The Securities and Exchange Board of India (Sebi) on Monday framed a separate set of regulations for ‘alternative investments’ now classified as ‘collective investment schemes’.
The new rules will apply to all hedge funds, real estate, private equity, debt, venture capital, private investment in public equity, infrastructure, social venture, strategy and small and medium enterprise funds.
While debt funds would mean all unlisted debt instruments, social or strategic investment funds would also cover investments into art or pieces of heritage and more.
In a discussion paper put out on Monday, comments for which have been invited till August 30, Sebi has laid out detailed eligibility and registration criteria and fund structure.
The move is aimed at safeguarding investors from falling prey to dubious schemes of portfolio managers.
Under the proposed regulations, it would be necessary for all private pools of capital and investment funds to seek registration with Sebi.
The funds could be formed as companies, trust or bodies corporate, including limited liability partner structure. The regulations would require that the fund manager, asset management company or trustees of the fund be specified, and change of such entities be reported to the regulator.
Also, all these funds will have to mention their categories, the targeted size of the proposed fund, life cycle and the target investor, said Sebi.
Sebi has also specified that funds will have to be raised only through private placement of information memorandum and all schemes will be close ended in nature.
Minimum investment would be 0.1 per cent of fund size subject to a minimum floor of Rs 1 crore. Sebi has specified that the minimum size of the fund would be Rs 20 crore.
“The minimum inv estment criterion would prevent retail investors straying into such funds and the granularity would ensure a maximum number of investors at 1,000, precluding the possibility that some funds might disguise themselves as private pools while approaching a large number of retail investors,” said Sebi.
In case of an alternative investment scheme constituted as company or limited liability partner firm, the number of shareholders or partners may not exceed 50 and the size of issue will not be less than Rs 10 lakh.