SEBI to Scrutinise Alternate Investment Funds

SEBI, the prime regulator of the Indian capital market proposes to bring about radical changes in the way private capital funds are formed and used in local investments. This includes private equity and real estate funds. They propose to categorise the funds in nine categories covering social ventures, SME, PIPE, real estate, venture capital funds, PE funds, debt funds, infrastructure funds, social venture funds and strategy funds. The proposal seeks to raise the investment bar in PMS to Rs. 25 lakhs and in other alternate investment funds to Rs. 1 crore to prevent risky investments. There is no clarification on the future of private equity investments in Indian firms listed on the stock exchange. Funds need to be close-ended with a minimum tenure of 5 years to be fixed at the time of registration, with a permissible extension of 2 years when approved by three-fourths of the beneficiary.

An alternate investment fund cannot change its category after registration and paying Rs. 6 lakhs in all, including Rs. 1 lakh as the application fee.

The objective is to create a new regulatory framework for all private capital pools to channel them without risk and in a regulated manner.

An Infrastructure Fund will have to invest at least two-thirds in equity or equity linked instruments of infrastructure companies or special purpose vehicles of infrastructure projects. It is allowed to invest one third of the corpus in debt instruments

Real Estate Funds will have to invest 75% of the corpus in real estate projects or constructed properties. They can also invest in SPVs involved in real estate projects and 25% in allied real estate sectors.

SEBI is waiting for opinions of interested parties to proceed forward with the proposed changes.