SEBI Extends Deadline For AIF Differential Rights Reporting

Posted On - 19 April, 2025 • By - Aribba

Introduction

The Securities and Exchange Board of India (SEBI) released a circular relaxing the timeline for reporting differential rights by Alternative Investment Funds (AIFs).[1] By extending the reporting deadline to March 31, 2025, SEBI acknowledged the complexities involved in documenting these rights, ensuring that all stakeholders, including investors and fund managers, could comply effectively.

Background: The Evolution of Differential Rights for AIF Investors

SEBI (Alternative Investment Funds) Regulations, 2012 regulate the operations of AIFs in India. These regulations were updated last year on November 18.[2] This update was made to promote greater transparency and fairness and it introduced two important concepts: pro-rata and pari-passu rights for all investors in a specific AIF scheme.

  • Pro-rata rights ensure that every investor gets their fair share of returns on the basis of how much they invested in the first place. This means that an investor who puts in more money will receive a larger portion of the profits.
  • Pari-passu rights ensure that all investors within a same class are treated equally, meaning that no investor has an unfair advantage over others.

In order to clarify these principles further, SEBI issued a circular on December 13, 2024.[3] This circular clarified and elaborated that while AIFs are allowed to offer special rights to certain specific investors, it is important to ensure that these rights do not undermine the rights of other investors in the same scheme. The aim of taking such an approach is to create a fairer investment environment for all stakeholders involved.

Reporting Requirement Introduced

As per Para 17.1 of the December 2024 circular, SEBI mandated that certain AIFs have a one-time reporting obligation. These are AIFs who filed their Private Placement Memorandums (PPMs) with SEBI on or after March 1, 2020, and who issued certain differential rights that were not in compliance with the standards formulated by the Standard Setting Forum for AIFs.

AIFs were required to submit details of such differential rights to SEBI by February 28, 2025.

The information had to be provided in a prescribed format, detailing the specific rights granted and their impact on other investors.

Key Change: Deadline Was Extended to March 31, 2025

SEBI heard from the AIF industry and considered their opinions. When it did so, it understood that the AIFs needed more time to meet the new reporting requirements. This is because, as explained by the fund managers, gathering and presenting the necessary information pertaining to differential rights was quite complex.

SEBI recognized this challenge and thus, decided to extend the reporting deadline by one month. It pushed the deadline from February 28, 2025 to March 31, 2025. This allowed the AIFs the flexibility they needed to ensure that all information is accurate and complete.

The circular is issued under the authority conferred by:

  • Section 11(1) of the SEBI Act, 1992, which empowers SEBI to protect investor interests and regulate the securities market.
  • Regulations 20(22) and 36 of the AIF Regulations, which grant SEBI the authority to oversee and enforce compliance measures on AIFs.

The circular came into effect immediately upon issuance and made the new reporting deadline of March 31, 2025, legally binding for all AIFs that fall under the reporting mandate.

Investors

For investors this served to be a positive step toward making AIF investments more transparent and fair. With the introduction of pro-rata and pari-passu rights, investors can expect to be treated fairly, receiving returns that match their investment size.

Additionally, the circular allowed AIFs to offer special rights to certain investors while still protecting the rights of all existing investors. This created a more sophisticated investment structure. Those with special rights might find them beneficial, possibly leading to higher returns or unique opportunities.

Fund Managers

For fund managers, this circular brought new reporting requirements that required careful documentation and transparency about the special rights given to certain investors. The extension of the deadline also provided some relief, giving them extra time to gather and organize the necessary information accurately.

Regulatory Bodies

From a regulatory standpoint, SEBI’s circular shows its dedication to protecting investors and ensuring the securities market remains trustworthy. By providing clearer guidelines on differential rights and improving reporting requirements, SEBI reinforces its role as a fair and transparent regulator.

The Financial Market

On a broader scale, the impact of this circular reaches the entire financial market. As AIFs become more transparent in how they operate, it could boost investor confidence throughout the sector, leading to more capital coming in. A clearer and more open AIF environment might also attract a wider variety of investors, including those who were previously hesitant to invest in alternative funds.

As the industry adjusts to these new changes, we may see shifts in competition among AIFs. Funds that communicate their reporting practices well and demonstrate a strong commitment to protecting investor rights could have an advantage.

Conclusion

By extending the reporting deadline, SEBI shows that it understands the challenges fund managers face while also demonstrating its commitment to protecting investors.

This move has significant implications for everyone involved. It helps build trust among investors and encourages fund managers to improve their practices.

[1] https://www.sebi.gov.in/legal/circulars/mar-2025/relaxation-in-timeline-for-reporting-of-differential-rights-issued-by-aifs_92411.html.

[2] https://www.sebi.gov.in/legal/regulations/nov-2024/securities-and-exchange-board-of-india-alternative-investment-funds-regulations-2012-last-amended-on-november-18-2024-_88648.html.

[3] https://www.sebi.gov.in/legal/circulars/dec-2024/pro-rata-and-pari-passu-rights-of-investors-of-aifs_89945.html.

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