Chapter 4 Indian Equity-Private Funding – Corporate Funding and Listing in Stock Exchange ICSI Study Material is designed strictly as per the latest syllabus and exam pattern.
Indian Equity-Private Funding – Corporate Funding & Listing in Stock Exchange Study Material
Question 1.
Write short notes on the following:
Private equity fund (Dec 2012, 3 marks)
Answer:
Private Equity Fund
A private equity fund, like a hedge fund, is an unregistered investment vehicle in which investors pool money to invest. Private equity funds concentrate their investments in unregistered (and typically liquid) securities. Like hedge funds, private equity funds also rely on the exemption from registration of the otter and sale of their securities.
The investors in private equity funds and hedge funds typically include high net worth individuals and families, pension funds, endowments, banks and insurance companies. Private equity funds, however, differ from hedge funds in terms of the manner in which contribution to the Investment pool is made by the investors. Private equity investors typically commit to invest a certain amount of money with the fund over the life of the fund, and make their contributions in response to “capital calls” from the fund’s general partner.
Private equity funds are long term investments, provide for liquidation at the end of the term specified in the fund’s governing documents and otter little, if any, opportunities for investors to redeem their investments. A private equity fund may distribute cash to its investors when it sells its portfolio investment, or it may distribute the securities of a portfolio company.
Question 2.
Write a note on the following.
Alternative investment fund (June 2013, 4 marks)
Answer:
SEBI (Alternative Investment Funds) Regulations, 2012 provides that an Alternative investment fund (AIF) means any fund established in India in the form of a trust, company, limited liability partnership or a body corporate which:
(i) is a privately pooled investment vehicle that 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 SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of SEBI, which aims to regulate fund management activities. However, SEBI (Alternative Investment Funds) Regulations, 2012 provides the list of funds which are excluded from the definition subject to certain conditions.
Question 3.
Distinguish between the following:
‘Venture capital fund’ and ‘social venture fund’. (Dec 2016, 3 marks)
Answer:
Difference between Venture Capital Fund and Social Venture Fund:
| BOD | Venture Capital Fund | Social Venture Fund |
| Meaning | Venture Capital Funds mean those funds which primarily invest in unlisted securities of start ups, emerging or early stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property rights based activities or a new business model and shall include an angel fund. | Social Venture Funds mean those funds which will invest primarily in securities or units of social ventures and which satisfy social performance norms laid down by the fund and whose investors may agree to receive restricted or mated returns. |
| Scope | The concept of VCFs is wider in comparison to Social Venture Fund. | Comparatively narrow concept, because “Social Venture Fund” is a narrow concept in comparison to VCFs. |
Question 4.
Distinguish between the following:
(i) Seed Funding and Start – up Financing (June 2022, 5 marks)
Question 5.
Explain briefly the following:
Social venture funds. (Dec 2013, 3 marks)
Answer:
(i) Meaning: Social Venture Funds means those funds which will invest primarily in securities or units of social ventures and which satisfy social performance norms laid by the fund and whose investors may agree to receive restricted or muted returns.
(ii) Features:
(a) Primary investment of corpus in the securities or units of social ventures.
(b) The investors who give money to ‘Social Venture Funds’ are not much interested in return or they are happy with limited return.
Question 6.
Discuss briefly the various categories of alternative investment fund (AIF). (Dec 2013, 5 marks)
Answer:
SEBI has classified Alternative Investment Fund (AIF) into 3 broad categories, as follows:
| Category | Details |
| Category I | Funds that invest in start-up or early stage ventures or social ventures or Small Medium Enterprises (SMEs) or infrastructure or other sectors which the government or regulators consider as socially or economically desirable which include VCF, SME Funds, Social Venture Funds (SVFs), Infra Funds as such other AIFs as may be specified in the AIF Regulations. |
| Category II | Funds that do not fall in Category I and III AIF and those do not undertake leverage or borrowing other than to meet the permitted day to day operational requirement including Private Equity Funds or Debt Funds. |
| Category III | Funds that may employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives, for e.g. Hedge Funds. |
Question 7.
