SEBI Introduces Guidelines for AIFs on Holding Investments in Dematerialised Form and Custodian Appointments January 24, 2024
Published in: Investment Funds
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On January 5, 2024, Securities and Exchange Board of India (“SEBI”) had notified the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2024 (“AIF Amendment Regulations”), which mandated Alternative Investment Funds (“AIFs”) to hold their investments in dematerialised form and required sponsors or managers of AIFs to appoint a custodian registered with SEBI for safekeeping of the securities of the AIFs.
SEBI, vide its circular dated January 12, 2024, has now issued guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian.
The said guidelines specify the following:
- Holding investments of AIFs in dematerialised form: Any investment made by AIFs on or after October 1, 2024, shall be held in dematerialised form only. Further, investments made by AIFs prior to October 1, 2024, would be exempt from the requirement of being held in dematerialised form except where: (i) the investee company of AIFs have been mandated under applicable law to facilitate dematerialisation of its securities; or (ii) AIFs, on their own, or along with other SEBI registered intermediaries/entities which are mandated to hold their investments in dematerialised form, exercises control over the investee company. Such investments are required to be held in dematerialized form by AIFs on or before January 31, 2025.
- Appointment of custodian for AIFs: The AIF Amendment Regulations have extended the mandate of appointment of custodians to schemes of Category I and II AIFs with corpus less than or equal to INR 500 crores (previously only Category III AIFs and Category I and II AIFs with a corpus exceeding INR 500 crores were required to appoint a custodian). The sponsors or managers of AIFs shall be required to appoint a custodian prior to the date of first investment of the scheme. Further, custodians of AIFs that are associates of their manager or sponsor, can only act as a custodian under certain specified conditions set out under the AIF Amendment Regulations. Managers of AIFs are to ensure that these specified conditions are met on or before January 31, 2025.
- Reporting of investments of AIFs under custody: The pilot Standard Setting Forum for AIFs (SFA), in consultation with SEBI, shall formulate implementation standards for reporting AIFs’ investments data under custody with the custodian. Such standards shall lay down the format and modalities of reporting of data by the AIFs’ manager to the custodian and subsequently, by the custodian to SEBI. The standards are to be published on websites of the industry associations forming part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PE VC CFO Association and Trustee Association of India, within 60 days of issuance of the circular.
To read the AIF Amendment Regulations click here & to read the circular click here
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