7/28/2019 AIF Fund

1/18

SEBI AIF Regulation opens gatefor hedge funds and real estate

funds

o 0 Comments, Be the first to comment

+ COMMENT

ADITI JHUNJHUNWALA and NIDHI LADHA| 24/05/2012 05:03 PM |

Barring taxation issues, which are, though, critical, it is now

possible to have real estate funds also in operation in India

On 21 May 2012 SEBI notified the SEBI (Alternative Investment Funds)

Regulations, 2012 [the AIF Regulations] requiring mandatory

registration of private collective investment vehicle. This comes on the back of

a series of steps Sebi has been taking in this regard. In order to create distinct

private pooled investment vehicles and to regulate VCFs, SME Funds, Social

Venture Funds and other registered or unregistered investment vehicles under

one roof, SEBI came out with the concept paper on Alternative Investment

Funds Regulation on August 01, 2011 accompanied by draft regulations called

SEBI (AIF) Regulations, 2011. It was observed that VCFs were being used as

an omnibus investment fund which leaves most of the private investment

funds dissatisfied. Hence there was a need for comprehensive regulation was

felt. Registration under VCF Regulations was not mandatory in nature, hence,

many unregistered funds were in existence. What are the implications of the

new regulations?

All AIFs are mandatorily required to get themselves registered with SEBI asper the Regulations. Important question is which all funds are to be treated as

AIFs and require registration.

Regulation 2 (1) (b) defines Alternative Investment Fund as:

http://www.moneylife.in/article/sebi-aif-regulation-opens-gate-for-hedge-funds-and-real-estate-funds/25913.html#postcommenthttp://www.moneylife.in/article/sebi-aif-regulation-opens-gate-for-hedge-funds-and-real-estate-funds/25913.html#postcommenthttp://www.moneylife.in/author/aditi-jhunjhunwala.htmlhttp://www.moneylife.in/author/nidhi-ladha.htmlhttp://www.moneylife.in/author/nidhi-ladha.htmlhttp://www.moneylife.in/article/sebi-aif-regulation-opens-gate-for-hedge-funds-and-real-estate-funds/25913.htmlhttp://www.moneylife.in/author/aditi-jhunjhunwala.htmlhttp://www.moneylife.in/author/nidhi-ladha.htmlhttp://www.moneylife.in/article/sebi-aif-regulation-opens-gate-for-hedge-funds-and-real-estate-funds/25913.html#postcomment

7/28/2019 AIF Fund

2/18

Alternate Investment Fund means any fund established or incorporated in

India in the form of a trust or a company or a limited liability partnership or a

body corporate which,-

(i) is a privately pooled investment vehicle which collects funds from

investors, whether Indian or foreign, for investing it in accordance with a

defined investment policy for the benefit of its investors; and

(ii) is not covered under the Securities and Exchange Board of India (Mutual

Funds) Regulations, 1996, Securities and Exchange Board of India (Collective

Investment Schemes) Regulations, 1999 or any other regulations of the Board

to regulate fund management activities

The following have been kept out of the purview of the definition of AIF:

Family trusts set up for the benefit of relatives as defined under CompaniesAct, 1956;

ESOP Trusts;

Employee welfare trusts or gratuity trusts;

Holding Companies within the meaning of Section 4 of the Companies Act,

1956;

Other special purpose vehicles not established by fund managers, including

securitization trusts, regulated under a specific regulatory framework;

Funds managed by securitisation company or reconstruction company whichis registered with the Reserve Bank of India; and

Any such pool of funds which is directly regulated by any other regulator in

India.

Analysing above, what should be the constituents of a fund to be

recognised as an AIF?

An AIF can be set up as a company or LLP or trust or a body corporate

model. Unincorporated bodies, which are not even allowed by RBI Act, are not

allowed to raise funds. The fund should be aprivate fundengaged in pooling investments from

investors.

o SEBI vide these Regulations, has made the scope of the word private very

liberal and wider.

7/28/2019 AIF Fund

3/18

o Regulation 10(f) restricts a maximum number of investor in AIF to 1000.

Hence, a private fund shall be having a large base of investors which may go

up to a thousand. Interestingly, the limit on number of investors is not for the

AIF, but for a scheme of AIF.

