The Securities and Exchange Board of India (SEBI). File
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To strengthen corporate governance mechanism, capital markets regulator, the Securities and Exchange Board of India (SEBI) has proposed to amend the present rules governing Alternative Investment Funds (AIFs).
Under the proposal, Category I and Category II AIFs mustn’t borrow funds immediately or not directly or interact in leverage for the aim of creating investments, SEBI stated in a session paper on May 18.
These AIFs can borrow for the aim of assembly shortfall in drawdown whereas investing in an investee firm, topic to sure circumstances.
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The circumstances included that such borrowing by these AIFs ought to be completed solely in case of emergency and as a final recourse, the quantity borrowed mustn’t exceed 10% of the funding proposed to be made within the investee firm and the price of such borrowing ought to be charged solely to such investor who delayed or defaulted on drawdown fee.
Category I and Category II AIFs ought to keep 30 days cooling off interval between two durations of permissible leverage.
“The regulatory intent behind permitting borrowing for Category I and II AIFs is that the funds borrowed shall be utilized for meeting operational requirements of the AIF, and not for the purpose of making investment,” SEBI famous.
Further, the regulator proposed to mandate that AIFs ought to maintain the devices or securities of their investments solely in dematerialised type.
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Also, it has been prompt that the requirement of necessary appointment of a custodian for safekeeping of securities for AIFs with corpus of over ₹500 crore, ought to be prolonged to AIFs with corpus of lower than ₹500 crore as properly.
Large Value Fund for accredited buyers (LVFs)Â ought to be permitted to lengthen their tenure up to 4 years, topic to approval of two-thirds of the unit holders by worth of their funding within the LVF.
SEBI famous that many AIFs are nonetheless holding their certificates of registration regardless of having no fundraising or funding exercise of their schemes for a number of years.
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Considering this, SEBI prompt that an AIF’s supervisor ought to be certain that the AIF pays renewal payment equal to 50% of its relevant registration payment for the next block of 5 years from the date of grant of registration, inside three months earlier than expiry of the stated block interval.
Besides, current AIFs who’ve accomplished 5 years from the date of grant of certificates of registration also needs to pay renewal payment equal to 50% of its relevant registration payment.
SEBI has sought feedback on the proposal until May 31.
Last month, the markets regulator had requested AIFs funds to present an choice of “direct plan” for buyers and launched a path mannequin for distribution fee so as to deliver transparency in bills and curb mis-selling.
