SEBI adds clause for alternative investment funds looking to switch categories

Market regulator Securities & Exchange Board of India (SEBI) has amended its norms for alternative investment funds (AIFs) looking to switch categories under which they are registered for investments in the country.

At present, there are three categories under which the investment funds can register – category I for VC funds, infra and SME funds; category II for PE funds including realty funds and category III for hedge funds. In the AIF Regulations notified in May 2012, SEBI said an AIF, which has been granted registration under a particular category, cannot change its category subsequent to registration, except with the approval of the market regulator. 

It has now clarified that only the AIFs, who have not made any investment under the category where they had registered earlier, shall be allowed to apply for change in category. 

SEBI has said if an AIF has received commitments/raised funds prior to the application for change in category, it needs to inform all its investors, providing them the option to withdraw their commitments/funds raised without any penalty/charge. Partial withdrawal may be allowed, subject to compliance with the minimum investment amount required under the AIF Regulations. 

It has also said that the AIF shall not make any investment other than in liquid funds/bank deposits until the approval for change in category is granted by SEBI. This means when such an application is being processed, the fund cannot go ahead and strike a fresh deal and at best, can park the money in such liquid investment instruments.

(Edited by Sanghamitra Mandal)

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