Another feature of AIF is that it should be pooling investments. The simple

meaning of pooling is collecting money from a group of investors to invest

further for a mutual benefit. So, any fund raising money privately for further

investment can be treated as AIF subject to fulfillment of other conditions.

Funds should be an investment vehicle. Funds to be passively engaged in

investments in prescribed areas/companies. The essential meaning of

investment is outlay of money with an objective of generating a rate of

return, other than by carrying on a substantive activity. In other words,persons putting in money in the fund do not get management rights in

investee and do not participate actively in day to day affairs of the investee.

It should not be in nature of amutual fundregistered under SEBI (Mutual

Fund) Regulations, 1996.

It should not be registered under SEBI (Collective Investment Schemes)

Regulations, 1999. The difference between a CIS covered by the CIS

Regulations, and AIF Regulations will be that the former may invite public

subscriptions, while the latter may only privately source their money. It is not regulated by any other SEBI regulations regulating fund

management activities.

Exception provided in proviso (v) carves out another important feature of the

Fund. The exception applies to all SPVs not regulated by fund managers and

are regulated by specific regulatory framework. In other way round, a fund

managing its investments regularly i.e. a fund engaged in regular buying and

selling of investments shall be treated as an AIF.Fund management, thus,

becomes another essential characteristic of an AIF.Territorial scope of the Regulations

The definition of AIFs under Regulation 2 (1) (b) starts as any fund

established or incorporated in India in the form of a trust or a company or a

limited liability partnership or a body corporate .

Further, Regulation 2(1)(o) defines an investee company as:

7/28/2019 AIF Fund

4/18

any company, special purpose vehicle or limited liability partnership or

body corporate in which an Alternative Investment Fund makes an

investment

As a body corporate includes a company registered outside India, a careful

reading of both the definitions extracted above clarifies that the scope of these

Regulations extends to:

Funds established in India and investing in India and/or abroad;

Funds established abroad and investing in India.

Therefore, an entity registered outside India and executing business outside

India is not required to get itself registered under these Regulations.

Registration Requirement

An AIF to compulsorily obtain certificate of registration from SEBI. In case of an existing unregistered fund falling within the definition of AIF,

the fund may continue to operate only for a period of six months from the date

of these Regulations or where it has applied for registration within such period

of six months, till disposal of the application.

o SEBI may extend such period of six months to twelve months in some

special cases.

Existing schemes of existing unregistered funds will be allowed to complete

their agreed tenure and shall not be allowed to raise further fund other thancommitments already made.

Registered Venture Capital Funds [VCFs] continue to be regulated under

VCF Regulations until the existing fund or the scheme managed by such fund

is wound up.

o No new scheme to be launched by such funds after issue of the AIF

Regulations.

o The existing fund not allowed to increase the targeted corpus

note here that corpus has been defined as total amount of committed fundsby the investors by way of a written contract or any such document as on a

particular date. A clear provision in this regard leaves a way out and it can be

interpreted that funds may be raised as per the verbal commitments even after

existence of the AIF Regulations.

Registrations to be granted category wise

7/28/2019 AIF Fund

5/18

SEBI, after receiving comments on the draft Regulations, notified following

categories of AIFs requiring registrations:

Category I Alternative Investment Fund

o invests in sectors or areas which the government or regulators consider as

socially or economically desirable and relevant for the country and have a

developmental focus rather than pure business motive.

Includes venture capital funds, SME Funds, social venture funds,

infrastructure funds.

Category II Alternative Investment Fund

o which does not fall in Category I and III and which does not undertake

leverage or borrowing other than to meet day-to-day operational requirements

and cannot engage in derivatives investments. Therefore, such funds are intended to do business with the corpus only and

will not be borrowing funds.

Category III Alternative Investment Fund

o Funds employing diverse or complex trading strategies and may employ

leverage including through investment in listed or unlisted derivatives. To

earn higher returns by leveraging the investors capital these funds may like to

keep the liberty of borrowing

Hedge funds, fund of fund, real estate funds are typical examples Regulations are more stringent for this category. Necessary directions are to

be issued by SEBI soon

Eligibility Conditions [Reg 4]

Different eligibility criteria for LLP, Company, Trust or a body corporate have

been prescribed.

