What do you mean by categories of Alternative investment fund?

Alternative investment fund as the name suggests is a way of investing in different ways, basically there are people in this business who collect funds from potential investors either Indian or otherwise and utilize those funds in various investments according to their policies. There are also various categories to this alternative investment fund, which are described here under, and this is regulated by SEBI regulations, 2012.

Categories of alternative investment fund

We all know the basics of investments, and various modes, but these are confined to categories. The alternative investment fund regulations have explicitly mentioned 3 categories of alternative investment fund and can be registered in regulation 3(4) of chapter II.

As per Alternative investment fund regulation, registration can be made to any of the categories under SEBI.

Category 1

Under this category those investments come which have positive effect on Indian economy. For example, those investments which are early – stage ventures, like, start- ups, infrastructure, small and medium size industries and social sectors. These sectors are considered to be socially and economically desirable for investment. As a result of investing in these the government provides for concessions and incentives to it. This category includes investments like-

  • Venture capital funds,
  • Small and medium enterprise funds,
  • Infrastructure funds,
  • Social sector funds, etc.

Category II

Under this category the alternative investments funds fall are those which do not fall under category I or category III. The funds are basically those which only undertake leverages and borrowings to meet daily operational requirements and such other activities which are permitted by alternative investment fund regulations. Unlike category I, these funds’ investments do not receive any incentives or concessions from the government or such other authorities. The category II funds include-

  • Private equity funds,
  • Debt funds, etc.

Category III

The investment funds which fall into this category are those which are complex in dealing with and which have very diverse trading strategies. They can make investment in listed or not listed derivatives. Unlike category I, these funds’ investments do not receive any incentives or concessions from the government or such other authorities. The category III funds include-

  • Hedge funds
  • Open- ended funds
  • Funds which are traded to make short term returns, etc.

What is close- ended and open- ended alternative investment fund?

Close- ended or open- ended funds depend on which category they fall into. Regulation 13 of SEBI (Alternative investment funds) mention the specifications relating to the tenure of different categories of alternative investment fund. As per the regulations, Category I and Category II cannot be open- ended. Only category III is open- ended. For category I and II the funds are necessarily required to have tenure of minimum 3 years. The actual tenure is determined and mentioned during the registration.

Can tenure of close- ended alternative investment fund be extended?

It is purely conditional. But yes, the tenure can be extended but only up to 2 years. This also depends of the majority and value of investment made in that particular alternative investment fund. If fail to obtain majority then o extension can be provided and that fund is liquidated with the expiration of date of fund within 1 year.

Can a category of alternative investment fund be changed post registration?

Yes, it can be changed but it is conditional in nature. However, if investment has raised funds from the investors, then prior to submitting application for such a change in the category the alternative investment fund is required to send letters/ email to such investors asking them to withdraw their commitments/ funds without any penalty or charges. The entire fund collected must be returned. For submitting application, application should be made in form A. even for the change of category of alternative investment fund, the applicant is required to pay an application fee of Rs. 1, 00,000 and no registration fees are to be paid.

Summary:

Alternative investment funds are those when people invest their money in certain forms. These forms of investments like, equity share, debts, venture capital funds, hedge funds, infrastructure funds are categorized in 3 different categories. Each has different specifications. They can be also categorized on basis of open- ended or close- ended funds. And once invested the category of alternative investment fund can be changed but it is conditional. Company Vakil is one of India`s largest legal registration platform, for any legal query please get in touch with us.

 

 

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