How to Start a ALTERNATE INVESTMENT FUND REGISTRATION

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Overview of Alternative Investment Fund (AIF) Registration in India

An Alternative Investment Fund (AIF) is a type of investment vehicle that pools capital from investors to invest in startups, early-stage ventures, and other companies. Before initiating operations, an entity intending to establish an AIF must register with the Securities and Exchange Board of India (SEBI).

The regulatory framework governing AIFs in India is defined under the SEBI (Alternative Investment Funds) Regulations, 2012. These regulations were implemented to bring previously unregulated investment funds under the ambit of legal oversight. According to the 2012 Regulations, AIFs can be structured as a trust, limited liability partnership (LLP), corporate body, or any other permissible entity. These funds operate as privately pooled investment vehicles that collect funds from both Indian and foreign investors based on a defined investment strategy for their benefit.

AIFs do not fall under the purview of:

  • SEBI (Mutual Funds) Regulations, 1996

  • SEBI (Collective Investment Schemes) Regulations, 1999

  • Any other SEBI regulations specifically designed for fund management

Categories of Alternative Investment Funds

AIFs in India are broadly classified into the following three categories:

Category I AIFs
These funds invest primarily in startups, small and medium-sized enterprises (SMEs), and infrastructure projects. They often receive support or incentives from the government or SEBI. Examples include:

  • Venture Capital Funds

  • SME Funds

  • Social Venture Funds

  • Infrastructure Funds

Category II AIFs
These funds can invest in various sectors without receiving any specific government incentives. They are not allowed to leverage funds (borrow) except for routine operational requirements. This category includes:

  • Private equity funds

  • Debt funds

Category III AIFs
These funds are structured to make short-term investments and are allowed to employ complex trading strategies including leverage. Hedge funds fall under this category.

Entities Not Eligible for AIF Registration

The following entities are not eligible to register as AIFs under SEBI guidelines:

  • Family Trusts formed exclusively for the benefit of relatives, as defined under the Companies Act, 1956.

  • Holding companies, as described under Section 4 of the Companies Act, 1956.

  • Funds regulated by other financial authorities in India.

  • ESOP Trusts formed under SEBI’s regulations or permitted under the Companies Act, 1956.

  • Special purpose vehicles (SPVs), particularly those involved in securitisation or falling under another regulatory regime, unless launched by registered fund managers.

  • Employee welfare trusts established for employee benefit purposes.

  • Funds managed by securitisation or reconstruction companies registered with the Reserve Bank of India under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

These exclusions ensure that only professionally managed, regulated investment entities participate in the AIF space, maintaining transparency and investor protection.

Eligibility Criteria for Alternative Investment Fund (AIF) Registration

To be eligible for registration as an Alternative Investment Fund (AIF) under SEBI regulations, an applicant must meet the following criteria:

  1. Fit and Proper Persons
    The applicant, its manager, and sponsor must be deemed "fit and proper" as per the standards outlined in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

  2. Experience and Qualification of the Management Team

    • The AIF’s manager or its key investment personnel must have relevant experience, including at least one individual with a minimum of five years of experience in managing investment pools or providing advisory services in areas such as fund management, asset management, portfolio management, wealth management, or in trading financial instruments and securities.

    • At least one key person must also hold a professional qualification in fields like accountancy, finance, commerce, business management, capital markets, economics, or banking, from an institution recognized by the Central or any State Government.

  3. Detailed Disclosure at Registration
    The applicant must clearly outline at the time of registration:

    • The target investor base

    • The investment objective

    • The investment style and strategy

    • The proposed corpus

    • The tenure of the fund or scheme

  4. Authorisation in Foundational Documents

    • The applicant’s Memorandum of Association (MoA) in case of a company, Trust Deed for a trust, or Partnership Deed for an LLP must explicitly allow the entity to carry on AIF-related activities.

    • These documents must also prohibit public invitations for subscribing to the entity’s securities.

  5. Registration and Legal Compliance

    • For a trust, the Trust Deed must be registered under the Registration Act, 1908.

    • For an LLP, it must be duly incorporated and its partnership deed filed with the Registrar of Firms in accordance with the Limited Liability Partnership Act, 2008.

    • If the applicant is a body corporate, it must be established or constituted under Central or State law and must be legally authorised to carry out AIF operations.

These eligibility requirements ensure that only credible, professionally managed, and well-regulated entities are allowed to operate as Alternative Investment Funds in India.

