Skip to main content

Investments in Alternative Investment Funds (AIFs)

Reserve Bank of India (RBI) has issued an update on instructions for investments in Alternative Investment Funds (AIFs).

What is Alternative Investment Funds (AIFs)?

Alternative Investment Fund (AIF) means any fund established or incorporated in India in the form of a trust / company / limited liability partnership / body corporate which –

  • Is a privately pooled investment vehicle which collects funds from investors (Indian / foreign) for investing it in accordance with a defined investment policy for the benefit of its investors.
  • Is not covered under the Securities and Exchange Board of India (SEBI) (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of SEBI to regulate fund management activities.

What are the updates on instructions for investments in AIFs?

New investments in AIF having exposure to a debtor company

  • Any company to which a Regulated Entity (RE) currently has or previously had a loan / investment exposure anytime during the preceding 12 months, is termed as a debtor company of the RE.
  • If the AIF has downstream investments (directly / indirectly) in such debtor company of the RE, the REs shall not make investments in any scheme of such AIFs.
  • The downstream investments shall exclude investments in equity shares of the debtor company of the RE, but shall include all other investments, including investment in hybrid instruments. 

Existing investments in AIF having exposure to a debtor company

  • If a RE is already an investor in an AIF scheme and the AIF makes a downstream investment in any debtor company of the RE, the RE shall liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF. 
  • If REs have already invested into such schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation shall be counted from the date of the guidelines (i.e. December 19, 2023). 
  • In case REs are not able to liquidate their investments within the above-prescribed time limit, they shall make 100% provision on such investments. Provisioning shall be required only to the extent of investment by the RE in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme.

Investments in AIF scheme with a ‘priority distribution model’

  • Investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds. This shall be applicable only in cases where the AIF does not have any downstream investment in a debtor company of the RE.
  • Proposed deduction from capital shall take place equally from both Tier-1 and Tier-2 capital.
  • Reference to investment in subordinated units of AIF Scheme includes all forms of subordinated exposures, including investment in the nature of sponsor units.
  • ‘Priority distribution model’ shall have the same meaning as specified in the SEBI circular SEBI/HO/AFD-1/PoD/P/CIR/2022/157 dated November 23, 2022.

Which investments are outside the scope of the updated instructions?

Investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the instructions.


References

Reserve Bank of India. (2023, December 19). 'Investments in Alternative Investment Funds (AIFs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12572&Mode=0

Reserve Bank of India. (2024, March 27). 'Investments in Alternative Investment Funds (AIFs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12639&Mode=0

Securities and Exchange Board of India. (2012, May 21). 'Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 [Last amended on July 4, 2023]'. Retrieved from https://www.sebi.gov.in/legal/regulations/jul-2023/securities-and-exchange-board-of-india-alternative-investment-funds-regulations-2012-last-amended-on-july-4-2023-_74146.html


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Digital Payments – E-mandate Framework 2026

Reserve Bank of India (RBI) has issued e-mandate framework for digital payments. What is an e-mandate?  A mandate is a standard instruction that a customer provides to his / her issuing bank and other institutions allowing them to automatically debit the mentioned amount from his / her bank account. e-mandate is the electronic version of it. To whom shall the framework be applicable? The framework shall be applicable to Payment System Providers and Payment System Participants. To which transactions shall the framework be applicable? The framework shall be applicable to processing of recurring transactions, domestic or cross-border, using cards / Prepaid Payment Instrument (PPI) / Unified Payments Interface (UPI). What are the guidelines for registration and revocation of e-mandate? A customer desirous of opting for e-mandate facility shall undertake a one-time registration process. The mandate shall be registered only after successful validation of additional factor of authenticati...
Post a Comment
Read more

Guidelines to facilitate faster cross-border inward payments

Reserve Bank of India (RBI) has issued guidelines to facilitate faster cross-border inward payments. What is the rationale behind the guidelines? The RBI’s Payments Vision 2025 aims to bring efficiency in the cross-border payments aligning with the G20 roadmap for cross-border payments that has set targets for achieving cheaper, faster, more transparent, and more accessible cross-border payments. One of the challenges with speed of cross-border payments is experienced at the beneficiary leg i.e., the time taken from receipt of the payment at the beneficiary bank till credit to the beneficiary account. What are the guidelines to facilitate faster cross-border inward payments? Banks shall inform their customer of the receipt of cross-border inward transactions immediately on receipt of inward message. Messages received after close of operating hours of banks shall be informed to customer immediately at the start of the next business day. Banks shall undertake reconciliation and confirmat...
Post a Comment
Read more

Guidelines on Money Changing Activities (Updated as on April 02, 2026)

Reserve Bank of India (RBI) has updated the guidelines on money changing activities. Who is Authorised Person? Authorised Person means an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10(1) of Foreign Exchange Management Act, 1999 (FEMA) to deal in foreign exchange or foreign securities. What are the categories of Authorised Persons? Authorised Dealer (AD) Category-I – entities which are authorised by RBI to carry out all permissible current and capital account transactions. Authorised Dealer (AD) Category-II – entities which are authorised by RBI to carry out specified non-trade related current account transactions, all the activities permitted to Full Fledged Money Changers (FFMC) and any other activity as decided by RBI, and include (i) Upgraded FFMCs; (ii) Select Regional Rural Banks (RRBs); (iii) Select Urban Cooperative Banks (UCBs); and (iv) Other entities. Authorised Dealer (AD) Category-III – entities which are authorised...
Post a Comment
Read more

Utkarsh 2029

Reserve Bank of India (RBI) has published its medium-term strategy framework – Utkarsh 2029, for the period April 2026 to March 2029. Utkarsh RBI had first formulated its medium-term strategy framework, viz. ‘Utkarsh 2022’ for the period 2019-2022 in July 2019, replacing its annual action plans as the latter spanned over a short period, insufficient to pursue strategic objectives.  The strategic framework contained, inter alia, RBI’s Mission, Core Purpose, Values and Vision Statements, reiterating RBI’s commitment to the Nation. It became a medium-term strategy document guiding RBI’s progress towards realisation of the identified milestones. The subsequent strategy framework, i.e., ‘Utkarsh 2.0’, spanned the period 2023-25. Utkarsh 2029  Utkarsh 2029 is the medium-term strategy framework for the period April 2026 to March 2029. Utkarsh 2029 has a 3-layered structure consisting of strategy pillars guided by the vision and values of RBI. Vision of Utkarsh 2029 – Continue excelle...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS) (Updated as on December 24, 2025)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more