Further, the Regulations also prescribe eligibility criteria for the sponsor or

manager of the AIF. The sponsor or manager is required to have a continuing

interest in the AIFs of not less than two and half percent of the corpus or fivecrore rupees, whichever is lower, in the form of investment in the AIFs and

such interest shall not be through the waiver of management fees. A

continuing interest of five percent or ten crores rupees has been prescribed for

Category III AIFs.

From where can an AIF pool money?

7/28/2019 AIF Fund

6/18

Instead of adopting a specific approach depending on the type of applicant,

the Regulations have laid down blanket investment conditions whereby all

categories of AIFs would be subject to certain conditions, the chief being:

Funds may be raised, on private placement basis, from Residents, Non

Residents and foreign investors

o It is important to point out here that eligible investors under FEMA

Regulations include VCFs but do not include the AIFs, hence, requiring

immediate amendment to this effect.

Each scheme of the AIF shall have corpus of at least twenty crore rupees;

Minimum investment to be accepted by an investor is one crore rupees;

o The directors and the employees of the AIFs and/or managers have been

kept out of the purview of the above limit and minimum investment amountfor them is twenty five lakh rupees.

How can an AIF raise funds?

Before raising any fund the AIF is required to file a placement or information

memorandum, along with the prescribed fee, with SEBI at least 30 days prior

to launch of the scheme giving detailed and material information about the

AIF and the manager for comments of SEBI, if any. No such fee is to be paid

on filing of memorandum for launch of first scheme.

The procedure of filing an information memorandum before raising funds issomewhat similar to that prescribed for companies coming out with public

offers.

How long an AIF can sustain?

Category I and Category II AIFs

o Close ended and the tenure of fund or scheme shall be determined at the

time of application subject to sub-regulation (2) of this Regulation

o Schemes launched by such funds shall have a minimum tenure of three

years.o Buy-back not allowed as close-ended in nature

o Such AIFs may get themselves listed on a stock exchange after closure of the

scheme

Category III Alternative Investment Fund may be open ended or close

ended.

7/28/2019 AIF Fund

7/18

o Close ended funds may apply for listing.

o Open ended funds can buy-back the units issued

Extension of the close ended AIF may be permitted up to a further two years

subject to approval of two-thirds of the unit holders by value of their

investment

o In absence of any extension/further extension, the AIF is to fully liquidate

within one year following expiration of the fund tenure or extended tenure

Where an AIF can invest?

All AIFs are to decide in advance the investment strategy for the pooled fund

and same is to be mentioned in the Placement Memorandum at the time of

launching a scheme. Interestingly, an AIF can invest in LLPs too as definition

of an investee company includes an LLP.AIFs are allowed to invest in associates subject to approval of seventy five

percent of investors; further, Un-invested portion of the corpus may be

invested in liquid assets of higher quality till deployment of funds as per the

investment objective. Further categorywise investment conditions have been

prescribed by the Regulations.

Welcomes hedge and real estate funds with open arms

The Regulations, now, permit a hedge fund, a real estate fund or a REIT to

carry out business in India after registration with SEBI. Previously, REITswere not identified in India, one of the difficulties being absence of

transparent tax laws. However, as LLPs can be formed as an AIF, hence

business of REITs may be effectively carried out by an LLP model as taxability

is only in hands of partners. In absence of pass-through status, AIFs is likely to

be taxed at either corporate level, or in representative capacity either of

which may not be tax efficient. Barring taxation issues, which are, though,

critical, it is now possible to have real estate funds also in operation.

The new modest and all in all Regulations posses several other features likeinvestment strategy, disclosure of periodic information to investors, valuation

procedure, audit of fund, dispute resolution, winding up of funds etc. to bring

greater clarity to the market and the investors and its all-encompassing nature

will bring several investment entities that were hitherto unregulated by SEBI.

7/28/2019 AIF Fund

8/18

This constitutes a drastic change and will require investors to adapt

themselves to a new and transparent regulatory regime.

