Read about the new guidelines on key issues in the AIF industry and how it will affect the AIFs & investors.
The Securities and Exchange Board of India (SEBI) has issued two circulars outlining guidelines for Alternative Investment Funds (AIFs). These measures are aimed at providing flexibility to investors for investing in AIFs, enhancing transparency in expenses, and curbing misselling in the industry.
First Circular: Direct Plan & Trail model for commission
The first circular specifies that AIFs shall have an option of a "Direct Plan" for investors. This plan will not involve any distribution or placement fees. Additionally, AIFs must ensure that investors who approach the AIF through a SEBI registered intermediary, which separately charges the investor any fee such as advisory or portfolio management fee, are onboarded via the Direct Plan only. This measure is designed to make it easier for investors to invest in AIFs and increase transparency in AIF expenses.
Secondly, AIFs shall disclose any distribution or placement fee to investors at the time of onboarding. Category III AIFs shall charge distribution fees to investors only on an equal trail basis, with no upfront fees charged directly or indirectly. Category I and Category II AIFs may pay up to one-third of the total distribution fee to distributors upfront, with the remainder paid on an equal trail basis over the tenure of the fund. These provisions will apply to investors onboarded in AIFs from May 01, 2023 onwards.
Second circular: Excuse investor from an investment
The second circular is based on the recommendations of the Alternative Investment Policy Advisory Committee (AIPAC). Under these new guidelines, an AIF may excuse an investor from participating in a particular investment opportunity if the investor's participation would violate an applicable law or regulation, or if the investor's internal policy prohibits participation.
An AIF may also exclude an investor from an investment opportunity if the AIF manager determines that the investor's participation would violate applicable law or regulation or would have a material adverse effect on the AIF. The AIF manager must record the rationale for the excuse or exclusion, along with any supporting documents.
In conclusion, these guidelines are important for investors looking to invest in AIFs. The new guidelines provide investors with more flexibility and transparency, and also reduce the risk of misselling. The AIF industry is expected to see more investors and increased confidence in the market as a result of these measures.
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