Sebi relaxes AIF rules, allowing AI-only schemes and wider exemptions for large funds

Markets regulator Sebi has rolled out a new framework to make it easier for Alternative Investment Funds (AIFs) to create a special class of schemes meant only for accredited investors and by giving more relaxations to Large Value Funds (LVFs). The latest rules take effect immediately.Under the new rules, AIFs can launch ‘AI-only’ schemes that are open only to accredited investors and enjoy lighter compliance with investor protection standards. New schemes will need to clearly state this status in their name, using tags such as “AI only fund” or “LVF” at the end of the scheme name.

Sebi has also allowed existing eligible AIFs or their schemes to migrate to AI-only or LVF schemes, but only after positive consent of all investors and fulfillment of prescribed conditions. Post conversion, fund managers must change the name of the scheme to add the label ‘AI fund only’ or ‘LVF’ and notify the change to Sebi and the custodians within 15 days so that the data and systems can be updated.

An investor who qualifies as an accredited investor at the time of joining an AIF will be treated as accredited for the entire term of the scheme, even if that status is subsequently lost. For AI-only schemes, Sebi has limited the maximum permissible extension of the scheme tenure to a total of five years, including any extensions granted before conversion.

In a significant relaxation, LVFs are exempt from the standard private placement memorandum template and from the requirement for an annual audit of the terms of the placement memorandum, and this exemption will apply without the need for specific investor waivers.

Sebi has directed that the Compliance Test Report prepared by AIF managers must now include compliance with the provisions of this new circular. The latest circular has been issued under the Sebi’s powers to protect investors, promote market development and regulate the securities market.