The Securities and Exchange Board of India (SEBI) has clarified that alternative investment funds (AIFs) managed or advised by asset management companies (AMCs) and their subsidiaries must comply with the “broad-based fund” criteria, aligning them more closely with mutual fund-style investor norms.
Clarification Issued Through Informal Guidance
The regulator issued this clarification in an informal guidance note dated April 9, in response to a query from UTI Alternatives Pvt Ltd.
SEBI stated that AIFs fall under the category of pooled investment vehicles and, therefore, must adhere to the requirement of having a diversified investor base when managed or advised by AMCs or their affiliates.
Under these norms, such AIFs must have a minimum of 20 investors, with no single investor holding more than 25% of the total fund corpus.
Compliance to Be Evaluated at Scheme Level
SEBI further clarified that compliance with the broad-based criteria must be assessed at the scheme level rather than at the aggregate fund level.
Each AIF scheme is treated as an independent investment vehicle under existing regulations, with its own investor limits, corpus size, and compliance requirements. Evaluating compliance at this level ensures a more accurate representation of investor concentration within each scheme.
No Exemptions for Master-Feeder Structures
Addressing master-feeder fund arrangements, the regulator stated that both master funds and feeder funds must independently meet the broad-based investor conditions.
This means that feeder structures will not receive blanket exemptions, irrespective of where the underlying investment decisions are made.
Limited Relaxations for Domestic Entities
SEBI also clarified that certain exemptions available to select foreign portfolio investors (FPIs) under mutual fund regulations do not extend to domestic regulated entities.
Institutions such as banks, insurance companies, and provident funds—despite being regulated—must still comply with the broad-based norms, as they fall under separate regulatory frameworks.
Nature of the Clarification
The regulator emphasised that the guidance is interpretative in nature and based on the specific facts presented in the query. It does not represent a formal decision by the SEBI Board and may vary depending on the circumstances of individual cases.
Conclusion
SEBI’s clarification reinforces its focus on ensuring diversified investor participation in pooled investment vehicles. By extending broad-based norms to AIFs managed by AMCs, the regulator aims to enhance transparency, reduce concentration risks, and strengthen overall market integrity.
Summary:
SEBI has clarified that AIFs managed or advised by AMCs must comply with broad-based investor norms, including a minimum of 20 investors and a 25% cap per investor. The rules apply at the scheme level, with no exemptions for master-feeder structures, reinforcing investor diversification and regulatory oversight.
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