“An individual cannot start a venture capital fund but a trust or a company can.” In the light of this statement, list down the eligibility criteria for getting registered with SEBI as venture capital fund. (Dec 2014, 5 marks)
Answer:
SEBI (Alternative Investment Funds) Regulations, 2012, lays down the following eligibility criteria to be registered as Venture Capital Fund under Category I Alternative Investment Fund (AIF), namely-
(a) the memorandum of association in case of a company; or the Trust Deed in case of a Trust; or the Partnership deed in case of a limited liability partnership permits it to carry on the activity of an Alternative Investment Fund;
(b) the applicant is prohibited by its memorandum and articles of association or trust deed or partnership deed from making an invitation to the public to subscribe to its securities;
(c) in case the applicant is a Trust, the instrument of trust is in the form of a deed and has been duly registered under the provisions of the Registration Act, 1908;
(d) in case the applicant is a limited liability partnership, the partnership is duly incorporated and the partnership deed has been duly filed with the Registrar under the provisions of the Limited Liability Partnership Act, 2008;
(e) in case the applicant is a body corporate, it is set up or established under the laws of the Central or State Legislature and is permitted to carry on the activities of an Alternative Investment Fund;
(f) the applicant, Sponsor and Manager are fit and proper persons based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
(g) the key investment team of the Manager of Alternative Investment Fund has adequate experience, with at least one key personnel having not less than five years experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or in the business of buying, selling and dealing of securities or other financial assets and has relevant professional qualification;
(h) the Manager or Sponsor has the necessary infrastructure and manpower to effectively discharge its activities;
(i) the applicant has clearly described at the time of registration the investment objective, the targeted investors, proposed corpus, investment style or strategy and proposed tenure of the fund or scheme;
(j) whether the applicant or any entity established by the Sponsor or Manager has earlier been refused registration by the Board.
From the above eligibility criteria mentioned in the SEBI (Alternative Investment Funds) Regulations, 2012 it can be concluded that it is only a “Company, Trust or a Partnership Firm” which can be registered as a Venture Capital Fund and not an Individual.
Question 8.
Explain briefly the following:
Investible fund. (Dec 2014, 3 marks)
Answer:
(1) Definition: As per SEBI (Alternative Investment Funds) Regulations, 2012, “Investible Fund” means “corpus of the Alternative Investment Fund net of estimated expenditure for administration and management of the fund”.
(2) General conditions and restrictions on investment of “Investible Funds”: An Alternative Investment Fund can invest its investible fund subject to following conditions:
(a) It can invest in securities of companies incorporated outside India, subject to such conditions or guidelines specified by the RBI and SEBI from time to time.
(b) Co-investment in an investee company by a manager or sponsor shall not be on terms more favorable than those offered to the AIF.
(c) Category I and II AIF shall not invest more than 20% of the investible funds in one Investee Company.
(d) Category III AIF shall not invest more than 10% of the investible funds in one Investee Company.
(e) AIF shall not invest in associates except with the approval of 75% of investors by value of their investment in the AIF.
Question 9.
Private equity fund is an unregistered investment vehicle in which investors pool money to invest. Explain the concept of private equity fund and distinguish it from hedge fund. (June 2015, 5 marks)
Answer:
A private equity fund, like a hedge fund, is an unregistered investment vehicle in which investors pool money to invest. Private equity funds concentrate their investments in unregistered (and typically illiquid) securities. Like hedge funds, private equity funds also rely on-the exemption from registration of the offer and sale of their securities.
The investors in private equity funds and hedge funds typically include high net worth individuals and families, pension funds, endowments, banks and insurance companies. Private equity funds, however, differ from hedge funds in terms of the manner in which contribution to the investment pool is made by the investors. Private equity investors typically commit to invest a certain amount of money with the fund over the life of the fund and make their contributions in response to “capital calls” from the fund’s general partner.
Private equity funds are long term investments, provide for liquidation at the end of the term specified in the fund’s governing documents and offer little, if any, opportunities for investors to redeem their investments. A private equity fund may distribute cash to its investors when it sells its portfolio investment, or it may distribute the securities of a portfolio company.
