Category II Alternative Investment Funds

Category II Alternative Investment Funds (“AIF” or “AIFs”) are governed as per the Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“the Regulations”).

This is an exhaustive list of compliances for a Category II AIF.

Registration of the AIF.

1. AIFs shall seek registration in one of the categories mentioned under Reg. 3(4). [Reg.
3(4)]
2. Application for registration of AIF to be made under Reg. 3(5) in Form A as specified in the
First Schedule to the Regulations. [Reg.
3(5)]
3. Said application to be accompanied by a non-refundable application fee as specified in Part
A of the Second Schedule to the Regulations to be paid in the manner specified in Part B
thereof.
[Reg. 3(5)]
4. The certificate of registration to be valid till the AIF is wound up. [Reg.
3(7)]
5. Eligibility: [Reg.
4]
a. The MoA in case of a company; or the trust deed in case of a trust; or the
partnership deed in case of an LLP permits it to carry on the activity of an AIF;
b. The applicant is prohibited by its memorandum and articles of association or trust
deed or partnership deed from making an invitation to the public to subscribe to its
securities;
c. The applicant, whether a trust or an LLP or a body corporate, is duly established and
registered;
d. The applicant, Sponsor and Manager are fit and proper persons based on the criteria
specified in Schedule II of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008;
e. The key investment team of the Manager of the AIF has adequate experience, with
at least one key personnel having not less than five years’ experience in advising or
managing pools of capital or in fund or asset or wealth or portfolio management or
in the business of buying, selling and dealing of securities or other financial assets
and has relevant professional qualification;
f. The Manager or Sponsor has the necessary infrastructure and manpower to
effectively discharge its activities;
g. The applicant has clearly described at the time of registration the investment
objective, the targeted investors, proposed corpus, investment style or strategy and
proposed tenure of the fund or scheme;
h. Whether the applicant or any entity established by the Sponsor or Manager has
earlier been refused registration by the Board.
6. Grant of certificate under Reg. 6 in Form B as specified in the First Schedule to the
Regulations.
 [Reg. 6]
7. The AIF shall not carry on any other activity other than permitted activities. [Reg. 7(1)
(b)]
8. The AIF shall forthwith inform the Board in writing, if any information or particulars
previously submitted to the Board are found to be false or misleading in any material
particular or if there is any material change in the information already submitted.
[Reg. 7(1)(c)]

Investment in the AIF.

1. The AIF shall state investment strategy, investment purpose and its investment methodology
in its placement memorandum to the investors. [Reg.
9(1)]
2. Any material alteration to the fund strategy shall be made with the consent of at least two-
thirds of unit holders by value of their investment in the AIF. [Reg.
9(2)]
3. The AIF may raise funds from any investor whether Indian, foreign or non-resident Indians
by way of issue of units.
[Reg. 10]
4. Each scheme of the AIF shall have corpus of at least twenty crore rupees. [Reg.
10]
5. The AIF shall not accept from an investor, an investment of value less than one crore rupees.
[Reg. 10]
6. In case of investors who are employees or directors of the AIF or employees or directors of
the Manager, the minimum value of investment shall be twenty five lakh rupees. [Reg.
10]
7. The Manager or Sponsor shall have a continuing interest in the AIF of not less than two and
half percent of the corpus or five crore rupees, whichever is lower, in the form of investment
in the AIF and such interest shall not be through the waiver of management fees. [Reg.
10]
8. The Manager or Sponsor shall disclose their investment in the AIF to the investors of the AIF.
[Reg. 10]
9. No scheme of the AIF shall have more than one thousand investors. Provided that the
provisions of the Companies Act, 2013 shall apply to the AIF, if it is formed as a company.
[Reg. 10]
10. The fund shall not solicit or collect funds except by way of private placement. [Reg.
10]
11. AIF shall raise funds through private placement by issue of information memorandum or
placement memorandum, by whatever name called.
Such placement memorandum shall contain all material information about the AIF and the
Manager, background of key investment team of the Manager, targeted investors, fees and
all other expenses proposed to be charged, tenure of the AIF or scheme, conditions or limits
on redemption, investment strategy, risk management tools and parameters employed, key
service providers, conflict of interest and procedures to identify and address them,
disciplinary history, the terms and conditions on which the Manager offers investment
services, its affiliations with other intermediaries, manner of winding up of the AIF or the
scheme and such other information as may be necessary for the investor to take an
informed decision on whether to invest in the AIF.
[Reg. 11]
 12. The AIF may launch schemes subject to filing of placement memorandum with the Board.
[Reg. 12(1)]
13. Such placement memorandum shall be filed with the Board at least thirty days prior to
launch of scheme along with the fees as specified in the Second Schedule to the Regulations.
Provided that payment of scheme fees shall not apply in case of launch of first scheme by
the AIF.
[Reg. 12(2)]
14. The AIF shall be close-ended and the tenure of fund or scheme shall be determined at the
time of application. [Reg.
13(1)]
15. The AIF or schemes launched by such funds shall have a minimum tenure of three years.
[Reg. 13(2)]
16. Extension of the tenure of the AIF may be permitted up to two years subject to approval of
two-thirds of the unit holders by value of their investment in the AIF. [Reg.
13(4)]
17. The AIF shall fully liquidate within one year following expiration of the fund tenure or
extended tenure. [Reg.
13(5)]

