logo
. . .

AIF Registration | Alternative Investment Fund Registration

An Altenative Investment Fund is a privately pooled investment vehicle that collects funds from investors and invest these funds in accordance with a defined investment policy for the benefits of its investors is known as Alternative Investment funds.

Get Expert Assistance

What is an AIF

Alternative Investment Fund [AIF] are a class of pooled investment funds which invest in venture capital, real estate, private equity, hedge funds, managed futures. In other words, an AIF refers to an investment which is different from the conventional avenues of investment such as stocks, debt securities, etc.

Alternative Investment Fund [AIF] are not covered under the jurisdiction of any regulatory body in India nor are they classified under the Mutual fund regulations laid down by the SEBI. AIF’s are defined under Regulation 2(1) (b) of the SEBI (Alternative Investment Funds) Regulation, 2012 as “privately held and managed pool of investment fund of either domestic or foreign origin, organised in the form of a body corporate, company, LLP (limited liability partnership), or a trust. An AIF can be established in any of the forms mentioned above.

AIF’s are private pooled investment funds and are not available through the forms of public issues (like Initial Public Offerings) which are applicable to Mutual Funds or other collective investment Schemes.

Generally, high net worth individuals and institutions invest in Alternative Investment Funds as it requires a high investment amount, unlike Mutual Funds

What does not fall under the purview of AIF?

There are certain types of trusts which do not fall under the purview of AIF:

➲ Family trusts

➲ ESOP trusts

➲ Employee welfare trusts

➲ Holding companies

➲ Securitization trusts

➲ Other special purpose vehicles like securitization trusts

➲ Registered securitization companies or reconstruction company funds

➲ Any fund governed by other Indian regulators

Benefits of Alternative Investment Fund | AIF

➲ AIF's provide Greater flexibility and scope in relation to traditional investment options

➲ AIF’s offer very lucrative risk-return ratio

➲ AIF’s present greater diversification of funds and low correlation

➲ Provides various opportunities to make investments in unlisted companies and high-yielding funds.

➲ AIF’s offer structured products with ample risk mitigation. Thus, attracting HNI’s to make investments in AIF’s

Eligibility Criteria for registration of AIF Registration || Legal Requirement for AIF Registration

A. Charter document like MOA or Trust Deed or Partnership Deed shall have clauses pertaining to carrying on the activity as an Alternative Investment Fund

B. In case of a trust or partnership firm, the respective Trust Deed or Partnership Deed shall be registered with the respective registrar in accordance with the applicable laws

C. The charter document shall contain provisions prohibiting an invitation to the public to subscribe to its securities

D. The Applicant, Sponsor and Manager shall be “fit and proper” as prescribed in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008

E. The members of the key investment team of the investment manager of the Alternative Investment Fund shall possess adequate experience and shall comprise of at least 1 (one) key personnel having a minimum of 5 years of relevant experience

F. Manager & Sponsor of an AIF shall possess the necessary infrastructure and manpower to discharge its activities

G. The Applicant shall clearly describe the objectives of investment, the strategy of investment, proposed corpus of the Fund, its tenure and targeted investors.

H. An AIF should have a minimum corpus of at least Rs. 20 crores (For an Angel Fund, the minimum corpus has been placed at INR 5 crores)

I. The minimum amount of investment to be brought in by every investor in an Alternative Investment Fund should be INR 1 crore. However, the minimum investment by an investor is prescribed at INR 25 lakhs for Angel Fund.

G. The minimum investment by an employee or director of the Manager of an Alternative Investment Fund shall be INR 25 lakhs or more.

H. It is not mandatory for an employee of the Manager who is participating in the profits to make any investments in the AIF

I. An AIF scheme cannot have more than 1000 investors whereas an Angel Fund cannot have more than 200 investors

J. Category I and Category II Alternative Investment Funds are close-ended funds, whereas category III Alternative Investment Funds are open-ended Funds

K. The minimum tenure for Category I and Category II AIF is 3 years whereas for ANGEL FUNDS the maximum tenure 5 years. There is however a provision for extension of tenure of an AIF which requires the approval of the Unit Holders comprising of at least 2/3rd in value corpus.

