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

Highlights of RBI Annual Report 2023-24 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the fifth and last article in the series.  Chapter 7 – Public Debt Management Ways And Means Advances (WMA) limit for the Government of India (GoI) for H1:2023-24 (April to September 2023) was fixed at ₹1,50,000 crore and for H2:2023-24 (October 2023 to March 2024) was fixed at ₹50,000 crore. RBI issued an ultra-long security of 50-year tenor aggregating ₹30,000 crore to cater to the growing needs of long-term institutional players. Issuance of Sovereign Green Bonds (SGrBs) for an aggregate amount of ₹20,000 crore included maiden issuance of 30-year (₹10,000 crore) SGrB in addition to 5-year (₹5,000 crore) and 10-year (₹5,000 crore) SGrBs. A new 3-year benchmark security was introduced as part of government market borrowing programme during H1:2023-24.  The basket of products offered through the ‘Retail ...
Post a Comment
Read more

RBI’s Monetary Policy (August 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on August 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Unchanged 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real GDP growth for 2025-26 is projected at 6.5%. CPI headline inflation declined for the eighth consecutive month to a 77-month low (since January 2019) of 2.1% in June, driven primarily by a sharp decline in food inflation. Food inflation recorded its first negative print since February 2019 at (-) 0.2% in June. CPI inflation for 2025-26 is projected at 3.1%. India’s current account deficit (CAD) moderated to 0.6% of GDP in 2024-25 from 0.7% of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit. As on Augus...
Post a Comment
Read more

Non-Fund Based Credit Facilities

Reserve Bank of India (RBI) has issued directions on non-fund based credit facilities. To whom shall the directions be applicable? The directions shall apply to the following Regulated Entities (REs) for all their Non-Fund Based (NFB) exposures such as guarantee, letter of credit, co-acceptance etc. Commercial Banks (including Regional Rural Banks and Local Area Banks) Primary (Urban) Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs) in Middle Layer and above, only for the issuance of Partial Credit Enhancement. The directions shall not apply to the derivative exposures of a RE. Which NFB facilities are permitted to be issued by RE? RE shall issue a NFB facility only on behalf of a customer having funded credit facility from the RE. However, this shall not be applicable in respect of – Derivative contracts entered int...
Post a Comment
Read more

Co-Lending Arrangements (CLAs)

Reserve Bank of India (RBI) has issued directions on co-lending arrangements which will replace the existing guidelines on co-lending by banks and Non-Banking Financial Companies (NBFCs) to priority sector. What is Co-Lending Arrangement (CLA)? Co-Lending Arrangement (CLA) refers to an arrangement, formalised through an ex-ante agreement, between a regulated entity (RE) which is originating the loans (‘originating RE’) and another RE which is co-lending (‘partner RE’), to jointly fund a portfolio of loans, comprising of either secured or unsecured loans, in a pre-agreed proportion, involving revenue and risk sharing. To whom shall the directions be applicable? The directions shall be applicable to CLAs entered into by the following REs – Commercial Banks (excluding Small Finance Banks, Local Area Banks and Regional Rural Banks) All-India Financial Institutions Non-Banking Financial Companies (including Housing Finance Companies) Which lending arrangements are exempt from the applicabil...
Post a Comment
Read more

Investment in Alternative Investment Funds (AIFs)

Reserve Bank of India (RBI) has issued directions for investment in Alternative Investment Funds (AIFs) which will replace the existing guidelines . To whom shall the directions be applicable? The directions shall be applicable to investments by the following regulated entities (REs) in units of AIF Schemes – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks) Primary (Urban) Co-operative Banks / State Co-operative Banks / Central Co-operative Banks All-India Financial Institutions Non-Banking Financial Companies (including Housing Finance Companies) What shall be the limits for investment in AIF schemes? No RE shall individually contribute more than 10% of the corpus of an AIF Scheme. Collective contribution by all REs in any AIF Scheme shall not be more than 20% of the corpus of that scheme. Outstanding investments or commitments of a RE, made with prior approval from RBI under the provisions of Master Direction – Reserve Bank of India (Financi...
Post a Comment
Read more