3 Navigating the Intricacies of AIF Registration: A Comprehensive Guide

Key Takeaways:

- AIFs must obtain in-principle approval from SEBI and submit required documents within a specified time frame.

- AIFs can apply to change their category, subject to certain conditions and fees.

- The process for changing an AIF's category involves obtaining investor consent, not making new investments, and submitting updated documents to SEBI.

- Specific fees are applicable for applications related to changing an AIF's category.

Detailed Narrative:

The Alternative Investment Fund (AIF) industry in India is governed by a comprehensive regulatory framework established by the Securities and Exchange Board of India (SEBI). One of the critical aspects of this framework is the registration process for AIFs, which ensures transparency, investor protection, and adherence to industry standards.

To commence operations, AIFs must obtain in-principle approval from SEBI. This approval is granted based on the submission of a duly registered trust deed or a partnership deed, along with other supporting documents. However, if the required documents are not submitted within the specified time frame, the applicant must file a fresh application for registration under the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations).

Once registered, an AIF may seek to change its category, subject to certain conditions outlined by SEBI. Regulation 7(2) of the AIF Regulations specifies that an AIF cannot change its category subsequent to registration without SEBI's approval. To initiate the process, the AIF must not have made any investments under its current category. Additionally, the AIF must submit an application to SEBI, along with an application fee of ₹1 lakh, as per SEBI Circular No. CIR/IMD/DF/12/2013 dated August 07, 2013.

The application for category change must include an updated Form A (as per the First Schedule of the AIF Regulations), other supporting documents, and a rationale for the proposed change. It is important to note that registration fees are not applicable for such applications.

If the AIF has received commitments or raised funds prior to applying for a category change, it must provide its investors with the option to withdraw their commitments or funds without any penalties or charges. Any fees collected from investors seeking withdrawal must be returned, and partial withdrawal may be allowed, subject to compliance with the minimum investment amount required under the AIF Regulations.

During the application process, the AIF is prohibited from making any investments other than in liquid funds or bank deposits until SEBI approves the category change request. Upon approval, the AIF must send a copy of the revised Private Placement Memorandum (PPM) and other relevant information to all its investors.

The process of registering an AIF or changing its category involves adherence to specific regulations, circulars, and guidelines issued by SEBI. It is crucial for AIFs and their managers to thoroughly understand and comply with these requirements to ensure a smooth and compliant registration or category change process.

FAQs

Q1: What is the significance of obtaining in-principle approval from SEBI for AIFs?

A1: Obtaining in-principle approval from SEBI is a crucial step in the registration process for AIFs. It ensures that the AIF meets the necessary regulatory requirements and standards set forth by SEBI. This approval serves as a preliminary clearance and paves the way for the AIF to commence operations after fulfilling the remaining registration formalities.

Q2: Can an AIF change its category after registration?

A2: Yes, an AIF can change its category after registration, but it requires SEBI's approval. The AIF Regulations (Regulation 7(2)) specify that an AIF cannot change its category subsequent to registration without obtaining SEBI's approval.

Q3: What are the conditions for an AIF to apply for a category change?

A3: To apply for a category change, the AIF must not have made any investments under its current category. Additionally, the AIF must submit an application to SEBI, along with an application fee of ₹1 lakh, as per SEBI Circular No. CIR/IMD/DF/12/2013 dated August 07, 2013.

Q4: What happens if an AIF has received commitments or raised funds before applying for a category change?

A4: If an AIF has received commitments or raised funds before applying for a category change, it must provide its investors with the option to withdraw their commitments or funds without any penalties or charges. Any fees collected from investors seeking withdrawal must be returned, and partial withdrawal may be allowed, subject to compliance with the minimum investment amount required under the AIF Regulations.

Q5: Can an AIF make new investments during the category change process?

A5: No, during the category change process, the AIF is prohibited from making any investments other than in liquid funds or bank deposits until SEBI approves the category change request.

Key Precedents:

1. SEBI (Alternative Investment Funds) Regulations, 2012:

- Regulation 7(2):

Specifies that an AIF cannot change its category subsequent to registration without SEBI's approval.

- First Schedule:

Outlines the requirements for Form A, which must be submitted as part of the application for category change.

2. SEBI Circular No. CIR/IMD/DF/12/2013 dated August 07, 2013:

- Establishes the application fee of ₹1 lakh for AIFs proposing to change their category.

3. SEBI Circular No. CIR/IMD/DF/14/2014 dated June 19, 2014, and SEBI Circular No. CIR/IMD/DF/16/2014 dated July 18, 2014:

- These circulars provide guidance on the registration process for AIFs, including the submission of required documents and the implications of not submitting them within the specified time frame.

The registration process for AIFs and the subsequent category change process are governed by a comprehensive set of regulations, circulars, and guidelines issued by SEBI. These precedents outline the specific requirements, fees, and procedures that AIFs must adhere to, ensuring transparency, investor protection, and adherence to industry standards within the AIF industry in India.

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Here's the AIF circular's verbatim Chapter 3

Chapter 3 - Registration related clarifications

3.1. In-principle approval{10}

With respect to an in-principle approval granted to an applicant, in case the registered trust deed or duly filed partnership deed is not submitted within the specified time period, the applicant shall file a fresh application for registration under the AIF Regulations.

3.2. Change in category of AIF{11}

Regulation 7(2) of AIF Regulations specifies as under:

"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." In this regard, it is specified as under:

3.2.1. Only AIFs who have not made any investments under the category in which they were registered earlier shall be allowed to make application for change in category.

3.2.2. Any AIF proposing to change its category shall make an application to SEBI for the same along with an application fees of 1 lakh rupees. The application shall include the updated Form A (Refer First Schedule to the AIF Regulations), other updated supporting documents, if any and rationale for the proposed change. Registration fees shall not apply for such applications.

3.2.3. If the AIF has received commitments/ raised funds prior to application for change in category, the AIF shall be required to send letters/emails to all its investors providing them the option to withdraw their commitments/ funds raised without any penalties/charges. Any fees collected from investors seeking to withdraw commitments/ funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF Regulations.

3.2.4. The AIF shall not make any investments other than in liquid funds/ banks deposits until approval for change in category is granted by SEBI.

3.2.5. On approval of the request from SEBI, the AIF shall send a copy of the revised PPM and other relevant information to all its investors.

Note:-

{10}SEBI circular No. CIR/IMD/DF/14/2014 dated June 19, 2014

{11}SEBI circular No. CIR/IMD/DF/12/2013 dated August 07, 2013