L. AIF Regulations restrict solicitation or collection of funds by category 3 AIF, except by way of private placement in accordance with the provision of the Companies Act, 2013 as there is no specific provision for the same in AIF Regulations

M. Units of an Alternative Investment Fund may be listed on stock exchange only after final closure of the fund or scheme, subject to minimum tradable lots of INR 1 crore.

Categories of Alternative Investment Fund

Alternative Investment Funds are classified in 3 sub-categories 
A. Category I AIF:

  • Venture capital funds (Including Angel Funds)
  • SME Funds
  • Social Venture Funds
  • Infrastructure funds

B. Category II AIF
C. Category III AIF

Category I Alternative Investment Fund

Funds which invest in economically and socially viable early-stage StartUps, Small and Medium Enterprises and new businesses with unique products or services with high potential for growth. Several promotional and incentivizing initiatives have been taken by the government for such funds due to the growth prospect and employment creation fuelled by such funds. These funds have proved to be very helpful to the startup ecosystem in India.

A] Category I comprises the following funds:

➲ Venture Capital Fund (VCF)

Venture Capital Funds are Category I Alternative Investment Funds which provide funding to startups, early-stage venture capital projects or to a small or medium-sized business, to own a part of its equity.

VC’s generally prefer funding businesses, that are already established or that are in their growth stage & have a long-term potential to mitigate their risk of losing investments.

VC’s act as a pool which collects money from various investors who are willing to undertake equity investments in ventures. VC’s, in turn invest this money, in multiple prospective projects including start-ups and SME’s. Such investments are made considering a calculated risk after taking elaborate note of several factors linked to the growth of the projects they invest in.

Unlike any collective investment schemes or mutual funds or hedge funds, investors of a VC get a pro rata share of every business the VC has invested in.

High Net Worth Individual Investors, from India and abroad, who seek high risk-high return ratio highly prefer investing in Venture Capital Form of AIF, Thus, contributing towards the growth of our economy.

➲ Angel Fund [AF]

An “Angel Investor” refers to an individual who is willing to invest in and “ANGEL FUND”. Angel funds are pretty much similar to Venture Capital Funds. The primary difference between the two is what money they use to invest.

This kind of funds comprises of various “angel” investors who contribute to the pool of funds known as the “ANGEL FUND”. Such funds prefer to invest in early-stage or budding start-ups for their growth.

When and “Angel Investor” invests in such funds, they are issued units of such fund.  Angel Funds have a comparatively higher risk-return ratio. The source of returns on investments by such funds are the dividends from the profits that their investee companies make once they achieve growth and profitability.

➲ Infrastructure Fund [IF]

Infrastructure funds invest specifically to invest in companies incorporated for the purpose of development of infrastructure projects. This kind of fund facilitates investment for investors who prefer to put money in infra development projects since the infrastructure sector has considerably high entry barriers and relatively lower levels of competition. Such funds also enjoy various tax benefits and subsidies from the government of India.

Investment in Infrastructure funds generally yields double-fold returns in the form of capital growth and dividend income.

➲ Social Venture Fund [SCF]

Social venture funds [SCF’s] are a result of the evolution of socially responsible investing in India. This type of AIF’s typically invests in companies which focus on making profits and solve environmental as well as social issues simultaneously. Despite the investments being benevolent in nature, the expectation of returns is not far-fetched as the investees would still make profits.

The target investment opportunities for SCF’s are typically the social welfare projects carried out of developing countries as they have great potential for growth as well as social change.

Social Venture Funds engage the latest technology, best managerial practices and huge resource pool towards the target project with an aim at carving out a win-win situation for all the stakeholders including investors, enterprises and society in general by investing in social and infrastructure projects.

➲ SME FUND

SME (small and medium enterprise) funds fall under the Category 1 SIF (Alternative Investment Funds) that prefer investing in listed/unlisted micro, small and medium enterprises.

