SEBI Master Circular for Alternative Investment Funds (AIFs) Summary

Registration & Launch of AIF Schemes

● Standardized Private Placement Memorandum (PPM): Mandatory adherence to templated disclosures for Category I, II, and III AIFs, ensuring uniform articulation of investment strategy, fees, expenses, and risk factors.

● GARUDA Fast-Track Channel: Schemes sponsored or managed by entities meeting defined compliance track records can opt for the "Green-Channel AIF Rollout Upon Placement Memorandum Filing" (GARUDA), permitting capital commitments immediately upon filing without waiting for SEBI's formal observation letter.

● Certification Requirements: The key investment team of the Investment Manager must maintain valid NISM Series-XIX-A (Alternative Investment Fund Managers) certifications.

● Online Filing Workflow: All applications for registration, scheme filings, and subsequent material changes must be executed via the SEBI Intermediary Portal (SI Portal).

Fund Raising by AIFs

● Investor Eligibility & Minimum Ticket Size: Minimum investment threshold fixed at INR 1 Crore (INR 25 Lakhs for employees/directors of the AIF or Manager).

● FATF & Sanction Screening: Mandatory verification ensuring investors are not domiciled in jurisdictions categorized as high-risk or non-compliant under FATF recommendations, nor listed on United Nations Security Council (UNSC) sanction lists.

● Joint Investors Norms: Joint investments are permitted exclusively among spouse, parent, and child pairings, with the aggregate commitment meeting the statutory threshold.

Investments by AIFs

● Overseas Investment Limit: Industry-wide allocation cap sustained up to USD 1,500 Million, managed through centralized regulatory monitoring and scheme-specific drawdowns.

● Credit Default Swaps (CDS): Category II and III AIFs are permitted to participate in CDS as protection buyers; Category III AIFs may act as protection sellers within specified collateral constraints.

● Mandatory RFQ Platform Usage: Debt secondary market transactions executed by AIFs must adhere to minimum trading quotas via the Request for Quote (RFQ) platform to ensure price discovery.

Category-Specific Norms

● Category III AIF Leverage & Concentration: Maximum gross leverage cannot exceed 2:1 of Net Asset Value (NAV). Single investee company exposure is capped at 10% of investable funds for Category I/II and 15% for Category III.

● Angel Funds: Dedicated to early-stage ventures. Minimum scheme investment limit reduced to INR 25 Lakhs per angel investor, subject to relaxed accreditation verification windows.

● Special Situation Funds (SSFs): Specialized Category I sub-category focused on stressed loans, corporate insolvency resolution process (CIRP) assets, and resolution applicant financing without portfolio diversification minimums.

Accreditation of Investors

● Eligibility Criteria: Individuals with annual income ≥ INR 2 Crore or net assets ≥ INR 7.5 Crore (with minimum 50% in financial assets); Body Corporates with net worth ≥ INR 50 Crore.

● Manager-Led Accreditation: Managers are empowered to verify AI status directly based on audited disclosures, bypassing third-party Accreditation Agencies for institutional participants.

● Validity Periods: Accreditation certificates hold a validity of up to three years; "Deemed AIs" (Sovereign Wealth Funds, Multilaterals) are exempt from annual re-certification.

Operational Modalities & Governance

● Dematerialization Mandate: All new and existing units of AIFs must be issued exclusively in dematerialized form. Portfolio investments in private entities must be held in demat mode via custodians.

● Stewardship Code: Mandatory voting policy, monitoring of investee operations, and conflict disclosures applicable to all managers across all categories.

● Valuation Framework: Semi-annual valuations by an independent registered valuer; Category III AIFs carrying unlisted assets must disclose NAV quarterly.

● Investor Parity: Pro-rata and pari-passu distribution rights remain non-negotiable; asymmetrical rights or differential carry arrangements via priority units are prohibited.

Winding Up & Unliquidated Investments

● Dissolution Period: Schemes unable to exit illiquid assets during the defined tenure may enter a standalone Dissolution Period (replacing the Liquidation Scheme regime) upon obtaining 75% investor consent by value.

● In-Specie Distributions: Permissible solely with the affirmative consent of 75% of investors by value; assets must be distributed directly to beneficiary demat accounts.

● Retention of Proceeds & Inoperative Funds: Managers can retain limited escrow amounts to offset pending statutory, tax, or legal liabilities. Schemes with zero active holdings and resolved liabilities that fail to close administrative filings within 180 days are formally re-categorized as "Inoperative Funds."

Compliance Action Points & Deadlines for Managers and Intermediaries

Operational Mandate Affected Stakeholders Compliance Frequency / Window

Demat Conversion of Units AIF Managers, Custodians, RTAs Immediate compliance; continuous onboarding in demat only.

NISM Series-XIX-A Recertification Key Investment Personnel Prior to expiry of the 3-year certification validity cycle.

Quarterly Regulatory Reporting All Registered AIF Schemes Within 15 calendar days from the end of each fiscal quarter.

Annual Audit of PPM Compliance Independent Chartered Accountants Within 6 months from the closure of the financial year.

Stewardship Policy Review Investment Managers / Boards Annual periodic review and website disclosure.

Inoperative Fund Remediation Liquidating Scheme Trustees Within 180 days post liquidation of physical assets.