Direct plan for schemes of Alternative Investment Funds (AIFs) and trail model for distribution commission in AIFs
Summary
SEBI mandates that Alternative Investment Funds (AIFs) must offer a Direct Plan option to investors, which excludes distribution or placement fees. The circular introduces a trail model for distribution commissions, prohibiting upfront fees for Category III AIFs while allowing limited upfront payments for Categories I and II. These provisions apply to investors onboarded on or after May 1, 2023.
Text
Schemes of AIFs shall have an option of ‘Direct Plan’ for investors. Such Direct Plan shall not entail any distribution fee/ placement fee.
AIFs shall ensure that investors who approach the AIF through a SEBI registered intermediary which is separately charging the investor any fee (such as advisory fee or portfolio management fee), are on-boarded via Direct Plan only.
AIFs shall disclose distribution fee/placement fee, if any, to the investors of AIF/scheme of AIF at the time of on-boarding.
Category III AIFs shall charge distribution fee/ placement fee, if any, to investors only on equal trail basis i.e. no upfront distribution fee/ placement fee shall be charged by Category III AIFs directly or indirectly to their investors. Further, any distribution fee/ placement fee paid shall be only from the management fee received by the managers of such Category III AIFs.
Category I AIFs and Category II AIFs may pay upto one-third of the total distribution fee/ placement fee to the distributors on upfront basis, and the remaining distribution fee/ placement fee shall be paid to the distributors on equal trail basis over the tenure of the fund.
The aforesaid provisions shall be complied with for investors on-boarded in AIFs/ schemes of AIFs from May 01, 2023 onwards.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Direct plan for schemes of Alternative Investment Funds (AIFs) and trail model for distribution commission in AIFs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.