This change in the regime of funds will also require amendment to exchange

control laws, FDI norms and various SEBI Regulations which are yet to be

notified.

(The authors can be contacted at aditi@vinodkothari.com and

nidhiladha@vinodkothari.com)

Welcome AIF Rules!

inShare0

Published on Sat, May 26,2012 | 10:51, Updated at Sat, May 26 at 16:26Source : Moneycontrol.com | Watch Video :

2 rounds of consultations have done the alternative investment fund regulations aworld of good. Because the final regulations out this week are being cheered bymost in the industry. Since there's nothing to complain about no long whiningdiscussion on AIF. Instead Payaswini Upadhyay lists the top 5 changes that impactdomestic fund activity.

'Positive', 'a job well done', 'great effort'- that's how the domestic fund industry islauding SEBI's Alternative Investment Fund or AIF guidelines.

Under the guidelines, 3 categories have been laid down Category I includes VentureCapital, SME, Social Venture, and Infrastructure Funds

http://thefirm.moneycontrol.com/video_page.php?autono=709485&video_flag=1http://thefirm.moneycontrol.com/video_page.php?autono=709485&video_flag=1http://thefirm.moneycontrol.com/video_page.php?autono=709485&video_flag=1

7/28/2019 AIF Fund

9/18

Category II includes those funds that do not fall into Category I and do notundertake leverage or borrowing such as Private Equity, Debt and Fund ofFunds and hedge funds or funds that have diverse, complex trading strategies usingleverage fall under Category III

Depending on the kind of fund and hence the category, funds will get specificincentives and tax pass through.

Prakash Nene

Managing Director, Multiples Alternate Asset Management

"For the incentive for AIF Category I is for eg there is a new regime which has just

come out that when you're investing at a premium in a company, then there couldbe issues in terms of the premium being treated as income in the hands of theinvestee company now VCFs are exempt from that. Perhaps they will extend thisto AIF 1, they will not do to AIF II. Similarly there is a TDS pass through for the VCFtoday i.e. income distributed by VCF, you don't have to deduct tax at source.Something like that may not be available to AIF II."

Sidharth Shah

Head-Funds Practice, NDA

"For other two categories, there is no clarity given in the regulations. For thosecategories, one would still need to depend on general provisions for taxation ofTrust- a specific determinate Trust- and also rely on the famous AIG ruling whichbasically gives certain principles of pass through. So, for them, till the time clarity isbrought in, they will need to rely on those provisions for a pass through."

Inclusion of domestic hedge funds under AIF is the second important change. Forthese funds, SEBI will provide operational standards, conduct of business rules,prudential requirements, restrictions on redemption and conflict of interest- all thison a case-to-case basis.

Sidharth Shah

Head-Funds Practice, NDA

"There have been large number of portfolio managers who are keen to bring instrategies- hedge fund strategies in the domestic market but for the lack of

7/28/2019 AIF Fund

10/18

appropriate regulatory framework, they were not able to do so because on onehand they had a Portfolio Manager Regulation which required segregation ofaccounts and on the other hand, it had mutual fund regulation which is toorestrictive for a hedge fund strategy. Recognition of hedge funds as a categoryunder the new regulation will definitely encourage more sophisticated products to

be developed by the fund managers."

Challenges in the transition period is the third key aspect of the AIF regulations.SEBI registered funds can achieve their targeted corpus under the old VentureCapital Funds Regulations. The unregistered funds will have to register within 6months- until then, they cannot raise fresh money

Prakash Nene

Managing Director, Multiples Alternate Asset Management

"There are few challenges in transition- one of course is that people who want to gointo AIF II now because there are no restrictions there but they may not have theminimum size per investor which is what is prescribed as Rs 1 cr- they'll have to go,interact with SEBI to try and get an exemption for this. Then there are certainconditions that have been laid down for AIF II- what kind of trust deed should bethere, what kind of private placement memorandum should be there- so if youexisting documents have not covered these things, then you'll have to makeamendments to the existing documents, go back to SEBI, ask for exemption forsome of those stringent conditions. This process may take 3-6months."

A maximum of 1000 investors and minimum Rs 1 crore of investment per investor-AIF rules impose this condition on all funds but it may impact real estate funds inparticular.