Question 10.
Explain the following:
Venture capital funds invest in all types of securities. (Dec 2015, 3 marks)
Answer:
The given statement ‘Venture capital funds invest in all type of securities’ is incorrect. Because, venture capital funds will primarily invest in unlisted securities of start ups, emerging or early stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property rights based activities or a new business model.
Question 11.
“Investment in all categories of Alternative Investment Funds shall be subject to certain conditions.” Comment.
(June 2017, 5 marks)
Answer:
As per Regulation 10 of SEBI (Alternative investment Funds) Regulations, 2012, following are the conditions for Investment in all categories of Alternative Investment Funds:
(a) the Alternative Investment Fund may raise funds from any investor whether Indian, foreign or non resident Indians by way of issue of units.
(b) each scheme of the Alternative Investment Fund shall have corpus of at least ₹ 20 crores.
(c) the Alternative Investment Fund shall not accept from an investor, an investment of value less than one crore rupees. In case of investors who are employees or directors of the Alternative Investment Fund or employees or directors of the Manager, the minimum value of investment shall be ₹ 25 lakh.
(d) the Manager or Sponsor shall have a continuing interest in the Alternative Investment Fund of not less than two and half percent of the corpus or ₹ 5 crores, whichever is lower, in the form of investment in the Alternative Investment Fund and such interest shall not be through the waiver of management fees.
However, for Category III Alternative Investment Fund, the continuing interest shall be not less than 5% of the corpus or ten crore rupees, whichever is lower.
(e) the Manager or Sponsor shall disclose their investment in the Alternative Investment Fund to the investors of the Alternative Investment Fund.
(f) no scheme of the Alternative Investment Fund shall have more than 1000 investors.
Provided that the provisions of Companies Act, 2013 shall apply to the Alternative Investment Fund, if it is formed as a company.
(g) the fund shall not solicit or collect funds except by way of private placement.
Question 12.
Comment on the following:
The investment criteria for a foreign venture capital investor. (June 2017, 5 marks)
Answer:
SEBI (Foreign Venture Capital Funds) Regulations, 2000, provides for conditions subject to which all investments to be made by a foreign venture capital investors:
(1) it should disclose to SEBI its investment strategy.
(2) it can invest its total funds committed in one venture capital fund or alternative investment fund.
(3) it shall make investments as enumerated below:
- atleast 66.67% of the investible funds should be invested in unlisted equity shares or equity linked instruments of venture capital undertaking or investee company.
- not more-than 33.33% of the investible funds may be invested by way of:
(a) subscription to initial public offer of a venture capital undertaking or investee company whose shares are proposed to be listed;
(b) debt or debt instrument of a venture capital undertaking or investee company in which the foreign venture capital investor has already made an investment by way of equity.
(c) preferential allotment of equity shares of a listed company subject to lock in period of one year.
(d) Special Purpose Vehicles which are created for the purpose of facilitating or promoting investment in accordance with these Regulations.
(e) the investment conditions and restrictions stipulated shall be achieved by the Foreign Venture Capital Investor by the end of its life cycle.
(f) it shall disclose the duration of life cycle of the fund.
Question 13.
SEBI has classified Alternative Investment Fund (AIF) into three” broad categories i.e. Category I, Category II and Category III. Discuss key features of AIF categories. (June 2018, 5 marks)
Answer:
SEBI has classified AIF into the following three broad categories, which are as follows:
Category I: Fund that invest in start-up or early stage ventures or social ventures or Small and Medium Enterprises (SMEs) or infrastructure or other sectors which the government or regulators consider as socially or economically desirable which include VCF, SME Funds, Social Venture Funds (SVF), Infra Funds and such other AIFs as may be specified in the AIF Regulations.
Category II: Funds that do not fall in Category I and III AIF and those that do not undertake leverage or borrowing other than to meet the permitted day to day operational requirement including Private Equity Funds or Debt Funds.
Category III: Funds that employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives, for e.g. Hedge Funds.
