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Guide to setting up Alternative Investment Funds in India

17, July 2017 | Vikash Singh

Guide to setting up Alternative Investment Funds in India

Over the past decade, Alternative Investment Funds (AIFs) have become increasingly popular in India as an alternative investment option for effective diversification of investment portfolio. Moreover, even smaller investors now have access to invest in AIFs through the mutual fund SIP route.

Following points would act as a guide for setting up an AIF in India:

1. Application to SEBI through Form A along with cover letter

The process for registering as AIF in India commences with the application made by the AIF through Form A in the prescribed format to the SEBI.This application is a requisition to SEBI for granting a registration certificate to the AIF under the SEBI (Alternative Funds) Regulations, 2012. SEBI normally reverts to an application Requisition for AIF registration within 21 days of making the application, which could be longer as well depending on the compliance speed adopted by the AIF. Therefore, it is vital for AIFs to do their homework on the eligibility criteria for AIF under the SEBI (Alternative Funds) Regulations, 2012well before putting in its form An application.

The AIF must write a cover letter addressed to SEBI clearly stating whether it is already registered with SEBI as a VC fund. In case it is already registered, it must provide SEBI with all the relevant registration details. Moreover, in the cover letter, the AIF must mention to SEBI whether it has already commenced operations as an AIFwell before making the application, in which case it must provide SEBI with the relevant details.In case the AIF is applying for registration of a new fund, it must clearly clarify this in its cover letter to SEBI.

2. Preparing a Bank Draft payable to SEBI

Once the AIF has filled in Form A and has prepared its cover letter, it must get a bank draft made in favour of SEBI for Rs. 100,000towards payment of application fees, details of which can be added in the cover letter to SEBI.

3. Evaluation of application by SEBI

Once it receives the application, SEBI will evaluate the application thoroughly to examine whether the AIF has met all the required eligibility criteria specified under the SEBI Regulations.This is vital for SEBI to consider granting registration to the AIF. Once SEBI completes its evaluation process and is satisfied with all the parameters, it will approve the AIF's application by expressly informing the AIF applicant about the same.

4. Payment of registration fee to SEBI

Once the AIF receives the letter from SEBI notifying that its application has been successful, it must prepare for paying a registration fee of Rs. 500,000 for getting the status of AIF in India.However, a key point to note here is that an AIF already registered as a VC fund in India with the SEBI must only arrange for paying the re-registration fee of Rs. 100,000 to SEBI. Upon the receipt of applicable registration fees, SEBI will grant 'Certificate of Registration' as an Alternative Investment Fund in India to the applicant.

5. AIF must ensure strict compliance SEBI's reporting and other guidelines

Once the AIF receives its registration certificate, it marks the completion of the registration process at the end of SEBI as well as the applicant. However, as part of mandatory compliances, the AIF must ensure that it complies with all the crucial report requirements specified by SEBI. Moreover, the AIF must stay updated on SEBI's guidelines communicated by SEBI through its website and circulars. The AIF must report any material changes in the original details provided to SEBI by the AIF within a reasonable time.

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