Why in the News?
The RBI has released revised draft guidelines for investments made by Regulated Entities (REs) in Alternative Investment Funds (AIFs) to ensure better regulatory oversight, prevent misuse of funds, and align with the rules already set by SEBI.
What are Alternative Investment Funds (AIFs)?
- Definition: They are unique investment vehicles that are privately pooled and invested in alternative asset classes such as venture capital, private equity, hedge funds, commodities, real estate, and derivatives.
- Regulation: They are governed by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012.
- Working: It can be formed as a trust, company, Limited Liability Partnership (LLP), or any other SEBI-permitted structure.
- Legal Structure: They can be set up as trusts, companies, Limited Liability Partnership (LLP), or other legally permitted forms.
- Investor Base:
- AIFs are meant for High Net-Worth Individuals (HNIs) and institutional investors, NOT small retail investors.
- Resident Indians, NRIs, and foreign nationals can invest.
- Minimum Investment Requirement:
- The minimum investment size is ₹1 crore (SEBI, May 2024), except for accredited investors as defined by SEBI.
- For employees or directors of the AIF or its manager, the minimum investment is ₹25 lakh.
- An AIF must have a minimum corpus of ₹20 crore (₹10 crore for Angel Funds).
Types of AIFs:
- Category I: These funds invest in early-stage unlisted companies in the form of equity or debt (venture capital). These alternative asset funds can also invest in infrastructure-based projects or social ventures.
- Category II: These types of funds invest in equity or debt of unlisted companies that are in the mid or late stage of growth and are known as private equity or pre-IPO, respectively.
- Category III: This category of funds invests in the shares of listed companies. These alternative strategy funds can be for any period, long only or a combination of long and short.
| [UPSC 2014] What does Venture Capital mean?
Options: (a) A short-term capital provided to industries. (b) A long-term start-up capital provided to new entrepreneurs* (c) Funds provided to industries at times of incurring losses. (d) Funds provided for replacement and renovation of industries. |
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