SEBI has allowed the Category – III Alternative Investment Funds (AIFs) to participate in the commodity derivatives market.
Question 14.
Explain the following:
Venture Capital Undertaking (Dec 2018, 3 marks)
Answer:
Venture Capital Undertaking : It means a domestic company:
(i) Which is not listed on a recognised stock exchange in India at the time of making investment;
(ii) Which is engaged in the business of providing services, production or manufacture of article or things and does not include following activities or sectors;
- non- banking financial companies;
- gold financial;
- activities not permitted under industrial policy of Government of India:
- any other activity which may be specified by SEBI in consultation with Government of India from time to time.
Question 15.
“All Alternative Investment Funds shall ensure transparency and disclosure of information to investors.” Comment. (Dec 2018, 5 marks)
Answer: ‘
All alternative investment funds shall ensure transparency and disclosure of information to the investors as per the following details:
- financial, risk management, operational portfolio, transactional information regarding fund investments shall be disclosed periodically;
- any fees prescribed to the Manager or Sponsor; and any fees charged to the Alternative Investment Fund or any Investor Company by an associate of the Manager or Sponsor shall be disclosed periodically;
- any enquiries, legal actions by legal or regulatory bodies in any jurisdiction, as and when occurred shall be disclosed:
- any material liability arising during the Alternative Investment Fund’s tenure shall be disclosed, as and when occurred;
- any breach of a provision of the placement memorandum or agreement made with the investor or any other fund documents, if any as and when occurred shall be disclosed.
- Alternative Investment Fund shall provide at least on an annual basis, within 180 days from the year end, reports to investors including the following information, as may be applicable to the Alternative Investment Fund:- A. Financial information of investee companies
B. Material risks and how they are managed. - Category III Alternative Investment Fund shall provide quarterly reports to investors in respect of Clause (g) within 60 days of end of quarter.
Question 16.
Explain the categories of Private Equity Investment. (Dec 2019, 3 marks)
Answer:
Private equity investments can be divided into the following categories:
(i) Leveraged Buyout (LBO): This refers to a strategy of making equity, investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.
(ii) Venture Capital: It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business.
(iii) Growth Capital: This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.
Question 17.
Define briefly the following in context of Indian equity private funding:
1. Alternative Investment Fund
2. Infrastructure Fund
3. Social Venture Fund
4. Sponsor
5. Venture Capital Fund. (5 marks)
Answer:
1. Alternative Investment Fund (AIF): 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:
- 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
- is not covered under the SEBI (mutual funds) regulations, 1996, SEBI (Collective Investment Schemes) regulations, 1999 or any other regulations of the SEBI to regulate fund management activities.
2. Infrastructure Fund: means an Alternative Investment Fund (AIF) which invests primary in unlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or Special Purpose Vehicles (SPV) engaged in or formed for the purpose of operating, developing, or holding infrastructure project. Infrastructure shall be as defined by GOI from time to time.
3. Social Venture Fund: means an Alternative Investment Fund (AIF) which invests primarily in securities or units of social ventures and which satisfies social performance norms laid down by the fund and whose investors may agree to receive restricted or muted returns.
4. Sponsor: means any person or persons who set up the Alternative Investment Fund (AIF) and includes promoter in case of a company and designated partner in case of a Limited Liability Partnership (LLP).
5. “Venture Capital Fund”: means an Alternative Investment Fund (AIF) which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund.
Question 18.
Explain the conditions to become an Angel investor under SEBI (Venture Capital Fund) Regulations, 1996. (Dec 2020, 5 marks)
Answer:
Angel Investor: Angel Investor means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
(a) an individual investor who has net tangible assets of at least 2 crore rupees excluding value of his principal residence, and who:
- has early stage investment experience, or
- has experience as a serial entrepreneur, or
- is a senior management professional with at least 10 years of experience.
(b) a body corporate with a net worth of at least 10 crore rupees; or
(c) an Alternative Investment Fund registered under SEBI AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
Question 19.
