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AIF REGULATIONS SUMMARY

RELEVANT INFORMATIVE SECTIONS OF THE LAW AND
IT’S EXPLANATION BELOW AS REQUESTED:

Securities and Exchange Board of India Act, 1992

83
[15-EA. Penalty for default in case of alternative investment funds, infrastructure
investment trusts and real estate investment trusts.—Where any person fails to comply
with the regulations made by the Board in respect of alternative investment funds,
infrastructure investment trusts and real estate investment trusts or fails to comply with the
directions issued by the Board, such person shall be liable to penalty which shall not be less
than one lakh rupees but which may extend to one lakh rupees for each day during which
such failure continues subject to a maximum of one crore rupees or three times the amount of
gains made out of such failure, whichever is higher.]

The Securities and Exchange Board of India (Alternative Investment

Funds) Regulations, 2012

2 Definitions.—

(b) “Alternative Investment Fund” means any fund established or incorporated in India in the
form of a trust or a company or a limited liability partnership or a body corporate which,— (i)
is a privately pooled investment vehicle which collects funds from investors, whether Indian
or foreign, for investing it in accordance with a defined investment policy for the benefit of
its investors; and (ii) is not covered under the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective
Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate
fund management activities: Provided that the following shall not be considered as
Alternative Investment Fund for the purpose of these regulations,— (i) family trusts set up
for the benefit of ‘relatives’ as defined under 2 [Companies Act, 2013]; (ii) 3[ESOP Trusts
set up under the Securities and Exchange Board of India (Share Based Employee Benefits)
Regulations, 2014 or as permitted under Companies Act, 2013;] (iii) employee welfare trusts
or gratuity trusts set up for the benefit of employees; (iv) 4[‘holding companies’ as defined
under sub-section 46 of Section 2 of Companies Act, 2013;] (v) other special purpose
vehicles not established by fund managers, including securitization trusts, regulated under a
specific regulatory framework; (vi) funds managed by securitisation company or
reconstruction company which is registered with the Reserve Bank of India under Section 3

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of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002; and (vii) any such pool of funds which is directly regulated by any other
regulator in India;
EXPLANATION:
1. Definition: An Alternative Investment Fund (AIF) is any fund formed in India as a trust,
company, limited liability partnership, or body corporate.

2. Nature: AIF is a privately pooled investment vehicle that gathers funds from both Indian
and foreign investors.

3. Investment Policy: AIF invests these funds based on a predefined investment policy for the
benefit of its investors.

4. Regulatory Exclusion: AIF is not governed by the Securities and Exchange Board of India
(SEBI) regulations for Mutual Funds (1996) or Collective Investment Schemes (1999).

5. Exclusions from AIF Definition: The following are not considered AIFs under these
regulations:
- (i) Family trusts for the benefit of 'relatives' under the Companies Act, 2013.
- (ii) ESOP trusts under SEBI (Share Based Employee Benefits) Regulations, 2014, or as
allowed under the Companies Act, 2013.
- (iii) Employee welfare or gratuity trusts for the benefit of employees.
- (iv) 'Holding companies' as defined in Section 2(46) of the Companies Act, 2013.
- (v) Other special purpose vehicles, not established by fund managers, including
securitization trusts, regulated under specific frameworks.
- (vi) Funds managed by securitization or reconstruction companies registered with the
Reserve Bank of India under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
- (vii) Any pool of funds directly regulated by another regulator in India.

[(i) “debt fund” means an Alternative Investment Fund which invests primarily in
debt securities of listed or unlisted investee companies or in securitized debt
instruments as per the stated objectives of the Fund;]

w) “sponsor” means any person or persons who set up the Alternative Investment Fund and
includes promoter in case of a company and designated partner in case of a limited liability
partnership;

h) “corpus” means the total amount of funds committed by investors to the Alternative
Investment Fund by way of a written contract or any such document as on a particular date;

3. Registration of Alternative Investment Funds.—

(4) Alternative Investment Funds shall seek registration in one of the categories

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mentioned hereunder and in case of Category I Alternative Investment Fund, in one of the
sub-categories thereof:
(a) “Category I Alternative Investment Fund” which invests in start-up or early stage
ventures or social ventures or SMEs or infrastructure or other sectors or areas which
the government or regulators consider as socially or economically desirable and
shall include venture capital funds, SME Funds, [social impact funds],
infrastructure funds [, special situation funds] and such other Alternative
Investment Funds as may be specified;
EXPLANATION:
1. Definition: Category I Alternative Investment Fund (AIF) refers to a specific classification
of AIFs based on their investment focus.

2. Investment Targets: Category I AIFs are designed to invest in various sectors, including:
- Start-up or early-stage ventures.
- Social ventures.
- Small and Medium Enterprises (SMEs).
- Infrastructure projects.

3. Government Considerations: These funds focus on sectors or areas that the government or
regulators deem socially or economically desirable.

4. Inclusions: Category I AIF encompasses various types of funds, namely:

- Venture capital funds.
- SME Funds.
- Social impact funds
- Infrastructure funds.
- Special situation funds.

The category is open to the inclusion of other AIFs specified by relevant authorities.

(b) “Category II Alternative Investment Fund” which does not fall in Category I and
III and which does not undertake leverage or borrowing other than to meet day-to
day operational requirements and as permitted in these regulations;
Explanation. For the purpose of this clause, Alternative Investment Funds such
as private equity funds or debt funds for which no specific incentives or concessions
are given by the government or any other Regulator shall be included.

EXPLANATION:
1. Definition: Category II Alternative Investment Fund (AIF) represents a specific
classification of AIFs distinct from Category I and III.

2. Category II AIFs do not fall within the scope of Category I or Category III AIFs.

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3. Leverage/Borrowing Restriction: Category II AIFs refrain from undertaking leverage or

borrowing, except for meeting day-to-day operational requirements and as permitted by the
regulations.