Sidharth Shah

Head-Funds Practice, NDA

"I think a large number of domestic real estate funds had depended on relativelymore retail participation from investors- ranging from Rs 5 lakh to 25 lakh in mostcases- and they are the ones who are going to feel the pinch of the new regualtionsbecause suddenly they will not be able to target that HNI segment for which Rs 1crmay still be a significant amount of capital to commit to a single AIF. And that'swhere their investment strategy may need to change to target ultra-HNI,institutional or even corporate capital."

7/28/2019 AIF Fund

11/18

Ensuring corporate governance and investor protection- the fifth and perhaps themost important aspect of the AIF guidelines. Conflict of interest by sponsor,associated party transactions, extensive disclosures, minimum ticket size- bymandating all of this SEBI has given a fillip to governance and investor interest. Andthis probably makes the AIF guidelines a regime thats made most stakeholders

happy; at least for now.

Alternative Investment Funds

(Sebi had already allowed)

NEW DELHI: Two more entities have received market regulator Sebi's approval to set-up

Alternative Investment Funds (AIFs), a newly created class of pooled-in investment vehicles forreal estate,private equity and hedge funds.

The approval has been given to two AIFs by the Sebi ( Securities and Exchange Board of India)

within a period of less than one month, as per the information available with the market

regulator.

Sebi had already allowed seven AIFs to set up shop in the country. As on August 31, 2012, asmany as 20 applications were pending with Sebi for registration as AIFs.

The regulator had notified in May this year the guidelines for a new class of market

intermediaries named AIFs, which are basically funds established or incorporated in India for thepurpose of pooling in of capital from Indian and foreign investors for investing as per a pre-

decided policy.

http://economictimes.indiatimes.com/topic/Alternative-Investment-Fundshttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/private%20equityhttp://economictimes.indiatimes.com/topic/Sebihttp://economictimes.indiatimes.com/topic/Securities%20and%20Exchange%20Board%20of%20Indiahttp://economictimes.indiatimes.com/photo/16683050.cmshttp://economictimes.indiatimes.com/topic/Alternative-Investment-Fundshttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/private%20equityhttp://economictimes.indiatimes.com/topic/Sebihttp://economictimes.indiatimes.com/topic/Securities%20and%20Exchange%20Board%20of%20India

7/28/2019 AIF Fund

12/18

The two AIFs that have registered with Sebi during September and October are --Real Estate

Opportunities Trust and Dicci Trust.

Besides, seven AIFs that have registered with Sebi include IFCI Syncamore India InfrastructureFund, Utthishta Yekum Fund, Indiaquotient Investment Trust, Forefront Alternate Investment

Trust, Excedo Realty Fund, Sabre Partners Trust and KKR India Alternate Credit Opportunities

Fund.As per Sebi data, most of these applications were filed in August, while some were submitted in

July September and October as well.

Sebi in August decided that the promoters of listed companies can offload 10 per cent of equityto AIFs such as such as SME Funds, Infrastructure Funds, PE funds and Venture Capital Funds

registered with the market regulator to attain minimum 25 per cent public holding.

Under Sebi guidelines, AIFs can operate broadly in three categories. The Sebi rules apply to all

AIFs, including those operating as private equity funds, real estate funds and hedge funds,among others.

The Category-I AIFs are those funds that get incentives from the government, Sebi or other

regulators and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and

SME Funds.The Category-III AIFs are those trading with a view to make short-term returns and include

hedge funds, among others.The Category-II AIFs can invest anywhere in any combination but are prohibited from raising

debt, except for meeting their day-to-day operational requirements. These AIFs include PE

funds, debt funds or fund of funds, as also all others falling outside the ambit of two othercategories.

