An Analysis On Alternate Investment Fund (AIF)

Author: LawSphereX

Category: General Law

Published: 2026-08-23T17:53:21.055Z

Updated: 2026-08-30T07:06:50.046Z

AN

ANALYSIS

ON ALTERNATE INVESTMENT FUND (AIF) Abhin Behl & Srishti Vasandani, Amity Law School, Noida Introduction In India, alternative investment funds (AIFs) are defined in Regulation 2(1) (b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 20121. It refers to 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 (LL P). Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India. In the context of the Securities and Exchange Board of India (SEBI) regulations, an investor getting a unit listed on a stock exchange for free trade in an Alternate Investment Fund (AIF) can refer to specific provisions regarding the listing and trading of AIF units.

1 Alternate Investment Fund (AIF) Categories2

SEBI regulates AIFs under the SEBI (Alternate Investment Funds) Regulations, 2012. • AIFs are private investment vehicles that pool capital from investors to invest in accordance with a defined investment strategy. • AIFs are typically classified into three categories: o Category I AIFs: Funds that invest in start-ups, small and medium-sized enterprises (SMEs), social ventures, etc., which are considered to have a positive impact on the economy. o Category II AIFs: Funds that do not have a specified focus but are not categorized as Category I or III. This category includes private equity funds and debt funds. o Category III AIFs: Funds that employ diverse or complex trading strategies, including hedge funds. 1 https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-alternativeinvestment-funds-regulations-2012-last-amended-on-february-07-2023-_69231.html

2 Bharathan, Sai Krishna and Rao, Ganesh (2017) "Alternative Investment Funds in India: Unlocking

Sophisticated Investment," National Law School Business Law Review: Vol. 3: Iss. 1, Article 3.

2 Listing of AIF Units on a Stock Exchange

Generally, units of an AIF are not listed or freely traded on a stock exchange due to the private nature of these funds. • However, certain provisions allow listing of AIF units under specific conditions. If units of an AIF are listed, they can be traded on the stock exchange, making them more liquid for investors. • To list an AIF's units, SEBI’s regulations require compliance with listing norms for securities. The fund must adhere to disclosure requirements, investor protections, and governance standards as specified by SEBI. • Free Tradeability: AIF units listed on the stock exchange could be freely traded, subject to the restrictions or conditions laid out by SEBI. This offers investors the flexibility to buy and sell units in the secondary market, although the liquidity of such units may depend on the investor base and market interest.

3 Regulatory Compliance for Listed AIF Units

AIFs must comply with SEBI’s Listing Obligations and Disclosure Requirements (LODR) if their units are to be listed. • These regulations would include detailed disclosures about the performance of the fund, management practices, and other factors that affect unit pricing. • In addition to these, AIFs need to ensure compliance with certain capital market regulations (such as those related to market manipulation and insider trading).

4 Potential Advantages of Listing AIF Units

Liquidity: Once listed on a stock exchange, investors can trade units more easily, providing liquidity compared to holding the investment in a private setting. • Transparency: Regular reporting and disclosures mandated by the listing requirements bring greater transparency to the fund’s activities. • Wider Investor Base: Listing can potentially attract a broader range of investors, improving capital inflows.

5 Investor Considerations

For the investor, having an AIF unit listed can provide the advantage of greater market

access, and the ability to sell the units on the secondary market. • However, the investor also needs to be aware of any lock-in periods or minimum holding requirements that may apply to AIF investments, which could affect the tradability of units in the short term. Important provisions of SEBI (Alternate Investment Funds) Regulations, 2012 related to Registration of AIF3 Section 3: Requirement of Registration • This section outlines the need for AIFs to register with the Securities and Exchange Board of India (SEBI) in order to operate legally in India. It emphasizes that only funds that meet specific criteria under the regulations can be registered. Section 4: Application for Registration • It explains the procedure through which AIFs must apply to SEBI for registration. This includes providing detailed information about the fund's structure, management, and investment strategy.

The application also needs to include financials and disclosures about the fund’s operations. Section 5: Application Fee • The AIFs are required to pay a fee when submitting their application for registration. The fee amount is defined, and failure to submit the correct fee may result in the rejection of the application. Section 6: Registration of AIF • This section sets forth the process by which SEBI reviews the application for registration. SEBI evaluates whether the fund meets the necessary conditions and, if it does, grants registration. Section 7: Investment Conditions • The regulations specify that AIFs must invest according to certain guidelines, which may include investment limits, types of securities, and other restrictions to ensure that the investments are in line with the fund's objectives. 3 https://www. sebi. gov.

in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-alternativeinvestment-funds-regulations-2012-last-amended-on-february-07-2023-_69231. html Section 8: Obligations of the AIFs • AIFs are obligated to adhere to certain operational and reporting standards. This includes maintaining transparency in their dealings, disclosing important information to investors, and providing regular updates on the fund’s performance. Section 9: Fund Manager’s Responsibilities • This section outlines the role and responsibilities of the fund manager. Fund managers are required to manage the fund in the best interest of investors, follow the investment policy, and ensure compliance with the regulations. They must also disclose any conflicts of interest and make transparent decisions.

