5 key parameters to set up alternative investment funds

Venture capital (VC) fundraising and deals have a promising outlook particularly with the government’s desire to create an ecosystem in which entrepreneurs can mushroom. For this to happen, one cannot rely solely on funds from offshore jurisdictions. It is important to have a strong domestic fundraising environment so as to facilitate multiple investments.

In view of the above India’s capital market regulator – the Securities and Exchange Board of India (SEBI) – issued the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations), to regulate domestic investment vehicles.

(1) Under the AIF Regulations, VC funds, angel funds, infrastructure funds, and small and medium-sized enterprise funds are classified as category I AIFs. Private equity (PE) funds and real estate funds are classified as category II AIFs and hedge funds are classified as category III AIFs. Further, the AIF Regulations require all pooling vehicles to be registered with SEBI and stipulate various investment conditions and restrictions, including on offshore investments, for each of the AIF categories.

Rajesh Begur is the managing partner of ARA LAW, a first-generation law firm with offices in Mumbai and Bengaluru. Pooja Chitalia is a senior associate at the firm.