SEBI Eases Compliance Requirements for Alternative Investment Funds (AIFs)
 

In a bid to increase trust in the Alternative Investment Fund (AIF) ecosystem while providing flexibility, the Securities and Exchange Board of India (SEBI) approved certain amendments to the SEBI AIF Regulations, 2012, at its meeting held on 15 March 2024.

We have compiled the key changes to the AIF Regulations below:

Flexibility for Category I and Category II AIFs to Create Encumbrance

SEBI has granted permission for Category I and II AIFs to create an encumbrance on the equity of their investee companies in the infrastructure sector. This move aims to facilitate the raising of debt/loans by such investee companies, subject to compliance with certain conditions including adherence to the Reserve Bank of India (RBI) regulations.  

Specific Due Diligence of Investors and Investments

AIFs, managers of AIFs, and their Key Management Personnel (KMPs) are mandated to conduct specific due diligence on their investors and investments. This measure is designed to prevent AIFs from inadvertently facilitating circumvention of specified regulations administered by financial sector regulators.

The standards for specific due diligence will be formulated by the pilot Industry Standards Forum for AIFs , in consultation with SEBI.  

Additional Flexibility to Deal with Unliquidated Investments Beyond Expiry of Tenure

SEBI has granted AIFs additional flexibility in managing unliquidated investments that remain unsold due to a lack of liquidity during the winding-up process. AIFs are now permitted to retain such investments in the same scheme and enter into a ‘dissolution period’ instead of launching a new scheme (i.e. a liquidation scheme).

Furthermore, SEBI has extended the liquidation period by one year for AIF schemes to address unliquidated investments whose original liquidation period had expired in the past or would expire within three months from the date of the amendment notification, subject to certain conditions.