AIF Compliances

AIF is defined under Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012 (“Regulations”). The regulations define AIF as a fund established or incorporated in India in the form of a Limited Liability Partnership (LLP) or company or trust or body corporate which- 

• It is a privately pooled investment vehicle that gathers funds from investors, including Indian investors and foreign investors, to invest it as per a defined investment policy to benefit its investors.

• It does not include funds covered under the SEBI (Collective Investment Schemes) Regulations, 1999, SEBI (Mutual Funds) Regulations, 1996 or any other regulations of SEBI (Securities and Exchange Board of India) regulating fund management activities.

Category I AIFs

• Focus: Early-stage ventures, startups, social ventures, SMEs, infrastructure, or other sectors considered socially or economically desirable.

• Examples: SME funds, venture capital funds, infrastructure funds, social venture funds.

• Benefits: May be eligible for government incentives or concessions due to their potential positive impact on the economy.

Category II AIFs

• Focus: AIFs that do not fall under Category I or III and have limited leverage.

• Examples: Debt funds, private equity funds, real estate funds, funds for distressed assets.

• Benefits: Generally do not receive specific incentives or concessions from the government.

Category III AIFs

• Focus: Employing complex or diverse trading strategies and using leverage, including investment in derivatives.

• Examples: Hedge funds, funds that trade for short-term returns.

• Benefits: Generally do not receive specific incentives or concessions from the government.

Registration: All AIFs must be registered with SEBI under the appropriate category (Category I, II, or III).

Investment Restrictions: AIFs have specific investment restrictions based on their category. These restrictions aim to manage risk and protect investors.

KYC and AML: AIFs must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations to prevent financial crime.

Investor Protection: Measures such as disclosure requirements and investor education are necessary to protect investor interests.

Reporting and Disclosure: AIFs must submit regular reports to SEBI, including annual financial statements, investor reports, and details of significant transactions.

Code of Conduct: AIF managers and their employees must adhere to a code of conduct prescribed by SEBI to ensure ethical behavior.

Tax Compliance: AIFs are subject to various tax regulations, including income tax, capital gains tax, and stamp duty.

Dematerialization of Investments: Fresh investments made by AIFs after October 1, 2024, must be held in dematerialized form. Exceptions apply if the investee company is mandated to dematerialize or if the AIF controls the investee company.

Custodian Appointment: Holding of investments in dematerialized form requires appointment of a custodian for all AIF categories, as per recent amendments.

Compliance Test Report (CTR): The manager of the AIF must prepare a CTR annually, ensuring compliance with SEBI regulations and circulars. The CTR is submitted to the trustee or sponsor within 30 days of the financial year-end.

Quarterly compliance report  (QCR): AIFs must submit a quarterly compliance report to SEBI on the SEBI SI Portal within 15 days of the end of the quarter. The SEBI circular dated September 14, 2023, introduced a new, more detailed format for quarterly reporting. The new format is available as an Excel sheet on the IVCA's website.

Form InVi Filing : When an AIF issues units to non-resident investors, it must file Form InVi with the Reserve Bank of India (RBI) within 30 days of the issuance. This form provides details about the foreign investor and the units issued. 

Form DI Filing : For AIFs making downstream investments, Form DI must be filed with RBI within 30 days of allotting equity instruments to the investee company. This form provides details about the investment and the investee company. 

Foreign Liabilities and Assets (FLA) Return : To report the AIF's foreign liabilities and assets. The FLA return must be filed annually by July 15th of the following financial year. 

Electronic KYC Records : To ensure proper identification and verification of investors AIFs must submit electronic KYC records within 10 days of an investor's account commencement. 

Notification of Principal Officer (PO) and Designated Director (DD): AIFs must promptly notify RBI and FIU of the appointment of a Principal Officer (PO) and Designated Director (DD).