4. Explanation: Category II AIFs include funds such as private equity funds or debt funds.
These funds do not receive specific incentives or concessions from the government or any
other regulator.

(c) “Category III Alternative Investment Fund” which employs diverse or complex
trading strategies and may employ leverage including through investment in listed
or unlisted derivatives.

EXPLANATION:
1. Definition: Category III Alternative Investment Fund (AIF) is a specific classification of
AIFs distinguished by the use of diverse or complex trading strategies.

2. Trading Strategies: Category III AIFs are designed to employ diverse trading strategies,
indicating a broad range of approaches in their investment activities.

3. Leverage Inclusion: Category III AIFs have the flexibility to employ leverage in their
operations. This includes the option to utilize leverage through investments in both listed and
unlisted derivatives.

4. Eligibility Criteria.—
For the purpose of the grant of certificate to an applicant, the
Board shall consider the following conditions for eligibility, namely,—
(a) the memorandum of association in case of a company; or the Trust Deed in case of
a Trust; or the Partnership deed in case of a limited liability partnership permits it
to carry on the activity of an Alternative Investment Fund;
(b) the applicant is prohibited by its memorandum and articles of association or trust
deed or partnership deed from making an invitation to the public to subscribe to its
securities;
(c) in case the applicant is a Trust, the instrument of trust is in the form of a deed and
has been duly registered under the provisions of the Registration Act, 1908;
(d) in case the applicant is a limited liability partnership, the partnership is duly
incorporated and the partnership deed has been duly filed with the Registrar under
the provisions of the Limited Liability Partnership Act, 2008;
(e) in case the applicant is a body corporate, it is set up or established under the laws
of the Central or State Legislature and is permitted to carry on the activities of an
Alternative Investment Fund;
(f) the applicant, Sponsor and Manager are fit and proper persons based on the criteria
specified in Schedule II of the Securities and Exchange Board of India

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(Intermediaries) Regulations, 2008;

34[(g) The key investment team of the Manager of Alternative Investment Fund has—
35[(i) at least one key personnel with relevant certification as may be specified by
the Board from time to time; and]
(ii) at least one key personnel with professional qualification in finance,
accountancy, business management, commerce, economics, capital market or
banking from a university or an institution recognized by the Central Government
or any State Government or a foreign university, or a CFA charter from the CFA
institute or any other qualification as may be specified by the Board:
Provided that the requirements 36[* * *] as specified in Regulation 4(g)(i) and 4
(g)(ii) may also be fulfilled by the same key personnel:]
37[Provided further that a fresh certification shall be obtained before expiry of the
validity of the existing certification to ensure continuity in compliance with the
certification requirement.]
(h) the Manager or Sponsor has the necessary infrastructure and manpower to
effectively discharge its activities;
(i) the applicant has clearly described at the time of registration the investment
objective, the targeted investors, proposed corpus, investment style or strategy and
proposed tenure of the fund or scheme;
(j) whether the applicant or any entity established by the Sponsor or Manager has
earlier been refused registration by the Board.

EXPLANATION:
1. Memorandum or Deed Requirements:
- For a company, eligibility requires a memorandum of association permitting AIF
activities.
- For a trust, the Trust Deed must permit AIF activities.
- In the case of a limited liability partnership, the partnership deed must allow AIF
activities.

2. Restrictions on Public Invitations:

- The applicant must be prohibited by its constitutional documents from making public
invitations for securities subscriptions.

3. Registration of Trust Instrument:

- If the applicant is a trust, the instrument of trust must be in the form of a deed and duly
registered under the Registration Act, 1908.

4. Incorporation and Filing for Limited Liability Partnerships:

- For a limited liability partnership, the partnership must be duly incorporated, and the
partnership deed must be filed with the Registrar under the Limited Liability Partnership Act,
2008.

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5. Legal Establishment of Body Corporate:

- If the applicant is a body corporate, it must be set up or established under the laws of the
Central or State Legislature and permitted to engage in AIF activities.

6. Fit and Proper Criteria for Applicant, Sponsor, and Manager:

- The applicant, Sponsor, and Manager must be fit and proper persons based on the criteria
specified in Schedule II of the Securities and Exchange Board of India (Intermediaries)
Regulations, 2008.

7. Key Investment Team Criteria:

- The Manager's key investment team must include at least one personnel with relevant
certification and at least one with a professional qualification in specified fields.
- A fresh certification is required before the expiry of the existing one to ensure compliance
continuity.

8. Infrastructure and Manpower:

- The Manager or Sponsor must possess the necessary infrastructure and manpower to
effectively discharge AIF activities.

9. Clear Description of AIF:

- The applicant must provide a clear description, at the time of registration, of the
investment objective, targeted investors, proposed corpus, investment style or strategy, and
proposed tenure of the fund or scheme.

10. Registration History Check:

- The Board considers whether the applicant or any entity established by the Sponsor or
Manager has previously been refused registration.

13. Tenure.—
(1) Category I Alternative Investment Fund and Category II Alternative
Investment Fund shall be close ended and the tenure of fund or scheme shall be determined
at the time of application subject to sub-regulation (2) of this regulation.
(2) Category I and II Alternative Investment Fund or schemes launched by such funds
shall have a minimum tenure of three years.
(3) Category III 58[Schemes of] Alternative Investment Fund may be open ended or
close ended.
59[(4) The manner of calculating the tenure of a close ended scheme of an Alternative
Investment Fund, including the manner of modification of the tenure, may be specified by
the Board from time to time.]
60[(5)] Extension of the tenure of the close ended Alternative Investment Fund may be
permitted up to two years subject to approval of two-thirds of the unit holders by value of
their investment in the Alternative Investment Fund61[:]

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62[Provided that large value funds for accredited investors may be permitted to extend its
tenure beyond two years, subject to terms of the contribution agreement, other fund
documents and such conditions as may be specified by the Board from time to time.]
63[(6) In the absence of consent of unit holders under sub-regulation (5) or upon expiry
of the extended tenure, the Alternative Investment Fund or the scheme of the Alternative
Investment Fund shall be wound up in accordance with Regulation 29 of these regulations.]