20 entities seek SEBI approval to set upAlternative Investment Funds

PTI Sep 23, 2012, 02.55PM IST

Tags:

venture capital| real estate|

private equity|

market regulator|

IIFL|

AMC|

http://economictimes.indiatimes.com/topic/SME%20Fundshttp://economictimes.indiatimes.com/topic/Venture%20Capitalhttp://economictimes.indiatimes.com/topic/real%20estatehttp://economictimes.indiatimes.com/topic/venture-capitalhttp://economictimes.indiatimes.com/topic/real-estatehttp://economictimes.indiatimes.com/topic/private-equityhttp://economictimes.indiatimes.com/topic/market-regulatorhttp://economictimes.indiatimes.com/topic/IIFLhttp://economictimes.indiatimes.com/topic/AMChttp://economictimes.indiatimes.com/topic/SME%20Fundshttp://economictimes.indiatimes.com/topic/Venture%20Capitalhttp://economictimes.indiatimes.com/topic/real%20estatehttp://economictimes.indiatimes.com/topic/venture-capitalhttp://economictimes.indiatimes.com/topic/real-estatehttp://economictimes.indiatimes.com/topic/private-equityhttp://economictimes.indiatimes.com/topic/market-regulatorhttp://economictimes.indiatimes.com/topic/IIFLhttp://economictimes.indiatimes.com/topic/AMC

7/28/2019 AIF Fund

13/18

Alternative Investment Funds|

AIF

NEW DELHI: As many as 20 entities have sought Sebi's approval to set up AlternativeInvestment Funds (AIFs), a newly created class of pooled-in investment vehicles for real estate,

private equity and hedge funds.

Sebi (Securities and Exchange Board of India) has already allowed seven AIFs to set shop in the

country, all of which got their approvals from the market regulatorlast month.As per the latest Sebi data, 20 applications were pending with Sebi for registration as AIFs as on

August 31, 2012.

The regulator had notified in May this year the guidelines for a new class of marketintermediaries named AIFs, which are basically funds established or incorporated in India for the

purpose of pooling in of capital from Indian and foreign investors for investing as per a pre-

decided policy.Out of the 20 pending applications, Sebi said 15 applications are "being processed", while the

regulator has sought further details from five others as they had provided "incomplete

information" as on August 31.

Most of these applications were filed in August, while some were submitted in June and July aswell.

Sebi last month decided that the promoters of listed companies can offload 10 per cent of equity

to AIFs to attain minimum 25 per cent public holding.Among others, the registration has been sought by CapAleph Indian Millenium Fund, DSP

BlackRock, HDFC AMC Real Estate, India Advantage Fund, India Realty Fund, Kedaara

Capital, Kotak Alternative Opportunities Fund, Real Estate Opportunities Trust and Start-up

Village Fund.Besides, the entities whose applications have "incomplete information" are -- CapAleph Indian

Millenium Private Equity Fund, DARC MentorCap Film Fund, IIFL Opportunities Fund, IIFLPrivate Equity Fund and L&T Infra Investment Partners.

Already Sebi-registered AIFs include IFCI Syncamore India Infrastructure Fund, Excedo Realty

Fund, Sabre Partners Trust and KKR India Alternate Credit Opportunities Fund.

Under Sebi guidelines, AIFs can operate broadly in three categories. The Sebi rules apply to allAIFs, including those operating as private equity funds, real estate funds and hedge funds,

among others.

The Category-I AIFs are those funds that get incentives from the government, Sebi or otherregulators and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and

SME Funds.The Category-III AIFs are those trading with a view to make short-term returns and includehedge funds, among others.

The Category-II AIFs can invest anywhere in any combination but are prohibited from raising

debt, except for meeting their day-to-day operational requirements. These AIFs include PE

funds, debt funds or fund of funds, as also all others falling outside the ambit of two othercategories.

http://economictimes.indiatimes.com/topic/Alternative-Investment-Fundshttp://economictimes.indiatimes.com/topic/AIFhttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/private%20equityhttp://economictimes.indiatimes.com/topic/market%20regulatorhttp://economictimes.indiatimes.com/topic/AMChttp://economictimes.indiatimes.com/topic/Real%20Estatehttp://economictimes.indiatimes.com/topic/IIFLhttp://economictimes.indiatimes.com/topic/Venture%20Capitalhttp://economictimes.indiatimes.com/topic/Alternative-Investment-Fundshttp://economictimes.indiatimes.com/topic/AIFhttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/Alternative%20Investment%20Fundshttp://economictimes.indiatimes.com/topic/private%20equityhttp://economictimes.indiatimes.com/topic/market%20regulatorhttp://economictimes.indiatimes.com/topic/AMChttp://economictimes.indiatimes.com/topic/Real%20Estatehttp://economictimes.indiatimes.com/topic/IIFLhttp://economictimes.indiatimes.com/topic/Venture%20Capital

