SEBI registered alternative investment funds hit a century

Securities market regulator Securities & Exchange Board of India (SEBI) registered the 100th alternative investment fund under the two years old AIF norms when it gave the green signal to Religare Credit Investment Trust early this week.

This marks a significant milestone for alternative investment funds such as angel and venture capital funds besides private equity and hedge funds in the country.

Around 31 funds have been registered under category I including a little over one dozen VC funds, four social VC funds, eight infrastructure funds and one angel fund.

Of the rest around 52 PE funds including realty funds and the remaining 17 odd entities have registered under the category III as hedge funds.

SEBI had unveiled the final norms to regulate all alternate investment funds in the country in April 2012 with IFCI Sycamore India Infrastructure Fund becoming the first fund to be registered under the new norms in July 2012.

The half century mark was reached in May 2013. Since then 50 more entities have been registered under the new norms. The regulator has given approval to 11 entities since January 1 this year, 67 last year and 22 in 2012.

The norms had put all funds under three categories to be governed separately in terms of tax incentives, investment horizon and other norms.

AIF I, the first category includes those with ‘positive spill-over effects on the economy’. Funds that qualify under this category include angel and venture capital funds, small and medium enterprises (SME) funds, social venture funds and infrastructure funds. These funds will be close ended and they cannot engage in leveraging.

In the second category or AIF II, SEBI has included funds which can undertake leverage only to meet their day-to-day operational requirements. This category includes private equity funds, debt funds, fund of funds and such other funds that are not classified as category I or III. It also includes realty funds. These funds too will be close ended as per the regulations but will have no other investment restrictions.

Under AIF III, SEBI has included hedge funds which are considered to have ‘negative external externalities such as exacerbating systemic risk through leverage or complex trading strategies’. These funds can either be open ended or close ended and may engage in leveraging subject to limits specified by the board.

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