General Obligations.

1. All AIFs shall review policies and procedures, and their implementation, on a regular basis, or
as a result of business developments, to ensure their continued appropriateness. [Reg.
20(1)]
2. The Sponsor or Manager of AIF shall appoint a custodian registered with the Board for
safekeeping of securities if the corpus of the AIF is more than five hundred crore rupees.
[Reg. 20(2)]
3. All AIFs shall inform the Board in case of any change in the Sponsor, Manager or designated
partners or any other material change from the information provided by the AIF at the time
of application for registration. [Reg.
20(3)]
4. In case of change in control of the AIF, Sponsor or Manager, prior approval from the Board
shall be taken by the AIF. [Reg.
20(4)]
5. The books of accounts of the AIF shall be audited annually by a qualified auditor. [Reg.
20(5)]
6. The Sponsor and Manager of the AIF shall act in a fiduciary capacity towards its investors
and shall disclose to the investors, all conflicts of interests as and when they arise or seem
likely to arise.
[Reg. 21(1)]
7. Manager shall establish and implement written policies and procedures to identify, monitor
and appropriately mitigate conflicts of interest throughout the scope of business. [Reg.
21(2)]
8. Managers and Sponsors of AIF shall abide by high level principles on avoidance of conflicts of
interest with associated persons, as may be specified by the Board from time to time.
[Reg. 21(3)]
9. All AIFs shall ensure transparency and disclosure of information to investors as under Reg.
22.
[Reg. 22]
 10. The AIF shall provide to its investors, a description of its valuation procedure and of the
methodology for valuing assets. [Reg.
23(1)]
11. All AIFs shall undertake valuation of their investments, at least once in every six months, by
an independent valuer appointed by the AIF. Provided that such period may be enhanced to
one year on approval of at least seventy-five percent of the investors by value of their
investment in the AIF. [Reg.
23(2)]
12. The obligations of the Manager have been provided under Reg. 24. [Reg.
24]
13. An AIF, by itself or through the Manager or Sponsor, shall lay down procedure for resolution
of disputes between the investors, AIF, Manager or Sponsor through arbitration or any such
mechanism as mutually decided between the investors and the AIF. [Reg.
25]
14. The maintenance of records shall be as per provisions under Reg. 27. [Reg.
27]
15. Provisions relating to winding up have been laid down under Reg. 29. [Reg.
29]

First Schedule to the Regulations – Forms.

Second Schedule to the Regulations – Fees.