SME sector is an impediment to the growth of an emerging economy. This Sector generally tends to meet their debt capital requirements through collateral-based lending offered by NBFC’s and other financial institutions. However, there has been a constantly increasing GAP between the demand and supply of debt capital to this sector. A substantial portion of the SME sector lacks collateral security required for collateral-based lending preferred by the Banks and NBFC’s. Also this sector fails to attract the risk investors like Venture funds, angels funds as SME’s don’t offer a high risk-return ratio. Thus, creating a vacuum for equity-based funding for such companies as equity funds are normally directed towards start-ups or established listed and unlisted companies with high return potential.

SME funds help bridge this gap of capital requirement faced by the SME sector by offering equity financing to these companies. SME FUNDS earn returns if the investee company reports substantial growth above minimum return (Say 8-10 %) or if the company gets listed on stock exchange attracting public investment(s).

Category II Alternative Investment Fund

Classification of Category II funds is often done by elimination meaning that: All those funds that are not described under category I and III AIF, fall under category II. Category II funds invest in various equity debt securities come and attract no incentives or concessions by the government. Such funds typically invest in unlisted private companies.

Funds resort to borrowing or leveraging funds for its underlying activities in accordance with the provisions laid down by SEBI. Some examples of Category II Alternative Investment Funds [CATEGORY II AIF] are Private Equity Funds [PE Funds], Real Estate Funds, Debt Funds and funds established for distressed assets.

Category 2 Alternative Investment Funds shall not engage in borrowing or leveraging activities except for temporary funding needs of up to 10 % of their investible funds for a period ranging from 30 to 365 days.

Category II comprises the following funds:

➲ Private Equity (PE) Fund

Private Equity funds is a Category 2 Alternative Investment Fund which basically normally invests in unlisted private companies against a share of their ownership. Unlisted private companies are not allowed to raise capital by issue of equity or debt instrument to the public. Hence, they turn towards PE funds to fulfil their funding requirements.

Further, PE Funds mitigate their risk by offering its investors with a diversified portfolio of equities managed by highly experienced fund managers. PE funds typically invest for a time period ranging between 4 to 7 years. Post the investment period, PE Funds expect to be able to exit the investment with a considerable profit.

➲ Debt Fund

Debt Fund are privately pooled funds established for primarily investing in debt instruments of listed as well as unlisted companies.

Debt Funds prefer investing in companies with high growth potential & good corporate practices going through a capital crunch as they can be a good investment option for debt fund investors. However, Companies with low credit score generally offer debt securities with a high yield but also accompany with high risk. So

As per the SEBI Regulations, the amount invested in Debt Fund cannot be utilised for the purpose of giving loans, as Alternative Investment Fund is a privately pooled investment vehicle.

➲ Fund of Funds

Fund of funds as the name suggests is a combination of various Alternative Investment Funds. Such funds don’t make their own portfolio or sector-specific investments. Fund of funds is established to invest in a portfolio comprising of other AIFs. Unlike the fund of funds in case of mutual funds, FUND OF FUNDS under AIF are not permitted to invite capital from the public or issue their units to publicly.

Category III Alternative Investment Fund

Category 3 Alternative Investment Funds are funds which aim at short term returns. In order to achieve short-term capital appreciation, such funds engage various complex and diverse trading strategies. Government has offered no incentives or concessions for category 3 Alternative Investment Funds.

Category III Alternative Investment Funds may borrow or leverage funds subject to consent from its investors and to a maximum limit as may be prescribed by SEBI. Category III AIFs may invest in the units other AIF’s from category I, Category II or Category III AIFs. However, Category III AIFs cannot invest in the units of Fund of Funds.

Category III comprises the following funds:

➲ Hedge Fund

Hedge Funds are Category 3 Alternative Investment Funds which pool funds from institutional and accredited investors and invests in domestic as well as international markets by employing different strategies to earn alpha or active returns. Hedge Funds take up leverage & derivatives to a great extent and are aggressively managed with an aim of generating high returns on their pooled capital. Such funds are comparatively less regulated as compared to similar mutual funds and other investment vehicles.

It is to be noted that Hedge Funds are relatively expensive as compared to other financial investment instruments as they generally charge an asset management fee of 2% and collect a high fee up to 20% of the profits earned.

 Private Investment in Public Equity Fund (PIPE)

It is a privately managed pool of privately sourced funds reserved for investment in public equity. Private investment in public equity means buying the shares of publicly traded stock at discounted rates. This basically implies that the investor purchases a stake in the company, whereas the investee company receives a capital infusion for its business.