7/28/2019 AIF Fund

14/18

Sebi may cap fees charged by investmentadvisers

PTI Sep 16, 2012, 05.28PM IST

Tags:

sebi|

mutual funds|

asset management company

http://economictimes.indiatimes.com/topic/sebihttp://economictimes.indiatimes.com/topic/mutual-fundshttp://economictimes.indiatimes.com/topic/asset-management-companyhttp://economictimes.indiatimes.com/photo/16422011.cmshttp://economictimes.indiatimes.com/topic/sebihttp://economictimes.indiatimes.com/topic/mutual-fundshttp://economictimes.indiatimes.com/topic/asset-management-company

7/28/2019 AIF Fund

15/18

(With an aim to crack its whip)

NEW DELHI: With an aim to crack its whip on investment advisers possibly indulging in unfairtrade practices, watchdog Sebi is putting in place strict norms for them, including putting a

ceiling on fees charged by them.

All investment advisers would need to register with Sebi (Securities and Exchange Board of

India) after payment of required application and registration fees, while the market regulatoreventually wants them to be regulated through an SRO (Self Regulatory Organisation) model.

While the proposals have been approved by Sebi's board, they could be soon notified by the

market regulator, a senior regulatory official said.

As per the proposed norms, the investment advisers would be under strict vigil for any front-running, a phrase used in market parlance for trading in stocks based on prior information about

trades to be conducted by a fund manager.

The regulations follow several instances of certain equity research and investment advisoryentities, including some overseas firms, issuing negative reports about Indian stocks and they

have been accused of unfairly influencing the share prices and charging huge fees for sharing

their reports.To address any conflict of interest, investment advisers would be required to segregate their

other businesses from their activity as an investment adviser and disclose all commission and

rewards that they receive from their clients.

Also, investment advisers may charge fees subject to the ceiling specified by Sebi.They would also have to disclose conflicts of interest arising from any association with a product

provider, including any material facts that might compromise its objectivity or independence in

carrying investment advisory services.The investment advisers would also have to disclose to the investor its holding or position, if

any, in the financial product which is subject matter of recommendation.

If any conflicts of interest cannot be avoided, the investment advisers would have to ensure thatits clients are fairly treated and they would be barred from divulging any confidential

information about their clients.

They would also have to abide by a Code of Conduct and conduct risks profiling and risk

assessment of the investor.Besides, they would be required to maintain written records relating to investment advisory

services for a period of five years and conduct yearly audit in respect of compliance with

regulation.Also, they cannot employ any device or scheme to defraud any client or prospective client.

Those aspiring to become an investment adviser would need to have an experience of at least

five years in activities relating to advice in financial products or fund or asset or portfoliomanagement, besides other educations qualifications.

The investment advisers would need a certification on Financial Planning or fund or asset

management or investment adviser or any such certification, while existing investment adviserswill be given two years time for such certification.

Investment advisers who are body corporate shall have a net-worth of not less than Rs 25 lakh,

while individuals or partnership firms shall have net tangible assets of not less than Rs 5 lakh.

A body corporate offering investment advisory services shall ensure that such activity issegregated from other activities through a separately identifiable department.

http://economictimes.indiatimes.com/topic/Sebihttp://economictimes.indiatimes.com/topic/Sebi

7/28/2019 AIF Fund

16/18

Also, advice exclusively on non-securities market which is regulated by sectoral regulators

would be outside the scope of Sebi regulations. Advice on the portfolio which contains securities

or investment products, however, shall be covered.The Sebi norms would also cover the financial planning service, while representatives of

investment adviser which are body corporate and the fund managers who are employees or

advisers ofmutual funds orasset management company or alternative investment funds are alsorequired to register.