Key Documents Required for AIF Registration

To register an Alternative Investment Fund (AIF) with the Securities and Exchange Board of India (SEBI), the following essential documents must be submitted:

  1. Certificate of Incorporation of the applicant entity.

  2. Placement Memorandum detailing the investment strategy and structure of the fund.

  3. Partnership Deed (if the AIF is structured as a Limited Liability Partnership under the LLP Act, 2008).

  4. Complete address and contact details of the registered office.

  5. Details of directors and shareholders associated with the fund.

  6. Original Trust Deed (for AIFs established as a Trust under the Trusts Act).

  7. Information regarding any other business activities and future expansion plans of the applicant.

  8. Memorandum of Association (MoA) and Articles of Association (AoA) (in the case of a company).

  9. Other relevant contact and identification details of the applicant.

Compliance for AIF Registration

  • After the registration of an Alternative Investment Fund should obey the reporting necessities mentioned by SEBI from time to time;
  • For any notification / updating / guidelines issued by the Securities and Exchange Board of India concerning the activity of AIF, an Alternative Investment Fund should check on the website of SEBI on a regular basis;
  • In case of change in the details already provided to SEBI, Alternative Investment Fund should be intimate to SEBI within a reasonable time.

Step-by-Step Procedure for AIF Registration with SEBI

1. Filing Form A

The application process begins by submitting Form A as specified under the SEBI (Alternative Investment Funds) Regulations, 2012. This form must be accompanied by:

  • A cover letter

  • All required supporting documents

2. Cover Letter Details

The cover letter should clearly mention:

  • The request to register a new AIF

  • Whether the applicant is already registered with SEBI as a Venture Capital Fund (VCF); if so, include registration details

  • If any AIF activities were undertaken prior to this application, relevant information should be provided

3. Letter of Authorisation

If someone other than the partners, trustees, or directors is signing the application, a formal letter of authorisation from the concerned parties must be submitted.

4. Payment of Initial Application Fee

Along with Form A, an application fee of ₹1,00,000 must be paid via demand draft, drawn in favour of “The Securities and Exchange Board of India”, payable at Mumbai.

5. SEBI Review and Inspection

After receiving the application, SEBI will review the submission and respond within 21 working days. However, the speed of the process largely depends on how promptly the applicant addresses any compliance requirements raised by SEBI.

6. Ensuring Compliance with SEBI Regulations

To facilitate a smooth registration, applicants must strictly adhere to the SEBI (AIF) Regulations, 2012 throughout the application process.

7. Grant of Registration Certificate

Once SEBI is satisfied that all regulatory requirements have been met, the applicant will receive approval for registration.

8. Payment of Registration Fee

Upon approval:

  • ₹5,00,000 registration fee is payable if the applicant is not already registered as a VCF with SEBI.

  • A re-registration fee of ₹1,00,000 applies if the applicant is already registered as a Venture Capital Fund.

This amount must be paid via a demand draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.

9. Issuance of Registration Certificate

Once SEBI receives the registration or re-registration fee, a Certificate of Registration as an AIF will be issued, allowing the applicant to commence fund operations.

This streamlined process ensures that only qualified and compliant entities are allowed to operate as AIFs under SEBI’s regulatory framework, enhancing investor confidence and market integrity.

Other Points Regarding the Alternative Investment Fund Registration

  • AIF’s Sponsor

    Sponsor is an individual who established an Alternative Investment Fund and consists of a promoter in case of company and proposesd partner in case of an LLP.

    Alternative Investment Fund Registration Certificate shall be valid till the AIF is wound up. But the certificate of an Alternative Investment Fund Registration would be valid for a lifetime.

  • Corpus

    It is the total amount of funds that are dedicated by investors on a specific date to the Alternative Investment Fund by way of a written agreement or any such document.

  • Limit specified regarding the number of investors under the Regulations of AIF

    No scheme of an Alternative Investment Fund (other than angel funds) shall have not less than 1000 investors. In the case of an angel fund, no scheme shall have more than 49 angel investors. But, an Alternative Investment Fund can raise funds from the complicated investors only through private placement and cannot make an invitation to the public at great to pledge its units.

  • Redressal of Grievances

    Securities and Exchange Board of India has a web-based centralised complaint redress system called “SEBI Complaint Redress System (SCORES)” where investors can file their complaints against Alternative Investment Funds. For argument resolution, it is required for AIF or Sponsor or Manager to lay down the procedure for resolving arguments between the investors, Manager, AIF, or Sponsor through arbitration or any such mechanism as jointly decided between the AIF and the investors.