Securities and Exchange Board of India (SEBI). file | Photo Credit: Reuters
In a bid to strengthen the corporate governance mechanism, capital markets regulator, Securities and Exchange Board of India (SEBI) has proposed to amend the existing rules governing Alternative Investment Funds (AIFs).
Under the proposal, Category I and Category II AIFs should not directly or indirectly borrow funds or engage in leverage for the purpose of making investments, SEBI said in a consultation paper dated May 18.
These AIFs can borrow, subject to certain conditions, for the purpose of meeting the shortfall in drawdown while investing in the investee company.
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The conditions include that such borrowing by these AIFs should be done only in emergencies and as a last resort, the amount borrowed should not exceed 10% of the investment proposed to be made in the investee company and such Borrowing costs should only be charged to an investor who delays or defaults on drawdown payments.
Category I and Category II AIFs should maintain a cooling off period of 30 days between two periods of permissible leverage.
SEBI said, “The regulatory intent behind allowing borrowing for Category I and II AIFs is that the borrowed funds will be used to meet the operational requirements of the AIF and not for investment purposes. “
Further, the regulator proposed to mandate that AIFs should hold their investment instruments or securities only in dematerialized form.
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Further, it has been suggested that the requirement of mandatory appointment of a custodian for safekeeping of securities for AIFs with a corpus of more than ₹500 crore should be extended to AIFs with a corpus of less than ₹500 crore .
Large net worth funds for accredited investors (LVFs) should be permitted to extend the tenure up to four years subject to the approval of two-thirds of the unit holders by the value of their investment in the LVF.
SEBI noted that many AIFs are still holding certificate of registration despite there being no fundraising or investment activity in their schemes for several years.
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Considering this, SEBI suggested that the manager of an AIF should ensure that a renewal fee equal to 50% of the applicable registration fee for a block subsequent to five years from the date of grant of registration to the AIF is paid for the said block. Do it within three months before expiry. Duration.
In addition, existing AIFs who have completed five years from the date of grant of Certificate of Registration shall also be required to pay a renewal fee equal to 50% of their applicable registration fee.
Sebi has sought comments on the proposal by May 31.
Last month, the market regulator had asked AIF funds to provide a “direct plan” option for investors and introduced a trail model for distribution commission to bring transparency in expenses and curb mis-selling.