The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) allow Alternative Investment Funds (“AIF(s)”) to raise funds from any investor whether Indian, foreign or non-resident Indians, by way of issue of units.

With regard to foreign investment in AIFs, Securities and Exchange Board of India (“SEBI”) vide Circular dated December 9, 2022 (“Circular”) has specified that at the time of on-boarding such investors, the manager of the AIF shall ensure that -

1. The investor is resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatory), or a signatory to the bilateral Memorandum of Understanding between SEBI and any authority outside India that provides for information sharing arrangement as specified under Section 11(2)(ib) of the SEBI Act, 1992. However, commitment may also be accepted from a government or a government related investor who does not meet the aforementioned condition if the investor is a resident in the country as may be approved by the Government of India.
2. The investor or its underlying investors contributing 25% or more in the corpus of the investor or identified on the basis of control:

• is not mentioned in the sanctions list notified by the United Nations Security Council; or
• is not a resident in the country identified in the public statement of Financial Action Task Force as (a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

SEBI has further specified that subsequent to the on-boarding, if the investors (including the investors already on-boarded to existing schemes of AIFs) do not meet the aforementioned conditions, the manager of the AIF shall not drawdown any further capital contribution from such investor until the conditions specified above are met again.

Please find a copy of the Circular here.

This update has been contributed by Aastha (Partner) and Arth Singhal (Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.