INTRODUCTION of Alternative Investment Fund :

SEBI had earlier framed the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) to encourage investments into start-ups and mid-size companies. Since the introduction of the VCF Regulations, it was observed by SEBI that the venture capital route was being used by several other categories of funds such as private equity funds, real estate funds etc. Further since registration as a venture capital fund (“VCF”) was not mandatory under the VCF Regulations, not all private equity or other categories of funds were registering with the SEBI. While these funds did not enjoy certain exemptions that were available to VCFs, they were not subjected to any investment restrictions either.

Currently, while retail investors such as mutual funds and collective investment schemes are well regulated, SEBI noted the need for comprehensive regulations to deal with investments that are sourced from diverse parts of the private pool of capital.

Accordingly, SEBI notified the Alternative Investment Fund (AIF) Regulations to govern unregulated entities and create a level playing ground for existing venture capital investors.

The AIF Regulations aim to regulate funds involved in the pooling or raising of private capital from institutional investorsor high net worth investors (“HNI”) with a view to invest such funds in accordance with a defined investment policy for benefit of the investors and the manager of such fund, irrespective of their legal domicile. These regulations provide that an entity, seeking to pool and manage such private pool of capital for investing in securities or acting as an Alternative Investment Fund (“AIF”), should be registered with the SEBI under these regulations.