EXPLANATION:

1. Close-Ended Nature of Category I and II AIFs:

- Category I and Category II Alternative Investment Funds are close-ended.
- The tenure of the fund or scheme is determined at the time of application, subject to sub-
regulation (2) of this regulation.

2. Minimum Tenure for Category I and II AIFs:

- Category I and Category II AIFs, including their schemes, must have a minimum tenure of
three years.

3. Nature of Category III AIFs:

- Category III Schemes of Alternative Investment Funds may be either open-ended or close-
ended.

4. Board Specification for Close-Ended Scheme Tenure:

- The Board may specify the manner of calculating the tenure of a close-ended scheme of
an Alternative Investment Fund, including modifications to the tenure.

5. Extension of Close-Ended AIF Tenure:

- Extension of the tenure of close-ended Alternative Investment Funds is allowed for up to
two years.
- Approval for extension requires two-thirds of unit holders by the value of their investment
in the AIF.
- Large value funds for accredited investors may extend tenure beyond two years, subject to
specified conditions by the Board.

6. Winding Up in Absence of Consent:

- In the absence of consent from unit holders for the extension or upon expiry of the
extended tenure, the Alternative Investment Fund or its scheme shall be wound up in
accordance with Regulation 29 of these regulations.

CHAPTER III
INVESTMENT CONDITIONS AND RESTRICTIONS

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10. Investment in Alternative Investment Fund.—

Investment in all categories of
Alternative Investment Funds shall be subject to the following conditions:—
(a) the Alternative Investment Fund may raise funds from any investor whether
Indian, foreign or non-resident Indians by way of issue of units39[:]
40[Provided that a social impact fund or schemes of a social impact fund may also
issue social units;]
41[(aa) The Alternative Investment Fund shall issue units in dematerialised form
subject to the conditions specified by the Board from time to time.]
(b) each scheme of the Alternative Investment Fund shall have corpus of atleast
twenty crore rupees42[:]
43[Provided that each scheme of the social impact fund shall have a corpus of at
least five crore rupees;]
(c) the Alternative Investment Fund shall not accept from an investor, an investment
of value less than one crore rupees:
Provided that in case of investors who are employees or directors of the
Alternative Investment Fund or employees or directors of the Manager, the
minimum value of investment shall be twenty five lakh rupees44[:]
45[Provided further that this clause shall not apply to an accredited investor46[:]]
47[Provided further that in case of a social impact fund which invests only in
securities of not for profit organizations registered or listed on a social stock
exchange, the minimum value of investment by an individual investor shall be two
lakh rupees;]
(d) the Manager or Sponsor shall have a continuing interest in the Alternative
Investment Fund of not less than two and half percent of the corpus or five crore
rupees, whichever is lower, in the form of investment in the Alternative Investment
Fund and such interest shall not be through the waiver of management fees:
Provided that for Category III Alternative Investment Fund, the continuing
interest shall be not less than five percent of the corpus or ten crore rupees,
whichever is lower.
(e) the Manager or Sponsor shall disclose their investment in the Alternative
Investment Fund to the investors of the Alternative Investment Fund;
(f) no scheme of the Alternative Investment Fund shall have more than one thousand
investors48[:]
49[Provided that the provisions of the 50[Companies Act, 2013] shall apply to
the Alternative Investment Fund, if it is formed as a company.]
(g) the fund shall not solicit or collect funds except by way of private placement.

EXPLANATION:
1. Fundraising Conditions:
- AIFs are allowed to raise funds from any investor, including Indian, foreign, or non-
resident Indians, by issuing units.

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- Social impact funds or schemes may issue social units.

2. Dematerialization of Units:
- AIFs are required to issue units in dematerialized form, subject to conditions specified by
the Board.

3. Minimum Corpus Requirement:

- Each scheme of an AIF must have a minimum corpus of at least twenty crore rupees.
- Social impact funds must have a minimum corpus of at least five crore rupees.

4. Minimum Investment Amount:

- The AIF shall not accept an investment of less than one crore rupees from an investor.
- Minimum value for employees or directors of the AIF or Manager is twenty-five lakh
rupees.
- Accredited investors are exempt from the minimum investment clause.
- Social impact funds investing in securities of not-for-profit organizations have a minimum
individual investment of two lakh rupees.

5. Continuing Interest of Manager or Sponsor:

- The Manager or Sponsor must maintain a continuing interest in the AIF of not less than
two and a half percent of the corpus or five crore rupees, whichever is lower.
- For Category III AIFs, the continuing interest must be not less than five percent of the
corpus or ten crore rupees, whichever is lower.

6. Disclosure Requirements:
- Managers or Sponsors must disclose their investments in the AIF to the investors.

7. Limit on Number of Investors:

- No scheme of the AIF is allowed to have more than one thousand investors.
- Provisions of the Companies Act, 2013, apply if the AIF is formed as a company.

8. Private Placement Requirement:

- The fund is restricted from soliciting or collecting funds except through private
placement.

[CHAPTER III-A
ANGEL FUNDS

(1) “angel fund” means a sub-category of Venture Capital Fund under Category
IAlternative Investment Fund that raises funds from angel investors and invests in
accordance with the provisions of this Chapter.
SEE CHAPTER FOR FULL INFO

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CHAPTER IV
GENERAL OBLIGATIONS AND RESPONSIBILITIES AND TRANSPERANCY

29. Winding up.—

(1) An Alternative Investment Fund set up as a trust shall be wound up: (a) when the tenure
of the Alternative Investment Fund or all schemes launched by the Alternative Investment
Fund, as mentioned in the placement memorandum is over; or (b) if it is the opinion of the
trustees or the trustee company, as the case may be, that the Alternative Investment Fund be
wound up in the interests of investors in the units; or (c) if seventy five percent of the
investors by value of their investment in the Alternative Investment Fund pass a resolution at
a meeting of unitholders that the Alternative Investment Fund be wound up; or (d) if the
Board so directs in the interests of investors.

