The Securities and Exchange Board of India (Sebi) on Monday paved the way for accredited investor-only Alternative Investment Funds (AIFs) and extended regulatory relaxations to large value funds (LVFs).
Accredited investors are a class of investors who have an understanding of various financial products and the risks and returns associated with them, and therefore are able to take informed decisions regarding their investments. They are typically large investors with annual income of Rs 2 crore or more or have a net worth of Rs 7.5 crore.
According to the regulator, a separate category of AIF schemes, limited exclusively to Accredited Investors, will offer scheme-specific regulatory flexibility, including less compliance around investor protection. Large value funds for accredited investors are now granted additional relaxations and operational flexibilities. Large value funds are those where the minimum commitment required from each participating investor is Rs 25 crore.
LVFs are now exempt from following the standard template for the Private Placement Memorandum (PPM) and the requirement for an annual audit of the terms of the PPM. This exemption applies without the need for obtaining specific waivers from investors.
All new schemes launched as AI-only or LVF must append 'AI only fund' or 'LVF' to the scheme name, respectively.
Existing eligible AIFs or schemes are permitted to convert/migrate to AI-only schemes or LVF schemes, subject to specific conditions. Conversion requires obtaining positive consent from all investors. Upon conversion, the AIF manager must ensure the scheme's name is changed to include 'AI only fund' or 'LVF'.
The conversion and change in name has to be reported to Sebi via email to aifreporting@sebi.gov.in within 15 days. The name change also has to be reported to depositories within 15 days of the conversion.
An investor who is an Accredited Investor at the time of onboarding into an AIF scheme shall be reckoned as an AI throughout the life of the scheme, even if they lose the status later on.
The maximum permissible tenure extension for AI-only schemes is five years, which is inclusive of any tenure extension granted prior to its conversion to an AI-only or LVF scheme.