AIF Categories - Investment Conditions Alternative Investment Funds can be registered under three categories: 1. Category I AIF 2. Category II AIF 3. Category III AIF In this article, we will discuss the conditions precedent to their AIF Registration and investment thereon. Registration Requirements: 1. Corpus Requirement “Corpus’’ is the total amount of funds committed by investors to the AIF by way of a written contract or any such document as on a particular date. Corpus requirement for each scheme/fund - 20 Crore In case of Angel Fund - 10 Crore 2. Who can apply - Trust - LLP - Company - Body Corporate 3. Sponsor Requirement (Who will set up the AIF) - The promoter in case of a company and - Designated partner in case of LLP. Sponsor/Manager is required to have some continuing interest in AIF. In case of Category I and II AIFs, it should be 2.5% of corpus or 5 Crore rupees whichever is less. Category III AIFs, it should be 5% of corpus or 10 Crore rupees whichever is less. 4. Fees Non-refundable application fee Rs. 1, 00,000 And Registration fee for Category I Rs. 5,00,000 Registration fee for Category II Rs. 10,00,000 Registration fee for Category III Rs. 15,00,000 5. Minimum Investment from Investors Minimum Investment Limit by investors 1 Crore. However, in some cases, this limit is set at 25, 00,000 rupees.
These cases are: In case of investors who are employees or directors of the AIF or employees or directors of the Manager. In case of angel fund. Any grant made in case of social venture fund under category I AIF. 6. Other Requirements 1. Minimum one key personnel having not less than five 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 a relevant professional qualification 2. Alternative Investment Fund shall not involve in any other activity which is not permitted by the said regulations. Conditions Precedent to Investment For Category I AIF BASIC CONDITIONS 1. Can invest in investee companies or venture capital undertaking or in special purpose vehicles or in limited liability partnerships. 2.
Can invest in units of Category I Alternative Investment Funds of the same sub-category.
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Restriction on borrowing of funds directly or indirectly or engaging in any leverage. However, it is allowed if done to meet 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 INVESTABLE FUNDS
ADDITIONAL CONDITIONS 1. For Venture Capital • Minimum 2/3rd investable funds to be invested in: i. Unlisted equity shares or equity-linked instruments of a venture capital undertaking or ii. Companies listed or proposed to be listed on an SME exchange or SME segment of an exchange
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Maximum 1/3rd investable funds to be invested in: i. IPO 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. Equity shares or equity-linked instruments of any sick industrial company or financially weak company whose shares are listed. v. Special purpose vehicles which are created by the fund
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It can have an agreement with merchant banker for: ▪ Subscribing the unsubscribed portion of an issue or ▪ To receive securities in the process of market making
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For SME Funds •
Minimum 75% investable funds to be invested in: ▪ ▪
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Unlisted securities or partnership interest of venture capital undertakings or SMEs or in companies listed or proposed to be listed on SME exchange or SME segment of an exchange
It can have an agreement with merchant banker for: Subscribing the unsubscribed portion of an issue or To receive securities in the process of market making
For social venture funds
• Minimum 75% investable funds to be invested in unlisted securities or partnership interest of securities or partnership interest of social ventures • Can accept grants, provided that such utilization of such grants shall be restricted to clause mentioned above. • It can also give grants to social ventures, provided that appropriate disclosure is made in the placement memorandum. 4.
For Infrastructure Fund
• Minimum 75% investable funds to be invested in unlisted securities 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 • 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. For Category II AIF 1. Minimum 75% of investable funds in unlisted investee companies or in units of other Alternative Investment Funds as may be specified in the placement memorandum 2. Fund of Category II Alternative Investment Funds may invest in units of Category I or Category II Alternative Investment Funds: 3. 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 investable funds. 4. They may engage in hedging, subject to guidelines as specified by the Board from time to time 5. It can have an agreement with merchant banker for: ▪ Subscribing the unsubscribed portion of an issue or ▪ To receive securities in the process of market making 9. 6. It will 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 segment of an exchange or SME Exchange in pursuant to following conditions: (i) It shall disclose any acquisition or deal in securities pursuant to such duediligence, 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. For Category III AIF 1. Category III AIF can invest in securities listed as well as unlisted investee companies or derivatives or complex or structured products 2. It can invest in units of Category I or Category II AIF.
3. It can engage in leverage or borrow subject to consent from the investors in the fund and subject to a maximum limit, as may be specified by the Board: Provided that such funds shall disclose all the related information.