(2) An Alternative Investment Fund set up as a limited liability partnership shall be wound up
in accordance with the provisions of The Limited Liability Partnership Act, 2008: (a) when
the tenure of the Alternative Investment Fund or all schemes launched by the Alternative
Investment Fund, as mentioned in the placement memorandum is over; or (b) if seventy five
percent of the investors by value of their investment in the Alternative Investment Fund pass
a resolution at a meeting of unitholders that the Alternative Investment Fund be wound up; or
(c) if the Board so directs in the interests of investors.

(3) An Alternative Investment Fund set up as a company shall be wound up in accordance

with the provisions of the 150[Companies Act, 2013].

(4) An Alternative Investment Fund set up as a body corporate shall be wound up in

accordance with the provisions of the statute under which it is constituted.

(5) The trustees or trustee company or the Board of Directors or designated partners of the
Alternative Investment Fund, as the case maybe, shall intimate the Board and investors of the
circumstances leading to the winding up of the Alternative Investment Fund.

(6) On and from the date of intimation under sub-regulation (5) of Regulation 29, no further
investments shall be made on behalf of the Alternative Investment Fund so wound up.

(7) Within 151[the liquidation period], the assets shall be liquidated, and the proceeds
accruing to investors in the Alternative Investment Fund 152[or the scheme of the Alternative
Investment Fund] shall be distributed to them after satisfying all liabilities.

(8) Notwithstanding anything contained in sub-regulation (7) and subject to the conditions, if
any, contained in the placement memorandum or contribution agreement or subscription
agreement, as the case may be, 153[in specie distribution of assets of the scheme of the
Alternative Investment Fund], shall be made by the Alternative Investment Fund at any time,

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154[including on winding up of the scheme of the Alternative Investment Fund], as per the
preference of investors, 155[subject to conditions as may be specified by the Board from time
to time]. 156

[(9) Notwithstanding anything contained in sub-regulation (7), during liquidation period of a

scheme, an Alternative Investment Fund may distribute investments of a scheme which are
not sold due to lack of liquidity, in-specie to the investors or sell such investments to a
liquidation scheme, after obtaining approval of at least seventy five percent of the investors
by value of their investment in the scheme of the Alternative Investment Fund, in the manner
and subject to conditions specified by the Board from time to time: Provided that in the
absence of consent of unit holders for exercising the options under sub-regulation (9) during
liquidation period, such investments of the scheme of the Alternative Investment Fund shall
be dealt with in the manner as may be specified by the Board from time to time.] 157

[(10)] Upon winding up of the Alternative Investment Fund, the certificate of registration
shall be surrendered to the Board.

EXPLANATION:

1. Initiation of Winding Up:

- A trust-based AIF is wound up when:
- The tenure of the AIF or all schemes mentioned in the placement memorandum
concludes.
- Trustees or trustee company believe it is in the investors' interest.
- Seventy-five percent of investors by value pass a resolution.
- The Board directs it in the interest of investors.

2. Winding Up Process for Different Structures:

- LLP-based AIF is wound up according to the Limited Liability Partnership Act, 2008.
- Company-based AIF follows the provisions of the Companies Act, 2013.
- Body corporate-based AIF follows the rules of the statute under which it is constituted.

3. Intimation to Board and Investors:

- The trustees, trustee company, or the Board of Directors must inform the Board and
investors about the circumstances leading to the winding up.

4. Investment Cessation:
- From the intimation date, no further investments are made on behalf of the AIF being
wound up.

5. Liquidation and Distribution:

- Within the liquidation period, assets are liquidated, and proceeds are distributed to
investors after meeting all liabilities.

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6. In-Specie Distribution:
- - The AIF may make in-specie distributions of scheme assets, including during the
winding-up process.
- This distribution is subject to conditions outlined in the placement memorandum,
contribution agreement, or subscription agreement.
- Investors' preferences guide the in-specie distribution.
- The Board may specify conditions for such distributions from time to time.

7. Distribution of Unsold Investments:

- Despite the general liquidation process, the AIF may distribute unsold scheme
investments in-specie during the liquidation period.
- This includes in-specie distribution to investors or selling the investments to a liquidation
scheme.
- Approval from at least seventy-five percent of investors by value is required, and the
Board specifies the conditions.

8. Certificate Surrender:
- Upon winding up, the certificate of registration is surrendered to the Board.

SECOND SCHEDULE
Securities and Exchange Board of India
(Alternative Investment Funds) Regulations, 2012
See sub-regulations (2) and (5) of Regulation 3, sub-regulation (2) of Regulation 6 and
sub-regulation (2) of Regulation 12
FEES
166[PART A
AMOUNT TO BE PAID AS FEES

Application fee Rs. 1,00,000

Registration fee for Category I Alternative Rs. 5,00,000
Investment Funds other than Angel Funds
Registration fee for Category II Alternative Rs. 10,00,000
Investment Funds other than Angel Funds
Registration fee for Category III Alternative Rs. 15,00,000
Investment Funds other than Angel Funds
Scheme Fee for Alternative Investment Rs. 1,00,000

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Funds other than Angel Funds

Re-registration Fee Rs. 1,00,000
Registration Fee for Angel Funds Rs. 2,00,000
[Registration fee for Corporate Debt Market Rs. 5,00,000]
Development Fund (specified Alternative
Investment Fund as provided under
Regulation 19 of these regulations)

[PART B
The fees specified above shall be payable by way of direct credit into the bank account
through NEFT/RTGS/IMPS or online payment using the SEBI Payment Gateway or any
other mode as may be specified by the Board from time to time.]

