SEBI updates: Registered AIF and Amendment in Buyback of Securities Regulations

SEBI notifies conditions for registered Alternative lnvestment Funds intending to change their category

On 21st May 2012, SEBI had notified the Alternative Investment Fund (AIF) Regulations thereby bringing all privately pooled investment funds under one roof (except Mutual Funds and Collective Investment Schemes). The said Regulations demarcate AIFs into three categories with all the categories having different investment purposes, type of schemes and benefits.

With respect to these very fresh Regulations, SEBI had recently on 29th July 2013 notified certain operational, prudential and reporting norms with respect to AIFs which answered a lot of questions with respect to the AIF Regulations thus bringing more clarity in regards to a certain aspects. Keeping in line with its efforts to fine tune the AIF Regulations, SEBI has come out with some further clarification vide its circular dated 07th August 2013.
As per the SEBI (AIF) Regulations, a fund once registered under one category can change its category subsequent to the registration only with the approval of SEBI. In this context, SEBI has notified a certain criteria and procedure for the registered AIFs intending to change their category they are originally registered under.
Given below is an account of various questions addressed by SEBI in the aforementioned circular:

    1. Are all the registered AIFs eligible for a change in category? What is the procedure for obtaining SEBI’s approval for such a change?
    Only those AIFs that have not made any investments under the category they were originally registered under shall be eligible to apply for SEBI’s approval for a change in category.
    All the eligible AIFs intending to change their category shall make an application to SEBI, which shall include:
    • An updated Form A given in the First Schedule of the regulations
    • Other updated supporting documents if any
    • Rationale for the proposed change
    • Application fee of Rs. 1 Lakh
    The AIF will not be required to pay the registration fee again.
    2.What if the AIF has already raised funds or received commitments from investors?
    Such an AIF which has raised funds or received commitments from investors prior to applying for a change in the category, will be required to send letters/ emails to the investors communicating:
    • The intention to change the category of AIF
    • An option to withdraw the funds poured in by them and doing so at absolutely no charge or penalty
    • In case any charge or penalty is charged to an investor for withdrawing its investment, it shall have to be refunded.
    An investor will be allowed to withdraw a partial amount invested in the AIF, provided that the minimum investment amount requirement as per the AIF regulations is complied with.
    3. How shall the amount received by investors be utilized while the application for change in category is pending?
    If the AIF is yet to receive the approval of SEBI for change in category, it shall be allowed to make investments for the time being but only in liquid funds or bank deposits. Once SEBI has approved the change in category, the AIF shall send a revised placement memorandum and other relevant information to all its investors

SEBI has brought a vast clarity with respect to a little provision which proved to be of very high importance later i.e. the provision for change in category of AIFs. The regulations allow the AIFs to change their category with SEBI’s approval but the procedure for the same was not given in the regulations. Through this circular, SEBI has not only notified the procedure for a change in category by AIFs but has also by giving option to the Investors to withdraw investment at no charges/ penalty, reaffirmed that the Investor is of prime importance to SEBI.

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