personnel having not less than 5 years experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or in the business of buying, selling and dealing of securities or other financial assets and has relevant professional qualification;
- Whether the Manager or sponsor has necessary infrastructure and manpower to effectively discharge its activities;
- Whether the applicant has clearly described the investment objective, the targeted investors, proposed corpus, investment style or strategy and proposed tenure of the fund or scheme;
- Whether the applicant or any entity established by the sponsor or Manager has earlier been refused registration by the Board?
- The Board may require the applicant to furnish any such further information or clarification regarding the sponsor or manager or nature of the fund or fund management activities or any such matter connected thereto to consider the application for grant of a certificate or after registration thereon;
- If required by the Board, the applicant or sponsor or manager shall appear before the Board for personal representation;
- The Board may grant certificate under any specific category of alternative investment fund, if it is satisfied that the applicant fulfils the requirements as specified in these regulations;
- The Board shall, if it is satisfied that the provisions regarding to registration are complied with, grant a certificate of registration in Form B subject to the following conditions:
- The alternative investment fund shall abide by the provisions of the Act and these regulations;
- The alternative investment fund shall not carry on any other activity other than permitted activities;
- The alternative investment fund shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted;
- Without prejudice to the powers of the Board to take any action the certificate of registration shall be valid till the alternative investment fund is wound up;
- An alternative investment fund which has been granted registration under a particular category cannot change its category subsequent to registration, except with the approval of the Board;
- If the Board is of the opinion that a certificate should not be granted, it may reject the application after giving the applicant a reasonable opportunity of being heard. The decision of the board rejecting the applicant shall be communicated to the applicant within 30 days. On rejection the applicant shall cease to carry on any activity as an alternative investment fund.
INVESTMENT CONDITIONS:
Investment in all categories of alternative investment funds shall be subject to the following conditions:
- The alternative investment fund may raise funds from any investor whether India, foreign or non resident Indians by way of issue of units;
- Each scheme of the alternative investment fund shall have corpus of at least Rs.20 crores;
- The fund shall not accept from an investor an investment of value less than Re. 1 crore;
- In case of investors who are employees or directors of the fund or employees or directors of the Manager, the minimum value of investment shall beR.25 lakhs;
- The Manager or sponsor shall have a continuing interest in the fund of not less than 2.5% of the corpus or Rs.5 crores whichever is less, in the form of investment in the fund and such interest shall not be through the waiver of management fees;
- The Manager or sponsor shall disclose their investment in the fund to the investors of the fund;
- No scheme of the fund shall have more than 1000 investors;
- The fund shall not solicit or collect funds except by way of private placement.
PLACEMENT MEMORANDUM:
All alternative investment funds shall state investment strategy, investment purpose and its investment methodology in its placement memorandum. The placement memorandum shall contain the following information:
- All material information about the alternative fund and the manager;
- Background of key investment team of the manager;
- Targeted investors;
- Fees and all other expenses proposed to be charged;
- Tenure of the fund or scheme, conditions or limits on redemption;
- Investment strategy;
- Risk management tolls and parameters employed;
- Key service providers;
- Conflict of interest and procedure to identify and address them;
- Disciplinary history;
- The terms and conditions on which the Manager offers investment services;
- Its affiliation with other intermediaries;
- Manner of winding up of the fund or the scheme; and
- Such other information as may be necessary to take an informed decision on whether to invest in the fund.
SCHEMES:
The alternative investment fund may launch schemes subject to filing of placement memorandum with the Board at least 30 days prior to launch of scheme along with the fees. The fee is not required to be paid in case of first scheme by the fund. The Board may communicate its comments, if any, to the applicant prior to the launch of the scheme and the applicant shall incorporate the comments in placement memorandum prior to launch of the scheme.
LISTING:
Units of close ended alternative investment fund may be listed on stock exchange subject to a minimum tradable lot of Rs. 1 crore. Listing of the fund units shall be permitted only after final close of the fund or scheme.
TRANSPARENCY:
The alternative investment fund shall ensure transparency and disclosure of information to the investors on the following:
- Financial risk management, operational, portfolio and transactional information regarding fund investments;
- Any inquiries/legal actions by legal or regulatory bodies in any jurisdiction, as and when occurred;
- Any material liability arising during the fund’s tenure as an when occurred;
- Any breach of a provision of the placement memorandum or agreement made with the investor or any other fund documents, if any, as and when occurred;
- Change in control of the sponsor or manager or investee company;
- Any significant change in the key investment team;
- Information for systematic risk;
- A description of valuation procedure and of the methodology for valuing assets.