SEE CHAPTER 2 AIF REGULATIONS https://cleartax.in/s/alternative-investment-fund-

registration

ADDITIONAL RESEARCH

DEFINITIONS: SECTION 2:

(ab) “accredited investor” means any person who is granted a certificate of accreditation by
an accreditation agency who,
(i) in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has:
(A) annual income of at least two crore rupees; or
(B) net worth of at least seven crore fifty lakh rupees, out of which not less than three crores
seventy-five lakh rupees is in the form of financial assets; or
(C) annual income of at least one crore rupees and minimum net worth of five crore rupees,
out of which not less than two crore fifty lakh rupees is in the form of financial assets.
(ii) in case of a body corporate, has net worth of at least fifty crore rupees;
(iii) in case of a trust other than family trust, has net worth of at least fifty crore rupees;
(iv) in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner
independently meets the eligibility criteria for accreditation:
Provided that the Central Government and the State Governments, developmental agencies
set up under the aegis of the Central Government or the State Governments, funds set up by
the Central Government or the State Governments, qualified institutional buyers as defined
under the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth
funds and multilateral agencies and any other entity as may be specified by the Board from

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time to time, shall deemed to be an accredited investor and may not be required to obtain a
certificate of accreditation;]

(q) “manager” means any person or entity who is appointed by the Alternative Investment
Fund to manage its investments by whatever name called and may also be same as the
sponsor of the Fund;

(w) “sponsor” means any person or persons who set up the Alternative Investment Fund and
includes promoter in case of a company and designated partner in case of a limited liability
partnership;

4. Eligibility Criteria.—

For the purpose of the grant of certificate to an applicant, the Board shall consider the
following conditions for eligibility, namely,—

(a) the memorandum of association in case of a company; or the Trust Deed in case of a
Trust; or the Partnership deed in case of a limited liability partnership permits it to carry on
the activity of an Alternative Investment Fund;

(b) the applicant is prohibited by its memorandum and articles of association or trust deed or
partnership deed from making an invitation to the public to subscribe to its securities;

(c) in case the applicant is a Trust, the instrument of trust is in the form of a deed and has
been duly registered under the provisions of the Registration Act, 1908;

(d) in case the applicant is a limited liability partnership, the partnership is duly incorporated
and the partnership deed has been duly filed with the Registrar under the provisions of the
Limited Liability Partnership Act, 2008;

(e) in case the applicant is a body corporate, it is set up or established under the laws of the
Central or State Legislature and is permitted to carry on the activities of an Alternative
Investment Fund;

(f) the applicant, Sponsor and Manager are fit and proper persons based on the criteria
specified in Schedule II of the Securities and Exchange Board of India (Intermediaries)
Regulations, 2008;

34[(g) The key investment team of the Manager of Alternative Investment Fund has—

35[(i) at least one key personnel with relevant certification as may be specified by the Board
from time to time; and]

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(ii) at least one key personnel with professional qualification in finance, accountancy,
business management, commerce, economics, capital market or banking from a university or
an institution recognized by the Central Government or any State Government or a foreign
university, or a CFA charter from the CFA institute or any other qualification as may be
specified by the Board:

Provided that the requirements 36[* * *] as specified in Regulation 4(g)(i) and 4(g)(ii) may
also be fulfilled by the same key personnel:]

37[Provided further that a fresh certification shall be obtained before expiry of the validity of
the existing certification to ensure continuity in compliance with the certification
requirement.]

(h) the Manager or Sponsor has the necessary infrastructure and manpower to effectively
discharge its activities;

(i) the applicant has clearly described at the time of registration the investment objective, the
targeted investors, proposed corpus, investment style or strategy and proposed tenure of the
fund or scheme;

(j) whether the applicant or any entity established by the Sponsor or Manager has earlier been
refused registration by the Board.

EXPLANATION:

Here is a concise summary of the eligibility conditions:

1. Legal Documentation:
- The applicant's memorandum of association (for a company), Trust Deed (for a Trust), or
Partnership deed (for a limited liability partnership) must permit the activities of an
Alternative Investment Fund.

2. Restriction on Public Invitation:

- The applicant, as per its memorandum, articles of association, trust deed, or partnership
deed, is prohibited from making a public invitation to subscribe to its securities.

3. Registration of Trust Deed:

- In the case of a Trust, the instrument of trust must be in the form of a deed and duly
registered under the Registration Act, 1908.

4. Registration of Partnership Deed:

- For a limited liability partnership, the partnership must be duly incorporated, and the

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partnership deed filed with the Registrar under the Limited Liability Partnership Act, 2008.

5. Legal Establishment of Body Corporate:

- If the applicant is a body corporate, it must be set up or established under the laws of the
Central or State Legislature and permitted to carry on AIF activities.

6. Fit and Proper Criteria:

- The applicant, Sponsor, and Manager must be considered fit and proper persons based on
criteria specified in Schedule II of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.

7. Key Investment Team Certification:

- The Manager's key investment team must include at least one certified key personnel and
one key personnel with a professional qualification in relevant fields.

8. Certification Renewal:
- A fresh certification must be obtained before the expiry of the existing certification to
ensure continuity in compliance with the certification requirement.

9. Infrastructure and Manpower:

- The Manager or Sponsor must possess the necessary infrastructure and manpower to
effectively discharge its activities.

10. Clear Description of Investment Details:

- The applicant must clearly describe, at the time of registration, the investment objective,
targeted investors, proposed corpus, investment style or strategy, and proposed tenure of the
fund or scheme.

11. Previous Registration History:

- The Board considers whether the applicant or any entity established by the Sponsor or
Manager has been refused registration previously.

