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FIMPACT Newsletter No. 79 (dated 06th April 2015). Contact us at [email protected]
In the previous newsletter dated March 30, 2015, we provided an update on the Indian economy across various
internal and external indicators. In this newsletter, we give an overview of the Alternative Investment Fund (AIF)
industry in India based on data provided by India’s capital market regulatory, the Securities and Exchange Board
of India (SEBI).
On 21 May 2012, India’s capital market regulator, Securities and Exchange Board of India (SEBI), notified the
Alternative Investment Funds Regulations, 2012. This is in line with the global trend of carving out a new set of
regulations for alternative assets. For instance, in April 2009, the European Commission had proposed a directive
for alternative investment fund managers at the European level. This regulation, termed as 'Alternative
Investment Fund Manager's Directive' or AIFMD recently became operational on 22 July, 2013.
In the Indian context, AIF means any fund established in India in the form of a trust, company or limited liability
partnership which is a privately pooled investment vehicle and is not covered under the SEBI’s Mutual Funds
Regulations or Collective Investment Schemes (CIS) Regulations. Thus AIFs offer a new way of investing in
India, separate from the Mutual Fund or CIS route.
An AIF can be registered under three different categories based on its investment objective and structure.
Different categories of AIF
Category I AIF
•Start up or early stage
ventures
•Social Ventures
•SME
•Infrastrucure
•Other sectors considered as
socially desirable
Category II AIF
•These are AIFs which do not
fall in either Category I or
Category III and which does
not undertake leverage or
borrowing*
Category III AIF
•Employes diverse or complex
trading strategies
•May employ leverage
Source: SEBI
*For Category II AIF, leverage or borrowing is only permitted to meet day-to-day operational requirements
The AIF regulations contain several prudential guidelines keeping in mind the interest of the investors. These
guidelines create a strong regulatory oversight on issues relating to conflict of interest and disclosures. There are
strict requirements as to who can Sponsor an AIF and who can become a Manager. Separate reporting
requirements have been put in place so that disclosures and reporting is done in a transparent and timely
manner. The detailed prudential guidelines have been specified for the operation of an AIF under the section on
‘General Obligations and Responsibilities and Transparency’ which covers general obligations, conflict of interest,
transparency, valuation, obligation of manager, maintenance of records, etc.
Given the robust platform provided by the AIFs in India, the AIF industry has seen healthy growth since the
framework was introduced by SEBI in 2012.
FIMPACT Newsletter No. 79 (dated 06th April 2015). Contact us at [email protected]
Growth of Commitments raised by Alternative Investment Funds (AIFs) in India
4.0
Category III
(in USD bn)
3.5
3.0
Category II
2.5
Category I
0.4
0.4
0.2
0.2
2.0
0.1
1.5
1.2
1.0
0.8
1.7
1.4
1.0
Dec-2014
Nov-2014
Oct-2014
Sep-2014
Aug-2014
Jul-2014
Jun-2014
Apr-2014
May-2014
Mar-2014
Feb-2014
Jan-2014
Dec-2013
Nov-2013
1.3
1.1
1.1
1.1
0.9
Oct-2013
Aug-2013
Jul-2013
May-2013
Apr-2013
Mar-2013
Feb-2013
Jan-2013
Dec-2012
Oct-2012
Nov-2012
Jun-2013
0.2
0.2
Sep-2012
-
Sep-2013
0.1
0.4
0.2
0.5
Source: SEBI
Starting from USD 60 million in December 2012, commitments raised by AIFs in India have increased to nearly
USD 3.5 billion as of December 2014, which represents a growth of more than 55x over the two year period.
Growth in registration of Alternative Investment Funds (AIFs) in India
140
123
120
100
89
80
No. of AIFs
60
40
22
20
0
2012
2013
2014*
Source: SEBI. *2014 data as of November 28, 2014
This growth is also reflected in the number of registered AIFs with SEBI which has increased from 22 by the end
of calendar year 2012 to 123 as of November 28, 2014.
FIMPACT Newsletter No. 79 (dated 06th April 2015). Contact us at [email protected]
Share of different types of AIFs in commitments
Share of different sub-categories within Category I
raised
AIF
12%
38%
38%
50%
50%
12%
Category I
Category II
Category III
Infrastructure Fund
Social Venture Fund
Venture Capital Fund
Source: SEBI. Data as of December 2014.
Source: SEBI. Data as of December 2014.
Among the various categories of AIFs, the largest share is that of Category II AIFs, followed by Category I AIFs.
Category III AIFs represent the smallest share. Within Category I AIF, the registration can be for several subcategories like infrastructure fund, social venture fund, venture capital fund, etc. Within the sub-category of
Category I AIFs, the largest share is for infrastructure funds, followed by social venture funds.
With the recent tax pass-through status provided to Category I and II AIFs in the Indian Union Budget 2015-16,
the growth in the AIF industry is expected to further accelerate. The growth in the AIF industry in India has been
encouraging and bodes well for the further development of India’s capital market regulator. IFMR FImpact
Investment Fund, the first fund launched by IFMR Investment Managers Private Limited is also registered with
SEBI as an AIF under the Category I Social Venture license and intends to use the AIF platform to launch multiple
funds across various asset classes to promote financial inclusion in India.
We hope you found the above illustration useful. We welcome your feedback and you can write to us at
[email protected]
FIMPACT Newsletter No. 79 (dated 06th April 2015). Contact us at [email protected]