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The Securities and Exchange Board of India (SEBI) issued a circular on August 19, 2024, detailing amendments to the SEBI (Alternative Investment Funds) Regulations, 2012. These amendments focus on the borrowing norms for Category I and Category II Alternative Investment Funds (AIFs) and the maximum permissible tenure extension for Large Value Funds (LVFs) for Accredited Investors.
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Key Points:
1. Borrowing Guidelines for Category I and Category II AIFs:
- Category I and Category II AIFs are generally prohibited from borrowing funds, except to meet temporary funding and operational needs, subject to specific conditions.
- The circular introduces flexibility, allowing AIFs to borrow in case of a shortfall in the drawdown amount required for imminent investment opportunities.
- Borrowing is restricted to 20% of the proposed investment in the investee company, 10% of the investable funds, or the pending commitment from investors, whichever is lower.
- Such borrowings should only be used in emergencies and disclosed in the Private Placement Memorandum (PPM) of the scheme.
- A 30-day cooling-off period is mandated between two borrowing periods.
Online Mock Test for NISM-XIX-A Alternative Investment Funds (Category I and II) Distributors Exam Preparation Practice Test & Mock Test with 700+ Question Bank
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2. Tenure Extension for Large Value Funds (LVFs):
- LVFs can extend their tenure by up to five years with the approval of two-thirds of unit holders by value.
- Existing LVF schemes that have not disclosed a definite period of extension must align with the five-year limit by November 18, 2024.
- LVF schemes must revise their original tenure with the consent of all investors and submit an undertaking to SEBI by the deadline.
- Conditions in the previous Master Circular for AIFs regarding tenure extension will not apply from the date of this circular.
These guidelines are essential for those preparing for regulatory compliance exams, as they reflect recent updates that are likely to be tested.
Online Mock Test for NISM-XIX-A Alternative Investment Funds (Category I and II) Distributors Exam Preparation Practice Test & Mock Test with 700+ Question Bank
Online Mock Test for NISM-Series-XIX-C: Alternative Investment Fund Managers Exam Preparation Mock Test & Practice Test with 1500+ Question Bank.
Quick Recap: Multiple-Choice Questions
What is the maximum percentage of investable funds that Category I and II AIFs can borrow to meet a shortfall in the drawdown amount?
- A) 5%
- B) 10%
- C) 15%
- D) 20%
Under what condition can Category I and II AIFs borrow funds according to the SEBI circular?
- A) For long-term investments
- B) For meeting day-to-day operational expenses
- C) In case of a shortfall in drawdown amount for imminent investment opportunities
- D) For any investment purpose
What is the maximum permissible tenure extension for LVFs as per the SEBI guidelines?
- A) 2 years
- B) 3 years
- C) 4 years
- D) 5 years
By when must existing LVF schemes align their period of extension with the SEBI circular?
- A) October 18, 2024
- B) November 18, 2024
- C) December 31, 2024
- D) January 1, 2025
Who must ensure that the Compliance Test Report includes provisions from the SEBI circular?
- A) Fund Manager
- B) Trustee/Sponsor of AIF
- C) Investors
- D) SEBI Officials
Answers:
- B) 10%
- C) In case of a shortfall in drawdown amount for imminent investment opportunities
- D) 5 years
- B) November 18, 2024
- B) Trustee/Sponsor of AIF
Online Mock Test for NISM-XIX-A Alternative Investment Funds (Category I and II) Distributors Exam Preparation Practice Test & Mock Test with 700+ Question Bank
Online Mock Test for NISM-Series-XIX-C: Alternative Investment Fund Managers Exam Preparation Mock Test & Practice Test with 1500+ Question Bank.