FIT AND PROPER CRITERIA

[SCHEDULE II
(1) The applicant or intermediary shall meet the criteria, as provided in the respective
regulations applicable to such an applicant or intermediary including:
(a) the competence and capability in terms of infrastructure and manpower requirements; and
(b) the financial soundness, which includes meeting the net worth requirements.
(2) The ‘fit and proper person’ criteria shall apply to the following persons:
(a) the applicant or the intermediary;
(b) the principal officer, the directors or managing partners, the compliance officer and the
key management persons by whatever name called; and

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(c) the promoters or persons holding controlling interest or persons exercising control over
the applicant or intermediary, directly or indirectly:
Provided that in case of an unlisted applicant or intermediary, any person holding twenty
percent or more voting rights, irrespective of whether they hold controlling interest or
exercise control, shall be required to fulfill the ‘fit and proper person’ criteria.
Explanation.—For the purpose of this sub-clause, the expressions “controlling interest” and
“control” in case of an applicant or intermediary, shall be construed with reference to the
respective regulations applicable to the applicant or intermediary.
(3) For the purpose of determining as to whether any person is a ‘fit and proper person’, the
Board may take into account any criteria as it deems fit, including but not limited to the
following:
(a) integrity, honesty, ethical behaviour, reputation, fairness and character of the person;
(b) the person not incurring any of the following disqualifications:
(i) criminal complaint or information under Section 154 of the Code of Criminal Procedure,
1973 (2 of 1974) has been filed against such person by the Board and which is pending;
(ii) charge sheet has been filed against such person by any enforcement agency in matters
concerning economic offences and is pending;
(iii) an order of restraint, prohibition or debarment has been passed against such person by the
Board or any other regulatory authority or enforcement agency in any matter concerning
securities laws or financial markets and such order is in force;
(iv) recovery proceedings have been initiated by the Board against such person and are
pending;
(v) an order of conviction has been passed against such person by a court for any offence
involving moral turpitude;
(vi) any winding up proceedings have been initiated or an order for winding up has been
passed against such person;
(vii) such person has been declared insolvent and not discharged;
(viii) such person has been found to be of unsound mind by a court of competent jurisdiction
and the finding is in force;
(ix) such person has been categorized as a wilful defaulter;
(x) such person has been declared a fugitive economic offender; or
(xi) any other disqualification as may be specified by the Board from time to time.
(4) Where any person has been declared as not ‘fit and proper person’ by an order of the
Board, such a person shall not be eligible to apply for any registration during the period
provided in the said order or for a period of five years from the date of effect of the order, if
no such period is specified in the order.
(5) At the time of filing of an application for registration as an intermediary, if any notice to
show cause has been issued for proceedings under these regulations or under Section 11(4) or
Section 11-B of the Act against the applicant or any other person referred in clause (2), then
such an application shall not be considered for grant of registration for a period of one year
from the date of issuance of such notice or until the conclusion of the proceedings, whichever
is earlier.
(6) Any disqualification of an associate or group entity of the applicant or intermediary of the

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nature as referred in sub-clause (b) of clause (3), shall not have any bearing on the ‘fit and
proper person’ criteria of the applicant or intermediary unless the applicant or intermediary or
any other person referred in clause (2), is also found to incur the same disqualification in the
said matter:
Provided that if any person as referred in sub-clause (b) of clause (2) fails to satisfy the ‘fit
and proper person’ criteria, the intermediary shall replace such person within thirty days from
the date of such disqualification failing which the ‘fit and proper person’ criteria may be
invoked against the intermediary:
Provided further that if any person as referred in sub-clause (c) of clause (2) fails to satisfy
the ‘fit and proper person’ criteria, the intermediary shall ensure that such person does not
exercise any voting rights and that such person divests their holding within six months from
the date of such disqualification failing which the ‘fit and proper person’ criteria may be
invoked against such intermediary.
(7) The ‘fit and proper person’ criteria shall be applicable at the time of application of
registration and during the continuity of registration and the intermediary shall ensure that the
persons as referred in sub-clauses (b) and (c) of clause (2) comply with the ‘fit and proper
person’ criteria.]

EXPLANATION:
Here is a summarized breakdown of the key points:

1. Competence and Capability:

- The applicant or intermediary must meet criteria related to competence, capability,
infrastructure, and manpower, as specified in the applicable regulations.

2. Financial Soundness:
- Financial soundness, including meeting net worth requirements, is a crucial aspect for
eligibility.

3. Fit and Proper Person Criteria:

- The 'fit and proper person' criteria apply to various individuals associated with the
applicant or intermediary, including principal officers, directors, managing partners,
compliance officers, key management persons, and promoters or controlling interests.
- For unlisted applicants, individuals holding twenty percent or more voting rights are also
subject to the 'fit and proper person' criteria.
- The determination of "controlling interest" and "control" is referenced to regulations
applicable to the applicant or intermediary.

4. Criteria for Fit and Proper Person:

- The Board may consider various criteria, including integrity, ethical behavior, criminal
history, economic offenses, regulatory orders, financial proceedings, convictions, insolvency,
mental health, wilful default, fugitive economic offender status, and any other
disqualifications specified by the Board.

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5. Consequences of Disqualification:
- Persons declared as not 'fit and proper persons' by the Board are ineligible for registration
for a specified period or up to five years from the date of the order.

6. Effect of Show Cause Notice:

- If a notice to show cause has been issued, the application for registration may not be
considered for a year from the date of issuance or until the conclusion of proceedings,
whichever is earlier.

7. Disqualification of Associates:
- Disqualification of an associate or group entity does not automatically impact the 'fit and
proper person' criteria unless the applicant or intermediary is also disqualified.
- If an individual referred to in the criteria fails to meet standards, the intermediary must
replace the person within a specified period.

8. Continuity of Fit and Proper Person Criteria:

- The 'fit and proper person' criteria apply at the time of registration and throughout the
registration period, requiring ongoing compliance by individuals associated with the
intermediary.

