SEBI Directions w.r.t. Alternate Investment Funds

SEBI as on 21st May 2012 had notified SEBI (Alternate Investment Funds) Regulations 2012, wherein any privately pooled investment vehicle collecting fund from Investors are needed to get registered as Alternate Investment Funds under any one of three Categories that is Category I, II or III. Out of the prescribed categories, Category III Alternative Investment Funds are allowed to employ diverse and complex trading strategies and to engage in leverage or borrow funds subject to consent from the investors in the fund and a limit as specified by SEBI. Also, as per the regulations, the Category III AIFs shall are to be regulated by directions issued by the Board from time to time regarding aspects like operational standards, business rules, prudential requirements, restrictions on redemption and conflict of interests.

Keeping in line with this and in continuance of its efforts to protect the interest of investors in the Indian Securities Markets, SEBI vide its circular dated 29th July 2013 has notified certain operational, prudential and reporting norms for the AIFs registered or to be registered under the said regulations.



The major highlights of the new directions are as follows: 

Aspect
Directions

Risk Management and Compliance 


Applicability:
Category III AIFs that employ leverage
1.
Keeping in mind the fund's size, complexity & risk profile, have:
· Comprehensive risk management framework supported by independent risk management function
· A strong and independent compliance function supported by sound and controlled operations & infrastructure, adequate resources and checks and balances
2.
Maintain appropriate records of the trades/transactions performed.
3
Provide to investors full disclosure and transparency of:
· Conflicts of interest
· How the conflicts are managed from time to time in accordance with various SEBI guidelines.
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