Guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian

Posted On - 20 February, 2024 • By - King Stubb & Kasiva

SEBI vide this circular mandates that Alternate Investment Funds (AIF) investments made after October 1, 2024, must be in dematerialized form. Pre-October 1, 2024 investments are exempt, except as specified. The requirement doesn’t apply to AIF schemes ending by January 31, 2025, or those in extended tenure. Custodians must be appointed before the scheme’s first investment, and the Standard Setting Forum for AIFs (SFA) will set reporting standards for custodied AIF investments.

Key points regarding AIF Regulations are: –

  1. Investments made by AIFs on or after October 1, 2024, must be held in dematerialized form.
  2. Investments made before October 1, 2024, are exempt unless the investee company is mandated to facilitate dematerialization or the AIF exercises control over the investee company.
  3. Investments meeting specific conditions must be dematerialized by January 31, 2025.
  4. Certain AIF schemes are exempt from dematerialization requirements.
  5. Custodians for AIFs must be appointed before the scheme’s first investment.
  6. Existing AIF schemes with corpus less than or equal to INR 500 crore and holding at least one investment must appoint a custodian by January 31, 2025.
  7. Custodians must report investment information as per SEBI specifications.
  8. The compliance test report must include adherence to these regulations.
  9. Compliance information will be included in quarterly reporting via SEBI Intermediary Portal.
  10. This circular is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to safeguard investor interests and regulate the securities market.[1]

[1] https://www.sebi.gov.in/legal/circulars/jan-2024/guidelines-for-aifs-with-respect-to-holding-their-investments-in-dematerialised-form-and-appointment-of-custodian_80614.html