Whether investment by Angel Funds are restricted by any specific guidelines. Discuss. (Dec 2020, 3 marks)
Answer:
(1) Yes, investment by Angel funds are governed by the SEBI (Alternative Investment Funds) Regulations, 2012. Angel funds shall invest in venture capital undertakings which:
- complies with the criteria regarding the age of the venture capital undertaking/start-ups issued by Ministry of Commerce and Industry, Government of India or such other policy made in this regard which may be in force;
- have a turnover of less than twenty five crore rupees:
- are not promoted or sponsored by or related to an industrial group whose group turnover exceeds three hundred crore rupees.
- are not companies with family connection with any of the angel investors who are investing in the company.
(2) Investment by an angel fund in any venture capital undertaking shall not be less than twenty five lakh rupees and shall not exceed ten crores rupees.
(3) Investment by an angel fund in the venture capital undertaking shall be locked in for a period of one year.
(4) Angel Funds shall not invest in associates.
(5) Angel funds shall not invest more than 25% of the total investments under all its schemes in one venture capital undertaking, the compliance of which shall be ensured by the Angel Fund at the end of its tenure.
(6) An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and SEBI from time to time.
Question 20.
Bon wants to invest in Angel Funds. Explain how an investment can be made in an Angel Fund and in which type of undertakings an Angel Fund can invest. Can units of Angel Funds be listed on a stock exchange? (Dec 2021, 5 marks)
Answer:
(i) According to SEBI (Alternative Investment Fund) Regulations, 2012 (Alternative Investment Fund Regulations), Angel Fund means a sub-category of Venture Capital Fund under Category I Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter III A of the AIF Regulations. ‘Angel Investor’ means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
(i) an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:
- has early stage investment experience, or
- has experience as a serial entrepreneur, or
- is a senior management professional with at least ten years of experience.
(ii) a body corporate with a net worth of at least ten crore rupees, or
(iii) an Alternative Investment Fund registered under SEBI AIF Regulations or a Venture Capital Fund registered under the SEBI (VCF) Regulations, 1996.
As per AIF Regulations, the angel fund may launch schemes subject to filing of a term sheet with SEBI, containing material information regarding the scheme, in the format and time period as may be specified by SEBI.
Angel funds shall only raise funds by way of issue of units to angel investors. An angel fund shall have a corpus of at least ₹ 5 crore. Angel funds shall accept, up to a maximum period of five years, an investment of not less than ₹ 25 lakh from an angel investor and such funds shall be raised through private placement by issue of information memorandum or placement memorandum, by whatever name called.
No scheme of the angel fund shall have more than two hundred angel investors.
Although, the provisions of the Companies Act, 2013 shall apply to the Angel Fund, if it is formed as a company. Hence, Bon may invest in Angel Fund if qualifies for investment as stated above.
Regulation 19F of the AIF Regulations states that the Angel funds shall invest in startups which are not promoted, or sponsored by or related to an industrial group whose group turnover exceeds ₹ 300 crore.
- Investment by an angel fund in any venture capital undertaking shall not be less than ₹ 25 lakh and shall not exceed ₹ 10 crores.
- Investment by an angel fund in the venture capital undertaking shall be locked in for a period of one year.
- Angel Funds shall not invest in associates.
- Angel funds shall not invest more than 25% of the total investments under all its schemes in one venture capital undertaking, the compliance of which shall be ensured by the Angel Fund at the end of its tenure.
- An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and SEBI from time to time.
Regulation 19H of the AIF Regulations prohibits units of Angel Funds from listing. It provides that units of Angel Funds shall not be listed on any recognized stock exchange.
Question 21.
“Venture capital firms, finance both early and later stage investments to maintain a balance between risk and profitability.” Explain early stage financing. (Dec 2021, 5 marks)
Answer:
Early Stages Financing
1. Seed Capital and R & D Projects : Venture capitalists are more often interested in providing seed finance i.e., making provision of very small amounts for finance needed to commence a business. Research and Development activities are required to be undertaken before a product is to be launched. Externa! finance is often required by the entrepreneur during the development of the product.