Comparitive Analysis of Categories Alternative Investment Funds | AIF

Following is a Detailed categorisation and analysis of different categories of Alternative Investment Funds

 

 

    CATEGORY 1 (AIF)

      CATEGORY 2 (AIF)

    CATEGORY 3 (AIF)

Sub-Categories

·   Venture Capital Fund [VCF]

·   Angel Fund [AF]

·   Infrastructure Fund [IF]

·   Social Venture Fund [SCF]

·   SME Fund

·   Private Equity Fund

·   Debt Fund

·   Fund of Funds

·   Structured Credit Fund
Real Estate Fund

·   Hedge Funds

·   Long Only Funds

·   Long-Short Funds

·   Any Other Funds with diverse & Complex Trading Strategy

Registration Fees

INR 500000 (INR 200000 for Angel Funds)

INR 1000000

INR 1500000

Managers Contribution

> 2.5 % of the corpus of the Fund
> INR 5 Crores (INR 50 Lakhs for Angel Funds)

Whichever is LOWER

> 2.5 % of the corpus of the Fund
> INR 5 Crores

Whichever is LOWER

> 5 % of the corpus of the Fund
> INR 10 Crores

Whichever is LOWER

Minimum Corpus required for each scheme

Minimum Corpus of INR 20 Crores (INR 10 Crores in case of Angel Funds)

Minimum Corpus of INR 20 Crores

Minimum Corpus of INR 20 Crores

Thresholds for investment in Listed Securities

Limited investments permitted in Listed Securities.

Differs for different subcategories

Upto 49.99% of the corpus can be invested in listed securities

Upto 100% of the corpus is permitted to be invested in listed securities

Investment Period

3 to 10 Years

2 to 5 Years

1 to 10 Years

Maximum Number of Investors

1000 (200 for Angel Funds)

Not Stipulated

Not Stipulated

Restriction & Compliance

Moderate

LOW

HIGH

If QIB Permitted

Yes
If held for at least 1 year then no lock in prior to IPO

Yes
If held for at least 1 year then no lock in prior to IPO

YES

Leverage

NO

NO

2 times leverage or 100 percent of exposure is permitted

Investment by PFI, Insurance Companies & Banks

Permitted
(restricted to 10 % in Angel Funds)

Permitted
(restricted to 10 % in Angel Funds)

Not Permitted

Open Ended or Close Ended

Close Ended

Close Ended

Open or Close Ended

 

Conditions for grant of AIF Registration Certificate

The conditions for grant of certificate of registration in accordance with Section 6 of the Alternative Investment Fund Mechanisms are stated as follows:

➲ Alternative Investment Funds shall have to mandatorily comply with all the conditions of the respective Regulation;

➲ Alternative Investment Funds shall not perform any kind of operations which are not regulated by the act;

➲ Alternative Investment Fund shall keep SEBI apprised of any situations or activities which involve the submission of falsified documents or any other occurrence of non-compliance with the provisions of the SEBI Regulations;

➲ The applicant should have restrictions to accept deposits in its Memorandum of Associations & Articles of Association.

➲ Maximum number of investors shall be limited to 1000 persons.

 

Guidebook to Register Alternative Investment in India

Guide to setting up Alternative Investment Funds in India

Alternative Investment Funds (AIFs) have become increasingly common in India over the past decade, as an alternative investment choice for successful investment portfolio diversification. In addition, even smaller investors now have access to invest in AIFs through the SIP route of the mutual fund.

Following points would act as a guide for setting up an AIF in India:

1. Application to SEBI through Form A along with cover letter

The process of registration as an AIF in India starts with the application made to the SEBI by the AIF via Form A in the specified format. This application is a prerequisite for SEBI to grant the AIF a certificate of registration under the 2012 SEBI (Alternative Funds) Regulations. SEBI usually reverts to the AIF registration criteria within 21 days of making the submission, which may also be longer, depending on the pace of compliance adopted by the AIF. It is therefore important that AIFs do their homework on the eligibility requirements for AIF under the SEBI (Alternative Funds) Regulations, 2012well, before submitting An application in its form.

