Market regulator Securities and Exchange Board of India (SEBI) in
August 2012 permitted seven Alternative Investment Funds (AIFs) to start
operation in India under a newly formulated route that enable pooling
of funds for investments in areas such as real estate, private equity
and hedge funds. Six AIFs registered with the regulator in August 2012,
while one was granted registration back on 23 July 2012. SEBI had
published its guidelines with regard to AIF in May 2012.
The seven AIFs that registered with SEBI include IFCI Syncamore India
Infrastructure Fund, Utthishta Yekum Fund, Indiaquotient Investment
Trust, Forefront Alternate Investment Trust, Excedo Realty Fund, Sabre
Partners Trust and KKR India Alternate Credit Opportunities Fund.
Funds established or incorporated in India for the purpose of pooling
in of capital from Indian and foreign investors for investing would
have to follow a pre-decided policy. SEBI decided to allow promoters of
listed companies can offload 10 per cent of equity to AIFs such as such
as SME Funds, Infrastructure Funds, PE funds and Venture Capital Funds
registered with the market regulator to attain minimum 25 per cent
public holding.
AIFs, as per SEBI guidelines can operate broadly in three categories
and it is mandatory for them to get registered with the regulator. The
SEBI rules apply to all AIFs, including those operating as private
equity funds, real estate funds and hedge funds, among others.
AIF Categories
The Category I AIFs are those where funds stand a chance of getting
certain incentives or concessions from the government, SEBI or other
regulators in India and include Social Venture Funds, Infrastructure
Funds, Venture Capital Funds and SME Funds.
The Category II AIFs are those funds which can invest anywhere in any
combination but are prohibited from raising debt, except for meeting
their day-to-day operational requirements. These AIFs include PE funds,
debt funds or fund of funds, as also all others falling outside the
ambit of Category I and Category III.
The Category III AIFs are those trading with an objective to make short term returns and include hedge funds, among others.
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