SEBI proposes measures to make AIFs extra investor-friendly

To serve the curiosity of alternate funding fund (AIF) buyers, the Securities and Exchange Board of India (SEBI) got here out with a number of key proposals on February 3.

In a current session paper, SEBI has proposed that AIFs be mandated to supply the choice of direct plans – with no distribution or placement charges – to buyers. The securities market regulator has additionally proposed the introduction of a path mannequin for the distribution fee in AIFs.

The introduction of direct plans is to stop AIF buyers from being charged twice. As the discharge factors outs, at the moment below the SEBI rules, AIFs can elevate funds from buyers solely on a non-public placement foundation. Investors can even put money into an AIF via a SEBI-registered funding adviser (RIA) or portfolio supervisor. Investors who make investments by way of an RIA or a portfolio supervisor can wind up being charged twice, as soon as within the type of the advisory charge or portfolio administration charge, and one other time by way of the AIF distribution charge.

As per the proposals, AIFs must be certain that any investor approaching them via an middleman invests solely via the direct plan route. Investors who’re taken by way of the direct plan must be offered for an adjusted larger variety of models (given the decrease distribution prices) such that the web asset worth or NAV stays the identical for all of the AIF buyers.

Unlike within the case of mutual funds and portfolio administration companies (PMS), there aren’t any regulatory tips on fee or distribution charges within the case of AIFs. As per the discharge, trade suggestions means that in some instances the quantum of upfront commissions for AIF distribution has gone as much as round 4%-5% of the dedicated quantity. When in contrast with the path fee mannequin of different merchandise, this may end up in mis-selling of AIF schemes.

In gentle of this, SEBI has proposed that buyers in Category III AIFs be charged charges on a path foundation. Those in Category I AIFs and Category II AIFs can also be charged on a path foundation, however a sure larger quantity of placement/ distribution charge (one-third of the current worth of the entire distribution charge) could also be paid upfront within the first 12 months.

The regulator, in a separate session paper, has additionally proposed necessary dematerialisation of models of AIFs. As a part of the primary section, all schemes of AIFs with a corpus of greater than ₹500 crores must compulsorily dematerialise their models by April 1, 2024.

The regulator has invited public feedback on all of the proposals made.

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