SEBI (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012

Disclaimer: These FAQs are prepared with a view to guide market participants on SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations"). For full particulars of laws governing the Alternative Investment Funds (AIFs), please refer to the Acts/Regulations/Guidelines/Circulars etc. appearing under the Legal Framework Section of SEBI website i.e. www.sebi.gov.in. Any queries about the AIF Regulations can be addressed to the Investment Management Department, Division of Funds I , SEBI.

1. What is an Alternate Investment Fund ("AIF")?

Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. Further, certain exemptions from registration are provided under the AIF Regulations to family trusts set up for the benefit of 'relatives‘ as defined under Companies Act, 1956, employee welfare trusts or gratuity trusts set up for the benefit of employees, 'holding companies‘ within the meaning of Section 4 of the Companies Act, 1956 etc. [Ref. Regulation 2(1)(b)]

2. In what categories can an applicant seek registration as an AIF?

Applicants can seek registration as an AIF in one of the following categories, and in sub-categories thereof, as may be applicable: [Ref. Regulation 3(4)]

1. Category I AIF:

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

2. Category II AIF

3. Category III AIF

3. What are Category I AIFs?

AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other Alternative Investment Funds as may be specified. [Ref. Regulation 3(4)(a)]

4. What are Category II AIFs?

AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. [Ref. Regulation 3(4)(b)]

Various types of funds such as real estate funds, private equity funds (PE funds), funds for distressed assets, etc. are registered as Category II AIFs.

5. What are Category III AIFs?

AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. [Ref. Regulation 3(4)(c)]

Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.