Sebi issues guidelines for change in category of AIF

AIFs that have not made any investments under their existing category will be allowed to make application for change in category

Market regulator Sebi has issued norms for Alternative Investment Funds (AIFs), a new class of investors planning to change their registration categories based on risk exposure.

The Securities and Exchange Board of India (Sebi) has said that only AIFs that have not made any investments under their existing category would be allowed to make application for changing their classification.

AIFs is a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds, for change in their categories.

The AIFs have been divided into three categories. The Category I AIFs include those investing in start-ups, social ventures, SMEs, infrastructure or other areas that can get government incentives for being 'socially or economically desirable'.

The Category II AIFs include private equity funds and debt funds which do not get any incentives or concessions from the government and do not undertake leverage or borrowing other than to meet day-today operational requirements.

The Category III include hedge funds or funds which trade with a view to make short-term returns.

Generally, an AIF has been granted registration under a particular category cannot change its category subsequent to registration, without the approval of Sebi.

In a circular dated August 7, Sebi said "only AIFs who have not made any investments under the category in which they were registered earlier shall be allowed to make application for change in category."

Any AIF proposing to change its category is required to make an application to Sebi for the same along with application fees of Rs 1 lakh. Also, they need to intimate the rationale for the proposed change.

Sebi said, in case the AIF has raised funds prior to application for change in category, the AIF would be required to inform all its investors providing them the option to withdraw their funds garnered without any penalties.

"Any fees collected from investors seeking to withdraw commitments/ funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF Regulations," the market watchdog said.

The AIF would not make any investments other than in liquid funds/ banks deposits until approval for change in category is granted by Sebi.