2. Start Ups : The riskiest aspect of venture capital is the launch of a new business after the Research and Development activities are over. At this stage, the entrepreneur and his products or services are still not tried and tested keeping in view the various market forces.
3. Second Round Financing : It refers to the stage when product has already been launched in the market but has not earned enough profits to attract new investors. Additional funds are needed at this stage to meet the growing needs of business.
Question 22.
Discuss the concepts “Seed funding” and “Private Equity”. (Dec 2021, 5 marks)
Answer:
Seed Funding
- Seed funding, taken from the word “seed” is the capital needed to start / expand your business. It often comes from the company founders’ personal assets, from friends and family or other investors.
- The amount of money is usually relatively small because the business is still in the idea or conceptual stage,
- This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.
- Lenders often view seed capital as a risky investment by the promoters of a new venture, which represents a meaningful and tangible commitment on their part to making the business a success.
- This would be a type of Venture Capital Funding and hence covered under the provisions of Angel Funding in the SEBI (AIF) Regulations, 2012.
Private Equity
- Private equity is a type of equity (finance) and one of the asset classes that are not publicly traded on a stock exchange.
- Private equity is essentially a way to invest in some assets that isn’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private.
- Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets, i.e. companies.
- By purchasing companies, the firms gain access to those assets and revenue sources of the company, which can lead to very high returns on investments.
- The private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.
- Generally, the private equity fund raise money from investors like Angel investors, Institutions with diversified investment portfolio like – pension funds, insurance companies, banks, funds of funds etc.
Indian Equity-Private Funding Notes
1. Introduction
SEBI notified the Alternative Investment Fund (AIF) Regulations to govern unregulated entities and create a level playing ground for existing venture capital investors.
2. Effect
This Regulation has replaced the existing SEBI (Venture Capital Funds) Regulations, 1996 Funds registered under the VCF Regulations shall continue to be regulated by the said regulations till the existing fund or scheme is wound up.
3. Definition of Alternative Investment Fund
AIF means any fund established in India in the form of a trust, company, limited liability partnership or a body corporate. It is a privately pooled investment vehicle that collects funds from investors, for investing it in accordance with a defined investment policy for the benefit of its investors. However, AIF does not include followings:
(a) Mutual funds
(b) Collective Investment Schemes
(c) Family Trusts; ESOP Trusts; Employee Welfare Trusts.
4. Other Definitions
(a) Angel Fund
Angel fund means a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter lll-A of these regulations.
(b) Debt Funds
These funds will primarily make investments in debt or debt securities of listed or unlisted investee companies.
(c) Hedge Funds
Hedge Funds will employ diverse or complex trading strategies and invests and trades in securities having diverse risks or complex products, including listed and unlisted derivatives.
(d) Infrastructure Funds
These funds will primarily invest in unlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or special purpose vehicles engaged in or formed for, the purpose of operating or holding infrastructure projects.
(e) Investible Fund
It means corpus of the Alternative Investment Fund net of estimated expenditure for administration and management of the fund.
(f) Private Equity (“PE”) Funds
PE funds means an AIF which invest primarily in equity or equity
(g) Small and medium enterprises (“SME”) Funds
These funds will invest primarily in unlisted securities of investee companies which are SMEs or securities of those SMEs which are listed or proposed to be listed on a SME exchange or SME segment of an exchange.
(h) Social Venture Funds
These funds will invest primarily in securities or units of social ventures and which satisfy social performance norms laid down by the fund and whose investors may agree to receive restricted or muted returns.
5. Categories of AIF
- SEBI has classified AIF into the three broad categories i.e Category I, Category II, Category III.
- All AIFs are required to be mandatorily registered under any one of the above mentioned categories.
- Any AIF/scheme shall not have more than 1,000 investors.
6. Placement memorandum
Alternative Investment Fund can raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called.
7. Listing
Listing of Alternative Investment Fund units shall be permitted only after final close of the fund or scheme.
8. Preservation of records
The records maintained by the Manager/Sponsor is required to be maintained for a period of 5 years after the winding up of the fund.