Alternate Investment Fund Registration

 

Full form of AIF is Alternative Investment Fund. AIF refers to any fund which is established or incorporated in India as a privately pooled investment vehicle for the collection of funds from sophisticated investors for their benefit.

 

AIFs in India are regulated by the Securities and Exchange Board of India (SEBI) under SEBI alternative investment funds regulations known as the SEBI (Alternative Investment Funds) Regulations 2012. Alternative investment Fund Registration, or AIF Registration, ensures that your AIF is registered smoothly without any hassle. 

What is Alternative Investment Fund (AIF)?

Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012 defines Alternative Investment Fund as any fund established or incorporated in India

 

in the form of a trust or a company or LLP or a body corporate which -

• is a privately   pooled   investment   vehicle   which   collects   funds   from investors, including  Indian and foreign investors, for investing it in accordance with a defined investment policy for the benefit of its investors; and
• is not included 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 which are intended to regulate fund management activities.

Which Entities are not considered as AIFs?

The following entities are not considered as Alternate Investment Funds (AIFs):

• Family trusts which are set up for the benefit of ‘relatives’ as described under Companies Act, 2013.
• ESOP Trusts which are set up under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 or as permitted under Companies Act, 2013.
• Employee welfare trusts or gratuity trusts which are set up for the employees’ benefit.
• ’Holding  companies’  as defined under Companies Act, 2013 in sub-section 46  of section 2.
• Other special purpose vehicles which aren’t established by fund managers, including securitization trusts, regulated under a specific regulatory framework;
• Funds managed by securitisation company or reconstruction company which is  registered  with  the  Reserve  Bank  of  India (RBI)  under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• Any such pool of funds which is regulated by any other regulator in India directly.

Benefits of Alternative Investment Fund

AIF Alternative Investment Fund offers a multitude of benefits such as:

• AIFs provide flexibility when it comes to investment strategies, risk profiles and asset classes.
• AIFs offer exposure to alternative asset classes such as infrastructure, real estate and private equity. These asset classes offer the benefit of diversification and have the potential to produce high returns.
• AIFs are supervised by experienced financial professionals having a deep understanding of the many types of asset classes.
• AIFs, especially those falling under Category 3, have the ability to yield higher risk-adjusted returns than traditional investment options.  

What Are the AIF Categories in India?

The Securities and Exchange Board of India (SEBI) recognizes three AIF categories in total - Category 1, Category 2 and Category 3. Various types of AIFs come under these three categories. 

Category 1

AIFs in Category 1 invest in fresh, economically viable companies which showcase a significant potential for growth, as well as startups and SMEs. 

 

Category 1 AIFs include Venture Capital Fund (VCF), Angel Investments, Infrastructure Funds and Social Venture Funds. Let’s have a brief understanding of these AIFs.

Venture Capital Funds (VCFs)

Venture Capital Funds (VCFs) are funds which can be approached by new age companies that require substantial funding in their early stages of development. VCFs can assist the new age companies to get through the financial crisis. 

 

VCFs primarily focus on startups having high growth potential. When entities allocate their funds to a VCF, they must consider the high degree of risk associated with it and also the potential for high return.

Angel Funds

Angel Funds are also known as Angel Investors. They make investments in budding startups. These AIFs bring prior experience in business management with them. These funds make investments in new businesses that do not get the support of VCFs. As a general requirement, each angel investor must make a minimum investment of Rs 25 lakh. 

Infrastructure Funds

As you can imagine from their name, Infrastructure Funds are funds that invest in infrastructure companies. These infrastructure companies include those that are involved in construction of railways, ports, power plants, etc. 

Social Venture Funds

Social Venture Funds make investments in firms which have a social conscience and work towards making significant changes in society. Social venture funds have the dual objective of making gains and solving social problems.

Category 2

The AIFs which fall under Category 2 invest in equities and debt securities. Funds which are not categorized in either category 1 or 3 also fall under this category. 

 

No tax exemption or concession is provided by the government for investments in category 2. AIFs in Category 2 are Private Equity Funds, Debt Funds and Funds of Funds. Let’s find out what these AIFs work:

Private Equity Funds

Raising capital through the issuance of debt and equity can come across as challenging for unlisted companies. This is when private equity funds come into the picture. 

 

These funds invest in unlisted private companies or firms and take a share of their ownership. However, these funds have a lock-in term which can range from four to seven years.

Debt Funds

Debt funds basically make investments in debt securities of businesses that are listed as well as businesses that are unlisted. These businesses generally showcase a good corporate governance model and have a high growth potential. 

 

According to the guidelines established by SEBI, debt fund investments can’t be used for providing loans.

Fund of Funds (FOF)

Funds of Funds (FOF) is a mix of multiple AIFs. The approach of FOF is to invest in a portfolio of other AIFs instead of creating its own portfolio or deciding which sector to invest in.

Category 3

There are two AIFs which fall under Category 3, namely Private Investment in Public Equity Fund (PIPE) and Hedge Funds. These AIFs make use of various complex trading approaches to achieve the goal of getting returns in a short period of time. Let’s find out how they work:

Private Investment in Public Equity Fund (PIPE)

PIPE is a kind of fund which makes investments in shares of publicly traded companies. It obtains the shares at a discounted price. Companies can raise funds more quickly and also save their time as PIPE comes with less regulatory requirements and paperwork as compared to public offerings.

Hedge Funds

Hedge funds pool money from certified investors and make investments in national as well as international markets to achieve the goal of producing high returns. As compared to mutual funds, hedge funds are less regulated.

Eligibility Criteria for the Alternative Investment Fund Registration

For the grant of AIF registration, the following eligibility criteria must be met by the entity.