The AIF must write a cover letter addressed to SEBI stating explicitly whether it is already listed as a VC fund with SEBI. Should it already be registered, all related registration information must be given to SEBI. Furthermore, in the cover letter, the AIF must indicate to SEBI whether it had already commenced operations as an AIF well before the request had been made, in which case it must provide the relevant information to SEBI. In the event that the AIF demands the registration of a new fund, this must be clearly stated in its cover letter to SEBI.

2. Preparing a Bank Draft payable to SEBI

After AIF has filled out the form A and has drawn up its cover letter, it must obtain a bank draft for payment of the application fee in favour of SEBI of Rs 100,000, of which information can be added into the cover letter to SEBI.

3. Evaluation of application by SEBI

SEBI shall thoroughly review the application once it receives it in order to assess whether the AIF has met all the necessary requirements for eligibility set out in the SEBI Regulations. For SEBI, this is important for the granting of AIF registration. Upon the SEBI is completely pleased with all the criteria of its evaluation process, it shall approve the AIF application and notify the AIF applicant expressly of this.

4. Payment of registration fee to SEBI

If a letter from SEBI is received informing the AIF that its application is successful, it must prepare the AIF for payment of the Rs. 500,000 registration fee in order to obtain AIF status in India. A central notice is, however, that an AIF already registered in India as a VC fund with SEBI should only arrange to pay SEBI a fee of R. 100,000 for re-registration. SEBI will offer the candidate 'Certificate of Enrolment' as an Alternative Investment Fund in India upon receipt of relevant registration fees.

5. AIF must ensure strict compliance SEBI's reporting and other guidelines

The AIF shall sign the registration process at the end of the SEBI as well as the applicant once the AIF receives its Registration Certificate. However, AIF has to ensure that it meets all the main report specifications stated by SEBI in the sense of compulsory enforcement. In addition, the AIF shall be updated by its website and circulars on the SEBI guidelines communicated by SEBI. The AIF shall disclose, in a reasonable amount of time, any material changes in the original data given by the AIF to SEBI.

FAQs

1. What is an Alternative Investment Fund?

Alternative Investment Fund or AIF means any fund which has been set up or generated Integrated in India, which is an investment fund that is privately pooled Collects assets, whether Indian or foreign, from advanced investors for Investing it for the good of it in accordance with a given investment policy Investors. The AIF does not include funds that are insured by SEBI (Mutual Funds) Regulations, 1996, SEBI Regulations (Collective Investment Schemes) 1999, Or any other board rules to control the activities of fund management.


2. What are the Different Categories of AIF?

In one of the following categories, applicants may seek registration as an AIF,

As may be appropriate, and in sub-categories thereof: [Ref. Regulation 3(4)]

  • AIF category I:

  • Venture capital funds (Angel Funds Included)

  • Funds for SMEs

  • Funds for Social Projects

  • Funds for Infrastructure

  • AIF Category II

  • AIF Category III


Q.3 What is the minimum Corpus Requirement for AIF registration?

For Category I- Minimum Corpus of INR 20 Crores (INR 10 Crores in case of Angel Funds)

Category II-Minimum Corpus of INR 20 Crores

Category III- Minimum Corpus of INR 20 Crores


Q.4 What is the Registration Fees to be paid to SEBI?

A. Registration fee to be paid by an AIF is as under:

Category I Alternative Investment Funds INR 5,00,000

Category II Alternative Investment Funds INR 10,00,000 Category

III Alternative Investment Funds INR 15,00,000

Angel Funds INR 2,00,000


Q5 What is an Angel Fund?

a) The Angel Fund is a sub-division of the Venture Capital Fund under the Alternative Investment Fund Division I, which raises funds from institutional investors and from angel investors.

b) Invest in compliance with the rules of the AIF Regulations, Chapter III-A.

c) In the case of an angel fund, the only way to collect funds is by distributing units to the angel fund.

  • STEP 1
    Connect With Corpzo

    Connect with the team corpzo to discuss specific requirements for your business at +91 9999 139 391 or reach@corpzo.com. It takes 20-25 minutes to discuss requirement.

