The Securities and Exchange Board of India (SEBI) enacted an amendment to the SEBI (Alternative Investment Funds) Regulations, 2012 on January 5, 2024 (Amendment Regulations).
Pursuant to the Amendment Regulations, SEBI notified guidelines for Alternative Investment Funds (AIFs) with respect to holding their investments in dematerialized form and appointment of custodians vide circular dated January 12, 2024 (the Circular). The key aspects of the guidelines as provided in the Circular include, inter alia, the following:
■ Holding investments in dematerialized form
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- Investments made by AIFs on or after October 1, 2024, must be held in dematerialized form.
- Investments made by AIFs prior to October 1, 2024, are exempt from the dematerialization requirement unless specific conditions apply in situations such as when the investee company is mandated to facilitate dematerialization of its securities or when the AIF exercises control over the investee company. Any investments meeting the aforesaid specified conditions must be dematerialized by January 31, 2025.
- Exemption is available for certain AIF schemes with specified tenures or those having extended tenures as on the date of the Circular.
■ Appointment of custodian for AIFs
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- Appointment of custodian for AIF schemes must precede the date of the first investment of the scheme.
- Existing Category I and II AIF schemes meeting specified corpus and investment criteria must appoint a custodian by January 31, 2025.
- Managers of AIFs with custodians that are associates of the manager or sponsor of such AIFs must ensure compliance with Regulation 20(11A) of the Amendment Regulations by January 31, 2025.
■ Reporting of investments under custody
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- The Standard Setting Forum for AIFs (SFA), in consultation with SEBI, will formulate implementation standards for reporting AIF investments under custody, by managers and custodians.
- Managers and custodians must adopt and adhere to these standards, published on the websites of industry associations that are a part of the SFA, within 60 days from the date of issuance of the Circular.