Section 10: Manager, Sponsor, and Trustee • The section details the roles of the sponsor, trustee, and manager within an AIF. Sponsors are typically the promoters who establish the fund, while the trustee ensures the fund’s operations align with regulatory requirements. The manager, as mentioned above, is responsible for managing the fund's day-to-day operations. Section 11: Disclosure and Reporting • AIFs are required to provide disclosures to SEBI, investors, and the public. This includes financial statements, performance reports, and compliance with the applicable regulations. Regular reporting ensures transparency and builds trust with investors. Section 12: General Principles • This section lists the general principles that AIFs must follow. This includes adhering to ethical standards, maintaining integrity in all operations, and safeguarding investors' interests.

• For seeking in-principle approval for listing units of an Alternative Investment Fund (AIF) scheme, the applicant must submit certified true copies of various agreements and documents. These include the draft Information/Placement Memorandum in both hard and soft copies, the Investment Management Agreement (in case of the first listing), and the certification of registration of the Alternative Investment Fund issued by SEBI (in case of the first listing). Additionally, the Custodian Agreement, Registrar & Transfer Agent Agreement, and Trust Deed (if applicable) must be provided. The Memorandum & Articles of Association of the issuer (in case of the first listing) and a resolution passed by the trustees, board of directors, or partners approving the listing of units of the close-ended AIF on BSE Ltd4. must also be submitted.

Furthermore, an undertaking from the CEO or compliance officer confirming that the AIF complies with the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, and all other applicable laws is required. • For the listing of units of an AIF scheme post-allotment, the applicant must submit certified true copies of specific agreements and documents, including the Letter of Application for listing of units, details of the applicant (in case of the first issue/listing), and issue details. A certified true copy of observations/comments received from SEBI on the Placement Memorandum/Scheme Information Document (SID), along with the final Placement Memorandum/SID in both hard and soft copies, is required.

Additionally, the unitholding pattern of unitholders as per the prescribed format, confirmation from the CEO/compliance officer regarding allotment of units and the actual number of units allotted, and a statement of collection details must be provided. If it is the first listing, a Listing Agreement as per SEBI LODR Regulations must be submitted. Further confirmations from the CEO/compliance officer regarding compliance with SEBI (Alternative Investment Funds) Regulations, 2012, including amendments and circulars issued in this respect, are also necessary. • Other mandatory documents include confirmation from NSDL and CDSL regarding ISIN activation, confirmation from the Registrar & Transfer Agent (RTA) on the final number of units allotted with NSDL and CDSL, and details of physical issuance.

An undertaking from the RTA must confirm that any units considered under switches have been debited from the respective schemes and credited to the applicable scheme, if applicable. Additionally, confirmations received from NSDL/CDSL for credit, confirmation from the RTA regarding the dispatch of certificates, account statements, or refund orders, and payment of the annual listing fees plus applicable taxes must be submitted. BSE reserves the right to request additional documents beyond those listed and may modify, add, delete, or revise any requirements as deemed necessary. It is important to note that the submission of documents and fees does not automatically guarantee the listing of units or approval by BSE.

4 /https://www.bseindia.com/downloads1/IP_for_AIF.pdf

Conclusion

In conclusion, the Securities and Exchange Board of India (SEBI) regulates Alternative Investment Funds (AIFs) to ensure transparency, investor protection, and market integrity. While AIFs are private funds, SEBI allows for the listing of AIF units under specific conditions, providing investors with liquidity and market access. The listing process requires strict adherence to SEBI regulations, including the submission of necessary documents and compliance with disclosure and governance standards. Although listing AIF units on a stock exchange enhances liquidity, transparency, and investor participation, it also imposes regulatory obligations on fund managers and sponsors. Investors must carefully consider the associated requirements, restrictions, and market conditions before engaging in AIF unit trading.

Lastly, while the submission of documents and fees is a prerequisite for listing, it does not guarantee approval by BSE, as the exchange retains the right to request additional information or modify listing requirements as needed.