The Securities and Exchange Board of India (SEBI) is the securities market regulator in India. Controller of Capital Issues was the regulatory authority that regulated securities market in India before SEBI came into existence. SEBI derived its authority from the Capital Issues (Control) Act, 1947. The Securities and Exchange Board of India (SEBI) is managed by its board members. The management of the board is defined in Section 4 of the act, which consists of following:
- a) A Chairman who will be appointed by the Central Government.
- b) Two members from Ministry of Central Government dealing with Finance and Administration of the Companies covered under the Companies Act, 2013.
- c) One member from The Reserve Bank of India(RBI)
- d) Five other members appointed by Central Government, out of which at least three members should be whole time members.
Securities and Exchange Board of India (SEBI) first came into existence in the year 1988 as a non-statutory body for regulating the, Securities Market in India. It was then converted into an autonomous body by The Government of India on 12 May.
Functions and Responsibilities of SEBI
The basic functions of the Securities and Exchange Board of India is described in its preamble. The Preamble of the Securities and Exchange Board of India describes the basic functions as under
“to protect the interests of investors in securities and to promote the development of, and to control the securities market and for matters connected there with or incidental there to”.
SEBI has to be responsive to the needs of three groups, mainly:
- The issuers of securities
- The investors
- The market intermediaries.
SEBI mainly has three functions which are rolled into one body:
SEBI also drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
Powers of SEBI
In order to discharge its functions efficiently, SEBI has been vested with the following powers:
- To approve by−laws of Securities exchanges.
- To require the Securities exchange to modify their by−laws.
- Inspect the books of accounts and call for periodical returns from acknowledged Securities exchanges.
- examine the books of accounts of financial intermediaries.
- induce certain companies to list their shares in one or more Securities exchanges.
- Registration of brokers
There are mainly two types of brokers:
- Discount Brokers and
- Merchant Brokers
Alternative Investment Funds
Alternative Investment Funds (AIFs) are defined under Regulation 2(1) (b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. It covers any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a Trust or a Company or a Body Corporate or a Limited Liability Partnership (LLP). AIFs are private funds that otherwise do not come under the jurisdiction of any regulatory agency in India.
Categories of Alternative Investment Funds (AIFs)
The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 seeks registration of Alternative Investment Funds in one of the three categories.
- Category I: Mainly invests in start- ups, SME’s or any other sector which the Government considers economically and socially viable.
- Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the Government or any other Regulator in India.
- Category III : Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the Government or any other Regulator in India.
Eligibility Criteria to register an Alternative Investment Fund
Regulation 4 of SEBI (AIF) Regulations provides eligibility criteria for Alternative Investment Fund Registration.
Such conditions are listed below:
- The incorporation document of an Applicant organization should permit the activities of Alternative Investment Fund. Such incorporation document will be MOA in case of company and partnership or trust deed in case of LLP and Trust respectively.
- The Incorporation document restricts the Applicant from making an invitation to the public to subscribe to its securities. AIFs are privately pooled investment vehicles and thus they are prohibited from inviting the general public to subscribe to its securities.
- If the Applicant is a Trust, then its Trust Deed must be registered as per the provisions of the Registration Act, 1908.
- If the Applicant is a LLP, then after its successful incorporation its partnership deed must have been registered with the Registrar by filing of Form 3
- If the Applicant is a Body Corporate, then it must have been established as per the relevant Central or State laws. And should also be allowed to do the activities of Alternative Investment Fund.
- The Applicant, its Sponsor, and Manager must full fill the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008
- The Key Investment Team of the Applicant must be experienced enough. At least one person must have a minimum experience of 5 years 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 commerce of securities or other financial assets and has a relevant professional qualification.
- The Applicant’s Manager or Sponsor should have the required manpower and infrastructure for the proper discharge of its activities.
- During the registration application following information is to be shared by the applicant:
- The main objective of investment
- Who are the targeted investors
- Proposed corpus of AIF (Corpus refers to the total amount of funds to be invested by the investors)
- Investment Strategy
- Proposed tenure of funds
Alternative Investment Fund (AIF’s) have the ability to provide for long term, and stable risk capital. Hence they are considered to be an effective alternative to the traditional methods of funding such as mutual funds and share market investments.
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