SEBI amends AIF rules; investors to have pro-rata rights in investments, proceeds distribution

Markets regulator SEBI has amended Alternative Investment Funds (AIF) rules directing them to grant investors' rights in investment and distribution of proceeds in proportion to their commitments in a scheme.

In simple words, risks as well as rewards from investments made by an AIF scheme need to be shared in proportion to investors' contributions to the scheme.

This is aimed at clarifying the regulatory intent of AIFs' being pooled investment vehicles and ensuring fair and equal treatment of investors of an AIF.

In a notification issued on November 18, the markets watchdog said, "The investors of a scheme of an AIF shall have rights, pro-rata to their commitment to the scheme, in each investment of the scheme and in the distribution of proceeds of such investment, except as may be specified by the Board (SEBI) from time to time."

"The rights of investors of a scheme of an AlF, other than that specified in sub-regulation (21) of this regulation, shall be pari-passu in all aspects provided that differential rights may be offered to select investors of a scheme of an AIF in the manner as may be specified by the Board, without affecting the interest of other investors of the scheme".

Also, the Securities and Exchange Board of India (SEBI) said that differential rights can be offered to select investors of a scheme of an AIF without affecting the interest of other investors of the scheme.

The markets regulator has provided an exemption to Large Value Funds from ensuring pari-passu rights among its investors. This is subject to a waiver provided by each investor to this effect.

AIF is a privately pooled investment vehicle, which collects funds from investors, for investing under a defined investment policy for the benefit of its investors.