  • STEP 2
    Dedicated Manager

    Once you discuss the requirement, we will align a dedicated Account managers to understand your business needs and provide solutions and assist entire process.

  • STEP 3
    Real Time Update

    Use our platform to track progress of application and many more. Always know what is going on with your project, what is in progress, and what is done.

  • STEP 4
    Job Completed

    Once job is completed, you will receive complete registrations & certifications directly to your email ID and at your doorstep

Request A Callback
PCI-DSS Certification

The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that all businesses accepting, processing, storing or transmitting credit card information maintain a safe environment.

Read More
Nidhi Company Incorporation

A company which has the object of cultivating the habit of thrift & savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Govt.

Read More
Revival of NBFC || Appeal for cancelled NBFC Licence

Registration of NBFC's may be cancelled by the RBI for not conducting business in the manner specified in the respective statutes or due to any non-compliance. However, in certain circumstances, it is possible to apply for the revival of the NBFC whose li

Read More
NBFC Registration | A Non-Banking Financial Company (NBFC)

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 of India, the main operations of NBFC include loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance or chit-fund, but they do not inclu

Read More
Full Fledged Money Changers

An authorized company that is authorized to purchased foreign exchange from non-residents visiting India & residents & to sell foreign exchange for private & business travel purposes only is Known as Full fledged money changer (FFMC).

Read More
Payment Wallet License or Prepaid Wallet Licence

Payment services operated under financial regulation and performed from or via mobile is known as Mobile payment wallet. Mobile payment wallet also referred to as mobile money, mobile money transfer and mobile wallet.

Read More
Asset Reconstruction Company Registration | ARC Registration

An asset Reconstruction Company is a Company engaged in the business of buying bad loan from bank. These are specialized financial institutions that buys the bad loan, Non Performing Assets (NPAs) from banks & financial institution so that to clean up the

Read More
Conversion of NBFC Into Bank

The firms incorporated under the Companies Act 2013 as the public or private limited company having objective of financial activity are known as NBFC or Non-Banking Financial Companies.

Read More
Credit Co-operative society

An autonomous group of people belonging to the same class willingly comes together to strive to be common economic, social and cultural objectives and criteria through a business that is jointly owned and democratically controlled by such citizens.

Read More
AIF Registration | Alternative Investment Fund Registration

An Altenative Investment Fund is a privately pooled investment vehicle that collects funds from investors and invest these funds in accordance with a defined investment policy for the benefits of its investors is known as Alternative Investment funds.

Read More
Collective Investment Scheme Registration

A Collective Investment Scheme (CIS), is an investment scheme in which several individuals come together to pool their money to invest in a particular asset(s) with the motive to share the returns derived from the said investment in accordance with the ag

Read More
Registrar to Issue and Share transfer Agent Registration

An establishment in form of trust or institutions that records and maintains a complete record of transactions of investors for the benefit or convenience of mutual funds houses or listed entities are called as share transfer agents.

Read More
Merchant Banking License

Merchant banker is a company and is combination of consultancy and banking services. Activities of merchant banker in India are regulated by SEBI (merchant banker) rule 1992.

Read More
Payment Aggregator License

Service providers through which e-commerce merchants can process their payment transactions are known as a payment aggregator, they are also known as merchant aggregator.

Read More
Payment gateway License

A service providing entities which plays role of intermediate between banks and websites facilitating the communication of transaction information are known as payment gateway.  

Read More
Micro Finance Institution Registration

Organization which is registered under companies act 2013 or 1956 and which facilitate financing activity such as loan, savings, and insurance to the needy people or to those who are incapable of getting loan from banks and other financial institutions d

Read More
Registration of Infrastructure Investment Fund

An Infrastructure Investment Trust (InvIT) is a collective investment scheme, similar to a mutual fund, that allows individual and institutional investors to invest directly in infrastructure projects in exchange for a small percentage of the income as a

Read More

Expert Legal Advisory Our Customers Love

Bespoke advisory focused on mission critical legal, financial and business aspects.

server room

Trusted By Clients And Industry Experts

Uniquely repurpose strategic core competencies with progressive content. Assertively transition ethical imperatives and collaborative manufactured products.

Write About Us
Let’s chat? - We're online