To facilitate ease of compliance and enhance investor protection in Alternative Investment Funds (AIFs), Sebi on Saturday said that all fresh investments made by AIFs after September 2024 must be held in demat form. Approving an amendment to AIF rules, Sebi said some exceptions have been provided.
Additionally, Sebi said the mandate for the appointment of custodians should be extended to all AIFs.
At present, the requirement applies to schemes of Category III AIFs and schemes of Category I and II AIFs with a corpus of more than Rs 500 crore.
“AIFs can appoint a trustee who is a partner of a manager or sponsor of the AIF, subject to conditions similar to those prescribed under the Sebi (Mutual Fund) Regulations, 1996 for allowing a related party of a mutual fund sponsor to act as its trustee,” the regulator said. in a statement after the board meeting.
The Sebi board also noted that the cost of implementing the schemes under this mandate was an average of about Rs 88,000 per year for using custodial services, based on an analysis of sample data.
Further, Sebi said, “Any fresh investment made by AIF, after September 2024, will be held in the dematerialized form”.
The existing investments made by AIFs were exempted from the aforementioned requirement, except in cases where an investment company was required to facilitate demat of its securities; and investments where the AIF has been required to hold their investment in demat form.
The new requirement would be exempted for investments arranged through liquidation schemes of AIFs, schemes whose tenure ends within one year, and AIF schemes which are in extended tenure.