A bank which has been permitted by RBI to undertake investment advisory services through a

subsidiary or a separate division, would need to seek Sebi registration.Those exempted from the purview of Sebi regulation include a person giving general comments

in good faith in regard to trends in the financial or securities market or the economic situation

and where such comments do not specify any particular securities or investment product.

Investment advice given without any consideration through newspaper or other media forumwidely available to the public would also be exempted, while the exemption would also apply to

any insurance agent, broker, pension advisers, mutual fund distributors, advocates, solicitors, law

firms, chartered accountants, portfolio managers and merchant bankers

Financial advisors must seek RBI nod before

approaching for Sebi's approval

Reena Zachariah, ET Bureau Oct 2, 2012, 07.44AM IST

Tags:

sebi| reserve bank of india|

IRDA|

investment advisors|

capital market

http://economictimes.indiatimes.com/topic/mutual%20fundshttp://economictimes.indiatimes.com/topic/asset%20management%20companyhttp://economictimes.indiatimes.com/topic/sebihttp://economictimes.indiatimes.com/topic/reserve-bank-of-indiahttp://economictimes.indiatimes.com/topic/IRDAhttp://economictimes.indiatimes.com/topic/investment-advisorshttp://economictimes.indiatimes.com/topic/capital-markethttp://economictimes.indiatimes.com/topic/mutual%20fundshttp://economictimes.indiatimes.com/topic/asset%20management%20companyhttp://economictimes.indiatimes.com/topic/sebihttp://economictimes.indiatimes.com/topic/reserve-bank-of-indiahttp://economictimes.indiatimes.com/topic/IRDAhttp://economictimes.indiatimes.com/topic/investment-advisorshttp://economictimes.indiatimes.com/topic/capital-market

7/28/2019 AIF Fund

17/18

(Finance firms that intend)

MUMBAI: Investment advisors are in for tighter regulations. Finance companies that intend to

offer investment advisory services will have to first seek approval from the Reserve Bank ofIndia before approaching capital market regulator Sebi's nod for the same.

Even existing players like brokerage arms carrying portfolio management services and selling

wealth management products will have to obtain permission from the central bank.

New norms proposed by Sebi mandates all individuals, body corporate (banks and non-banking

finance companies) and partnership firms which are engaged or plan to enter the business of

providing investment advice to investors have to be registered and regulated under theInvestment Advisors Regulations.

"It's a three-stage process for RBI-regulated entities like non-banking finance companies

(NBFCs). The first step would be to incorporate; this is done by the Registrar of Companies.Second, they have to obtain a licence to operate as NBFC and for which it must apply to RBI;

and thirdly, if an NBFC intends to provide investment advisory services it will likely need

permission first from RBI and then from Sebi," said Sandeep Parekh, founder of Finsec Law

Advisors. "This would obviate turf wars between financial regulators," he said.Since investment advisory services involve various financial products which are regulated by

other regulators, the draft rules were framed after consultation with RBI, Irda and PFRDA.

According to Sebi, banks and corporates currently offering distribution, execution or referralservices, will have to offer investment advisory services through a subsidiary or a 'separately

identifiable division', which will have to be segregated from other activities.

The draft rules, which were put up for public comments, had proposed to regulate fund managers

of mutual funds and alternative investment funds, but the Sebi board which met on August 16felt fund managers need not be regulated as they are not in the business of offering this service

but are just employees of asset management companies which are already regulated by Sebi.The draft rules also propose that representatives of banks and corporates will be required to be

registered with Sebi. But the final rules cleared by the Sebi board only require these entities

(providing advice on behalf of banks or corporates) to be certified by industry bodies.

Sebi is likely to come out with the final rules on investment advisors within a month.

http://economictimes.indiatimes.com/topic/Investment%20advisorshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/capital%20markethttp://economictimes.indiatimes.com/topic/Sebihttp://economictimes.indiatimes.com/topic/Irdahttp://economictimes.indiatimes.com/photo/16635767.cmshttp://economictimes.indiatimes.com/topic/Investment%20advisorshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/capital%20markethttp://economictimes.indiatimes.com/topic/Sebihttp://economictimes.indiatimes.com/topic/Irda

7/28/2019 AIF Fund

18/18

Financial sector regulators have been working for long on regulating wealth management

business of large financial institutions.