The Alternative Investment Fund Managers (AIFMs) in India are required to register with SEBI before they can invite the public for investments in their alternative investment funds. This article gives an overview of the regulatory requirements for registration and helps you understand if your fund needs to register or not.
What are Alternative Investment Funds?
Alternative Investment Funds are also known as “hedge funds.” They are funds that invest in areas not traditionally seen as safe for ordinary investments. These can include commodities, currencies, stocks, bonds, and even derivatives.
Alternative Investment funds are used by investors to hedge risk. An investor’s return on an alternative investment fund is largely dependent on the expertise of the manager(s) of the fund rather than the performance of a single investment.
Registration of AIFs in India
Registration of Alternative Investment Funds in India is a process that should be completed by the portfolio manager or promoter. The process begins with filling a simple 3-page application form which can be downloaded from SEBI’s website.
The following is a step-by-step guide to registering an Alternative Investment Fund:
- Submit an application to the SEBI
- SEBI (Alternative Investment Funds) Regulations, 2012, Form A, as well as other required paperwork and a business plan.
- If an applicant or entity has authorized any director, promoter, or other officials to act as an authorized signatory, an authorization letter is required.
- To identify whether an applicant is eligible or ineligible to be registered as an AIF, the applicant must properly read the SEBI rules.
- It must report in a covering letter if it has been involved in any activity as an AIF or is applying for registration for a new fund.
- An online application is filed in accordance with SEBI standards. For the grant of a certificate of registration, a properly filled, numbered, duly signed, and stamped Form A must be submitted, along with the necessary documents and an application fee of INR 100000 in the form of a draft in favor of The Securities and Exchange Board of India, payable at Mumbai.
- SEBI must verify and respond to an application within 21 days after receiving it.
Benefits of AIFs for Startups
Alternative Investment Funds (AIFs) are the most popular and the most trusted way for startups to invest in India. They also offer a host of benefits, such as:
- A degree of confidentiality and privacy
- The opportunity to enjoy tax benefits
- Offering a variety of investment options
- Qualified investing experts
- Lack of Volatility
- Strong Income
- Direct Ownership
- Passive Investments
Drawbacks of AIF registration process in India
The registration process for new fund managers is unnecessarily lengthy and complicated. It can take up to three months to complete the whole process, which includes a due diligence check, registration with SEBI, and getting a PAN card. Liquidity is the most typical stumbling hurdle for investors involved in alternative investments. If you invest in a private fund, most of them have a lockup term of three to ten years before you may take your money (though many pay out a return during the lockup period).
How to register an AIF with SEBI in India
SEBI has been entrusted with the responsibility of registering all the AIFs in India, which it does in a well-defined manner. There are a number of requirements that need to be fulfilled in order for an AIF to register with SEBI. these include mandating for a minimum net worth and turnover.