The Securities and Exchange Board of India (SEBI) has amended the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) vide gazette notification dated August 5, 2024. The following changes have been made to the AIF Regulations pursuant to the Amendment:

1. Prior to the Amendment, Regulation 13(5) stated that extension of tenure of the close-ended Alternative Investment Fund (AIF) may be permitted up to 2 years, subject to the approval of two-thirds of the unitholders by the value of their investment in the AIF; provided that large value funds for accredited investors may be permitted to extend its tenure beyond 2 years, subject to terms of the contribution agreement, other fund documents, and such conditions specified by SEBI. This proviso has been substituted with the following:

(i) Large value fund for accredited investors may be permitted to extend its term for up to 5 years, subject to the approval of two-thirds of the unitholders by the value of their investment in the large value fund for the accredited investors.

(ii) Extension in tenure of any existing scheme of a large value fund for accredited investors will be subject to terms and conditions specified by SEBI.

2. Prior to the Amendment, Regulation 16(1)(c) stated that Category I AIF is not permitted to borrow funds directly or indirectly or engage in any leverage, except for meeting temporary funding requirements for not more than 30 days, on not more than 4 occasions in a year, and not more than 10% of the investable funds. This clause has been substituted with the following:

(i) Category I AIF is not permitted to borrow funds directly or indirectly or engage in any leverage for the purpose of investing or otherwise, except for borrowing funds to meet temporary funding requirements and day-to-day operational requirements for not more than 30 days, on not more than 4 occasions in a year, and not more than 10% of the investable funds.

(ii) Category I AIF may create an encumbrance on equity of investee company, which is in the business of development, operation, or management of projects in any of the infrastructure sub-categories mentioned in the harmonised master list of infrastructure issued by the Central Government for the purpose of borrowing by such investee company.

3. Prior to the Amendment, Regulation 17(c) stated that Category II AIF may not borrow funds directly or indirectly or engage in any leverage, except for meeting temporary funding requirements for not more than 30 days, on not more than 4 occasions in a year, and not more than 10% of the investable funds. This clause has been substituted with the following:

(i) Category II AIF is not permitted to borrow funds directly or indirectly or engage in any leverage for the purpose of making an investment or otherwise, except for borrowing funds to meet temporary funding requirements and day-to-day operational requirements for not more than 30 days, on not more than 4 occasions in a year and not more than 10% of the investable funds.

(ii) Category II AIF may create an encumbrance on equity of investee company, which is in the business of development, operation, or management of projects in any of the infrastructure sub-categories mentioned in the harmonised master list of infrastructure issued by the Central Government for the purpose of borrowing by such investee company.

Credits: Aditi Kumari (Associate), Luv Madan (Associate), Tarush Bhandari (Associate)