MAXIMUM TENURE:

CATEGORY I AND II ALTERNATIVE INVESTMENT FUND MAXIMUM 5 YEARS

TENURE WITH 2 YEARS EXTENSION AFTER 3 YEARS MINIMUM AS PER

DISCLOSURE

10. Investment in Alternative Investment Fund.— Investment in all categories of

Alternative Investment Funds shall be subject to the following conditions:—
(a) the Alternative Investment Fund may raise funds from any investor whether
Indian, foreign or non-resident Indians by way of issue of units39[:]
40
[Provided that a social impact fund or schemes of a social impact fund may
also issue social units;]
41
[(aa) The Alternative Investment Fund shall issue units in dematerialised form
subject to the conditions specified by the Board from time to time.]
(b) each scheme of the Alternative Investment Fund shall have corpus of atleast
twenty crore rupees42[:]
43
[Provided that each scheme of the social impact fund shall have a corpus of
at least five crore rupees;]

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(c) the Alternative Investment Fund shall not accept from an investor, an investment
of value less than one crore rupees:
Provided that in case of investors who are employees or directors of the
Alternative Investment Fund or employees or directors of the Manager, the
minimum value of investment shall be twenty five lakh rupees44[:]
45
[Provided further that this clause shall not apply to an accredited
investor46[:]]
47
[Provided further that in case of a social impact fund which invests only in
securities of not for profit organizations registered or listed on a social stock
exchange, the minimum value of investment by an individual investor shall be two
lakh rupees;]
(d) the Manager or Sponsor shall have a continuing interest in the Alternative
Investment Fund of not less than two and half percent of the corpus or five crore
rupees, whichever is lower, in the form of investment in the Alternative
Investment Fund and such interest shall not be through the waiver of management
fees:
Provided that for Category III Alternative Investment Fund, the continuing
interest shall be not less than five percent of the corpus or ten crore rupees,
whichever is lower.
(e) the Manager or Sponsor shall disclose their investment in the Alternative
Investment Fund to the investors of the Alternative Investment Fund;
(f) no scheme of the Alternative Investment Fund shall have more than one thousand
investors48[:]
49
[Provided that the provisions of the 50[Companies Act, 2013] shall apply to
the Alternative Investment Fund, if it is formed as a company.]
(g) the fund shall not solicit or collect funds except by way of private placement.

21. Conflict of Interest.— (1) The Sponsor and Manager of the Alternative Investment
Fund shall act in a fiduciary capacity towards its investors and shall disclose to the investors,
all conflicts of interests as and when they arise or seem likely to arise.
(2) Manager shall establish and implement written policies and procedures to identify,
monitor and appropriately mitigate conflicts of interest throughout the scope of business.
(3) Managers and Sponsors of Alternative Investment Fund shall abide by high level
principles on avoidance of conflicts of interest with associated persons, as may be specified
by the Board from time to time.

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22. Transparency.— All Alternative Investment Funds shall ensure transparency and
disclosure of information to investors on the following:
(a) financial, risk management, operational, portfolio, and transactional information
regarding fund investments shall be disclosed periodically to the investors;
(b) any fees ascribed to the Manager or Sponsor; and any fees charged to the
Alternative Investment Fund or any investee company by an associate of the
Manager or Sponsor shall be disclosed periodically to the investors;
(c) any inquiries/legal actions by legal or regulatory bodies in any jurisdiction, as and
when occurred;
(d) any material liability arising during the Alternative Investment Fund's tenure shall
be disclosed, as and when occurred;
(e) 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;
(f) change in control of the Sponsor or Manager or Investee Company.
(g) Alternative Investment Fund shall provide at least on an annual basis, within 180
days from the year end, reports to investors including the following information,
as may be applicable to the Alternative Investment Fund:—
A. financial information of investee companies.
B. material risks and how they are managed which may include:
(i) concentration risk at fund level;
(ii) foreign exchange risk at fund level;
(iii) leverage risk at fund and investee company levels;
(iv) realization risk (i.e. change in exit environment) at fund and investee
company levels;
(v) strategy risk (i.e. change in or divergence from business strategy) at
investee company level;
(vi) reputation risk at investee company level;
(vii) extra-financial risks, including environmental, social and corporate
governance risks, at fund and investee company level.
(h) Category III Alternative Investment Fund shall provide quarterly reports to
investors in respect of clause (g) within 60 days of end of the quarter;
(i) any significant change in the key investment team shall be intimated to all
investors;

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(j) alternative Investment Funds shall provide, when required by the Board,
information for systemic risk purposes (including the identification, analysis and
mitigation of systemic risks).

24. Obligation of Manager.— The Manager shall be obliged to:

(a) address all investor complaints;
(b) provide to the Board any information sought by Board;
(c) maintain all records as may be specified by the Board;
(d) take all steps to address conflict of interest as specified in these regulations;
(e) ensure transparency and disclosure as specified in the regulations.

RE-REGISTRATION

RE REG: https://bathiya.com/alternative-investment-funds/

Venture Capital (VC) Funds registered under SEBI (Venture Capital Funds) Regulations,
1996 shall continue to be regulated by the said regulations till the existing fund or scheme
managed by the fund is wound up and such funds shall not launch any new scheme after
notification of the AIF Regulations. Further, the existing fund or scheme shall not increase
the targeted corpus of the fund or scheme after notification of AIF Regulations. However,
VCFs may seek re-registration under these regulations subject to approval of two-thirds of
their investors by value of their investment.

RELEVANT SECTIONS:

3. Registration of Alternative Investment Funds.— (1) On and from the

commencement of these regulations, no entity or person shall act as an Alternative
Investment Fund unless it has obtained a certificate of registration from the Board:

