Guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian
Summary
This circular mandates that Alternative Investment Funds (AIFs) hold investments in dematerialised form, with specific transition timelines for pre-existing holdings. It requires AIFs to appoint SEBI-registered custodians prior to the first investment and sets compliance deadlines for existing schemes. Additionally, it establishes reporting standards for custodied investments through a pilot Standard Setting Forum.
Text
AIFs shall hold their investments in dematerialised form, subject to conditions specified by the Board, excluding specified investments and schemes.
Any investment made by an AIF on or after October 01, 2024 shall be held in dematerialised form only, irrespective of whether the investment is made directly in the investee company or is acquired from another entity.
The investments made by an AIF prior to October 01, 2024 are exempted from the requirement of being held in dematerialised form, except where the investee company is mandated to facilitate dematerialisation or the AIF exercises control over the investee company.
The investments made by an AIF prior to October 01, 2024 which are covered under conditions as specified in paras 3.2.1 and 3.2.2 above, shall be held in dematerialised form by the AIF on or before January 31, 2025.
The aforesaid requirement of holding investments in dematerialised form shall not be applicable to: Scheme of an AIF whose tenure ends on or before January 31, 2025; Scheme of an AIF which is in extended tenure as on date of this circular.
In terms of Regulation 20(11) of AIF Regulations, the Sponsor or Manager of the AIF shall appoint a custodian registered with the Board for safekeeping of the securities of the AIF.
Further, in terms of Regulation 20(11A) of AIF Regulations, a custodian which is an associate of the Sponsor or Manager of an AIF may act as a custodian for that AIF only when the conditions specified in the said Regulations are met.
The custodian for a scheme of an AIF shall be appointed prior to the date of first investment of the scheme.
Existing schemes of Category I and II AIFs having corpus less than or equal to INR 500 crore and holding at least one investment as on date of this circular shall appoint custodian on or before January 31, 2025.
In case of AIFs with custodians that are associates of their manager or sponsor, managers of such AIFs shall ensure compliance with Regulation 20(11A) of AIF Regulations on or before January 31, 2025.
In terms of Regulation 20(11) of AIF Regulations, the custodian shall report or disclose such information regarding investments of the AIF in such manner as may be specified by the Board from time to time.
The pilot Standard Setting Forum for AIFs (‘SFA’), in consultation with SEBI, shall formulate implementation standards for reporting data on investments of AIFs that are under custody with the custodian.
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Source: SecMarx — Guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.