REPORTS:
The fund shall provide at least on an annual basis, within 180 days from the year end, reports to investors, including the following, as may be applicable to the fund:
- Financial information of investee company;
- Material risks and how they are managed which may include-
- Concentration risk at fund level;
- Foreign exchange risk at fund level;
- Leverage risk at fund and investee company levels;
- Realization risk at fund and investee company levels;
- Strategy risk at investee company level;
- Reputation risk at investee company level;
- Extra-financial risk, including environmental, social and corporate governance risks, at fund and investee company level;
- Category III fund shall provide quarterly reports to the investors for the above within 60 days of the end of the quarter.
OBLIGATIONS:
The general obligations on the part of the fund, Manager and sponsors are as follows:
- All funds shall review policies and procedures and their implementation on a regular basis, or as a result of business developments, to ensure their continued appropriateness;
- The Sponsor or Manager shall appoint a custodian registered with SEBI for safekeeping of securities if the corpus of the fund is more than Rs.500 crores; The category III fund shall appoint such custodian irrespective of the size of corpus of the fund;
- All funds shall inform SEBI in case of any change in the sponsor, manager or designated partners or any other material change from the information provided by the fund at the time of application for registration;
- In case of the change in control of the fund sponsor or manager prior approval from the Board shall be taken by the fund;
- The books of account of the fund shall be audited by a qualified auditor annually.
- The Manager shall be obliged to-
- Address all investor complaints;
- Provide to the Board any information sought by Board;
- Maintain all records as may be specified by the Board;
- Take all steps to address conflict of interest;
- Ensure transparency and disclosed as specified in the regulations;
- The Manager or sponsor shall be required to maintain following records describing:
- The assets under the scheme/fund;
- Valuation policies and practices;
- Investment strategies;
- Particulars of investors and their contribution;
- Rationale for investment made
The above records shall be maintained for a period of 5 years after the winding up of the fund.
DISPUTE RESOLUTION:
An Alternative investment fund, by itself or through the Manager or sponsor, shall lay down procedure for resolution of disputes between the investors, alternative investment fund, manager or sponsor through arbitration or any such mechanism as mutually decided between the investors and the alternative investment fund. taxmanagementindia.com
POWERS OF SEBI:
- SEBI may at any time call for any information from the fund or its manager or its sponsor or trustee or investor with respect to any matter relating to its activity as an fund or for the assessment of systematic risk or prevention of fraud;
- SEBI may suo motu or upon receipt of information or complaint appoint one or more persons as Inspecting Authority to undertake inspection of the books of account, records and documents relating to the fund for any of the following reasons:
- To ensure that the books of account, records and documents are being maintained by the fund in the manner specified in the regulations;
- To inspect complaints received from investors, clients or any other person, on any matter having a bearing on the activities of the fund;
- To ascertain whether the provisions of the Act and these regulations are being complied with by the fund;
- To inspect suo motu the affairs of the fund, in the interest of the securities market or in the interest of investors.
- On the report of Inspecting Authority the Board after giving reasonable opportunity of hearing to the fund or its trustees, directors or managers issue such directions as it deems fit in the interest of securities or the investors including the directions in the nature of-
- Requiring not to launch new schemes or raise money from investors for a particular period;
- Prohibiting the person concerned from disposing of any of the properties of the fund or scheme required in violation of these regulations;
- Requiring the person connected to dispose of the assets of the fund or scheme in a manner as may be specified in the directions;
- Requiring the person connected to refund any money or the assets to the concerned investors along with the requisite interest or otherwise, collected under the scheme;
- Prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period.
WINDING UP:
- An alternative investment fund set up as a trustee shall be wound up-
- When the tenure of the fund or all schemes launched by the fund as mentioned in the placement memorandum is over; or
- If it is the opinion of the trustees or trustee company, that the fund be would up in the interests of the investors in the units; or
- If 75% of the investors by value of their investment pass a resolution at a meeting of unit holders that the fund be would up; or
- If SEBI so directs in the interests of investors.
- An alternative investment fund set up as a LLP shall be wound up in accordance with the provisions of LLP Act, 2008-
- When the tenure of the fund or all schemes launched by the fund, as mentioned in the placement memorandum is over; or
- If 75% of the investors by value of their investment plan pass a resolution at a meeting of unit holders that the fund be would up; or
- If SEBI so directs in the interests of investors.
- An alternative investment fund set up as a company shall be wound up in accordance with the provisions of the Companies Act, 1956;
- An alternative investment fund set up as a body corporate shall be wound up in accordance with the provisions of the statute which it is constituted;
- The trustees or trustee company or the Board of Directors or designated partners of the alternative investment fund, as the case may be, shall intimate the Board and investors of the circumstances leading to the winding up of the alternative investment fund;
- Upon winding up of the fund the certificate of registration shall be surrendered to the Board.
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