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Provided that an existing fund falling within the definition of Alternative Investment
Fund which is not registered with the Board may continue to operate for a period of six
months from commencement of these regulations or if it has made an application for
registration under sub-regulation (5) within the said period of six months, till the disposal
of such application:
Provided further that the Board may, in special cases, extend the said period up to a
maximum of twelve months from the date of such commencement:
Provided further that existing schemes will be allowed to complete their agreed
tenure, such funds shall not raise any fresh monies other than commitments already made
till registration is granted under Regulation 6:
30
[Provided further that such existing funds, which do not propose to accept any fresh
commitments after commencement of these regulations shall not be required to obtain
registration under these regulations subject to submission of information on their
activities to the Board in the manner as may be specified]
Provided further that if such existing funds are not able to comply with conditions
specified under these regulations, they may apply for exemption to the Board from strict
compliance with these regulations and the Board upon examination may provide such
exemptions or issue such instructions as may be deemed appropriate.
(2) The funds registered as venture capital fund under Securities and Exchange Board of
India (Venture Capital Funds) Regulations, 1996 shall continue to be regulated by the said
regulations till the existing fund or scheme managed by the fund is wound up and such funds
shall not launch any new scheme after notification of these regulations:
Provided that the existing fund or scheme shall not increase the targeted corpus of the
fund or scheme after notification of these regulations.
Provided further that venture capital funds may seek re-registration under these
regulations subject to approval of two-thirds of their investors by value of their
investment.
(3) Any entity referred to in sub-regulation (1) who fails to make an application for grant
of a certificate within the period specified therein shall cease to carry on any activity as an
Alternative Investment Fund.
(4) Alternative Investment Funds shall seek registration in one of the categories
mentioned hereunder and in case of Category I Alternative Investment Fund, in one of the
sub-categories thereof:
(a) “Category I Alternative Investment Fund” which invests in start-up or early stage
ventures or social ventures or SMEs or infrastructure or other sectors or areas
which the government or regulators consider as socially or economically desirable
and shall include venture capital funds, SME Funds, 31[social impact funds],

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infrastructure funds 32[, special situation funds] and such other Alternative
Investment Funds as may be specified;
Explanation. For the purpose of this clause, Alternative Investment Funds
which are generally perceived to have positive spillover effects on economy and
for which the Board or Government of India or other regulators in India might
consider providing incentives or concessions shall be included and such funds
which are formed as trusts or companies shall be construed as “venture capital
company” or “venture capital fund” as specified under sub-section (23FB) of
Section 10 of the Income Tax Act, 1961.
(b) “Category II Alternative Investment Fund” which does not fall in Category I and
III and which does not undertake leverage or borrowing other than to meet day-to
day operational requirements and as permitted in these regulations;
Explanation. For the purpose of this clause, Alternative Investment Funds
such as private equity funds or debt funds for which no specific incentives or
concessions are given by the government or any other Regulator shall be included.
(c) “Category III Alternative Investment Fund” which employs diverse or complex
trading strategies and may employ leverage including through investment in listed
or unlisted derivatives.
Explanation. For the purpose of this clause, Alternative Investment Funds
such as hedge funds or funds which trade with a view to make short term returns
or such other funds which are open ended and for which no specific incentives or
concessions are given by the government or any other Regulator shall be included.
33
[(d) specified Alternative Investment Fund under Regulation 19 of these
regulations.]
(5) An application for grant of certificate shall be made for any of the categories as
specified in sub-regulation (4) in Form A as specified in the First Schedule to these
regulations and shall be accompanied by a non-refundable application fee as specified in Part
A of the Second Schedule to these regulations to be paid in the manner specified in Part B
thereof.
(6) The Board shall take into account requirements as specified in these regulations for
the purpose of considering grant of registration.
(7) Without prejudice to the powers of the Board to take any action under the Act or
regulations made there under, the certificate of registration shall be valid till the Alternative
Investment Fund is wound up.
(8) The Board may, in the interest of the investors, issue directions with regard to the
transfer of records, documents or securities or disposal of investments relating to its activities
as an Alternative Investment Fund.

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(9) The Board may, in order to protect the interests of investors, appoint any person to
take charge of records, documents, securities and for this purpose, also determine the terms
and conditions of such an appointment.

39. Repeal and Saving.— (1) The Securities and Exchange Board of India (Venture
Capital Funds) Regulations, 1996 hereby shall stand repealed.
(2) Notwithstanding such repeal:
(a) Anything done or any action taken or purported to have been done or taken,
including suspension or cancellation of certificate of registration, any inquiry or
investigation commenced or show cause notice issued under the repealed
regulations, shall be deemed to have been done or taken under the corresponding
provisions of these regulations;
(b) All venture capital funds or schemes launched by such venture capital funds prior
to date of notification of these regulations shall continue to be governed by
provisions of Securities and Exchange Board of India (Venture Capital Funds)
Regulations, 1996 till the fund or Scheme is wound up:
Provided that such funds shall not launch any new Scheme after notification
of these regulations;
(c) Any application made to the Board under the Securities and Exchange Board of
India (Venture Capital Funds) Regulations, 1996 and pending before it shall be
deemed to have been made under the corresponding provisions of Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
(3) After the repeal of Securities and Exchange Board of India (Venture Capital Funds)
Regulations, 1996, any reference thereto in any other regulations made, guidelines or
circulars issued thereunder by the Board shall be deemed to be a reference to the
corresponding provisions of these regulations.

EXPLANATION:
The section outlines the repeal of the Securities and Exchange Board of India (Venture
Capital Funds) Regulations, 1996, and provides for certain saving provisions. Here is a
summarized breakdown:

1. Repeal of Previous Regulations:

- The Securities and Exchange Board of India (Venture Capital Funds) Regulations,
1996, is repealed.

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2. Saving Provisions:
- Actions taken under the repealed regulations, such as the suspension or cancellation of
certificates, inquiries, investigations, or show cause notices, are deemed to have been done
under the corresponding provisions of the new regulations.
- Venture capital funds or schemes launched under the 1996 regulations before the
notification of the new regulations will continue to be governed by the 1996 regulations until
the fund or scheme is wound up. However, these funds cannot launch new schemes after the
notification of the new regulations.
- Any pending application made to the Board under the 1996 regulations will be
deemed to have been made under the corresponding provisions of the new regulations.

3. References in Other Regulations:

- Any references to the Securities and Exchange Board of India (Venture Capital Funds)
Regulations, 1996, in other regulations, guidelines, or circulars issued by the Board will be
deemed as references to the corresponding provisions of the new regulations after the repeal.

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