Sebi's New Guidelines for AIFs: Flexibility in Managing Unliquidated Investments

Sebi issued new guidelines for Alternative Investment Funds (AIFs) regarding the filing of information memoranda when seeking dissolution periods to manage unliquidated investments. This move aims to provide flexibility in handling investments with low liquidity. The circular outlines required details and mandates investor approval for certain distributions.

The Securities and Exchange Board of India (Sebi) has introduced fresh guidelines for Alternative Investment Funds (AIFs) on the procedure for seeking dissolution periods for unliquidated investments. The guiding principle behind this move is to offer AIFs and their investors increased flexibility in dealing with investments that lack liquidity.

As per the circular released on Tuesday, AIF schemes that are entering a dissolution period need to file an information memorandum through a merchant banker before the existing liquidation period or the subsequent extension ends. Sebi has specified the format of this document and the due diligence certificate required from the merchant banker.

The information memorandum should include essential details such as the AIF's name, registration number, trustee/director names, scheme name, and financial information about unliquidated investments. For schemes requiring an additional liquidation period, relevant updates must be submitted in a prescribed format. These rules apply to AIFs with a liquidation period expiring within three months from April 25, 2024. The circular also details conditions for in specie distribution of unliquidated investments during the liquidation period. Such distributions demand approval from at least 75 per cent of investors, calculated by the value of their investment.

(With inputs from agencies.)