• The applicant, manager and sponsor must be fit and proper individuals according to the criteria specified in Schedule II of SEBI (Intermediaries) Regulations 2008.
• The key investment team manager of AIF must have -
  • Sufficient experience and a minimum of one key personnel with 5 years’ experience in fund, wealth, asset or portfolio management or in the business of selling, purchase and exchange of securities or other financial assets.
  • A minimum of one key personnel must hold a professional degree in accounting, finance, business management, commerce, capital markets, economics, or banking from a university/institution approved by the central government or any state government.  
• At the time of alternative investment funds sebi registration, the applicant must specify the targeted investors, investment goal, investment style, proposed strategy and corpus and the fund’s proposed tenure.
• The applicant's Memorandum of Agreement (MoA), Articles of Association (AoA), Partnership deed, or Trust Deed shall forbid it from inviting the public for subscribing to its securities.
• The authority to conduct AIF activities must be granted by the Memorandum of Association (MoA) of the company, the trust deed of a trust, or the partnership deed of an LLP.
• In accordance with the rules of the Limited Liability Partnership Act of 2008, if the applicant is an LLP, it must be properly incorporated and the Partnership deed must be submitted with the Registrar of Firms.  
• The trust deed must be properly registered in accordance with the Registration Act of 1908 if the applicant is a trust.
• If the applicant is a body corporate, it has to be established or set up according to the laws of the central and state legislatures and have the permission to carry out AIF’s activities and operations.

Documents required for AlF Registration

The following list of documents are required for obtaining AIF registration:

• In case of AIF registration by partnership registered under LLP Act 2008, partnership deed is required.
• Registered Office’s Address
• PAN of the AIF Applicant
• Memorandum of Association (MoA) and Articles of Association (AoA) along with certificate of incorporation, in case of a Company
• AIF’s Shareholders’ and Partners’ details
• Details of AIF’s Investment Manager, Sponsors and Trustees
• AIF’s Investment Manager and Sponsor’s Financial Details
• Details of the controlling entities, persons, key management personnel and key investment team
• Any other information regarding the business entity type and expansion plans, if applicable.
• Applicant company’s placement memorandum’s copy.

AIF Registration Process in India

Alternative Investment Funds have become increasingly popular in India in the last decade as an option to diversify investment portfolios. Even individual investors with limited means can invest in the AIFs due to the SIP option offered by Mutual Funds.

 

For AIF Registration, the following process must be followed:

1. Make an Application using Form-A

An application under Form-A under the SEBI (AIF) Regulations, 2012, along with a cover letter and further supporting documentation, must be submitted by the applicant in order to be registered as an AIF. 

 

The applicant must provide all the relevant details in the cover letter, such as: 

• Whether the company is registered with SEBI as a venture capital, and if so, what facts are provided;
• Details on any prior AIF activities the applicant may have participated in must be submitted;
• Information about the new fund's registration application.
• Prepare a bank draft that is payable to SEBI. 

Once Form-A and cover letter have been completed, a bank draft of Rs. 100,000 application fee payable to SEBI must be submitted along with details that can be included in the cover letter to SEBI.

2. Review of the Application by SEBI

After SEBI has received the application for AIF registration, it will carefully review it. If the AIF meets the eligibility criteria under SEBI alternative investment funds regulations, it will approve the application for AIF Registration and the applicant will be informed about it directly.

3. AIF Registration Fee Payment and Issuance of Certificate of Registration

Once the AIF receives confirmation from SEBI that its application has been approved, it must prepare to pay the Rs. 5,00,000 registration fee needed to get AIF status in India. 

 

One thing to keep in mind is that an AIF India only needs to pay SEBI a fee of Rs. 1,00,000 to re-register as a venture capital fund if it is already a SEBI registered AIF. The Certificate of Registration for AIF registered with SEBI will be given to the candidate by SEBI after the applicable registration fee has been paid.

Our Assistance in AIF Registration in India

Registrationwala can help you to obtain AIF registration certificate in India by offering comprehensive support through the follow steps:

• Professional Consultation and Guidance: Registrationwala offers expert consultation to help entities understand the requirements and eligibility criteria for AIF registration, including the various AIFs’ categories i.e. Category 1, Category 2 or Category 3.
• Documentation: Registrationwala assists entities when it comes to preparing and collecting all the relevant documents such as application form, address proof, etc.
• Assistance in Filing the AIF Registration Application: Our AIF experts at Registrationwala handle the submission of the AIF application to SEBI and ensure all the necessary paperwork is accurately completed and submitted in a timely manner.
• Compliance with SEBI: Registrationwala provides legal and compliance support to make sure that your fund is in compliance with all the SEBI guidelines and regulations.

By choosing Registrationwala, you can take advantage of our team’s expertise and resources to simplify the process of AIF registration. We promise to ensure a smooth and efficient experience for you.

FAQs About AIF Registration

Q1. What is the full form of AIF?

A. The full form of AIF is Alternative Investment Fund.

 

Q2. Which Regulatory Body regulates AIFs in India?

A. AIFs in India are regulated by SEBI under SEBI alternative investment funds regulations known as the SEBI (Alternative Investment Funds) Regulations 2012.

 

Q3. Can a fund or scheme of any size be launched by an AIF?

A. No, each AIF scheme, other than Angel Fund scheme, shall have a minimum corpus twenty crore rupees. However, in case of an angel fund, it shall have a minimum corpus of ten crore rupees. 

 

Q4. How many categories of AIF exist in India?

A. In India, there are three categories of AIF i.e., category 1, category 2 and category 3.

 

Q5. What are Hedge Funds?

A. Hedge funds come in AIF category 3. These funds pool money from certified investors and invest in domestic as well as global markets to achieve the goal of producing high returns.