Section 16 in Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012
16. Conditions for Category I Alternative Investment Funds.
(1)The following investment conditions shall apply to all Category I Alternative Investment Funds:-(a)Category I Alternative Investment Fund shall invest in investee companies or venture capital undertaking or in special purpose vehicles or in limited liability partnerships or in units of other Alternative Investment Funds as specified in these regulations;(b)Fund of Category I Alternative Investment Funds may invest in units of Category I Alternative Investment Funds of same sub-category:Provided that they shall only invest in such units and shall not invest in units of other Fund of Funds:Provided further that the investment conditions as specified in sub-regulations (2), (3), (4) or (5) shall not be applicable to investments by such funds.(c)Category I Alternative Investment Funds shall not borrow funds directly or indirectly or engage in any leverage except for meeting temporary funding requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the corpus.(2)The following investment conditions shall apply to venture capital funds in addition to conditions laid down in sub-regulation (1):-(a)at least two-thirds of the corpus shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange;(b)not more than one-third of the corpus shall be invested in:(i)subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed;(ii)debt or debt instrument of a venture capital undertaking in which the fund has already made an investment by way of equity or contribution towards partnership interest;(iii)preferential allotment, including through qualified institutional placement, of equity shares or equity linked instruments of a listed company subject to lock in period of one year;(iv)the equity shares or equity linked instruments of a financially weak company or a sick industrial company whose shares are listed.Explanation. - For the purpose of these regulations, "a financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than fifty percent but less than hundred percent of its net worth as at the beginning of the previous financial year.(v)special purpose vehicles which are created by the fund for the purpose of facilitating or promoting investment in accordance with these regulations:Provided that the investment conditions and restrictions stipulated in clause (a) and clause (b) of sub-regulation (2) shall be achieved by the fund by the end of its life cycle.(c)such funds may enter into an agreement with merchant banker to subscribe to the un-subscribed portion of the issue or to receive or deliver securities in the process of market making under Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the provisions of clause (a) and clause (b) of sub-regulation (2) shall not apply in case of acquisition or sale of securities pursuant to such subscription or market making.(d)such funds shall be exempt from regulation 3 and 3A of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in respect of investment in companies listed on SME Exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:(i)the fund shall disclose any acquisition or dealing in securities pursuant to such due-diligence, within two working days of such acquisition or dealing, to the stock exchanges where the investee company is listed;(ii)such investment shall be locked in for a period of one year from the date of investment.(3)The following conditions shall apply to SME Funds in addition to conditions laid down in sub-regulation (1):-(a)atleast seventy five percent of the corpus shall be invested in unlisted securities or partnership interest of venture capital undertakings or investee companies which are SMEs or in companies listed or proposed to be listed on SME exchange or SME segment of an exchange;(b)such funds may enter into an agreement with merchant banker to subscribe to the un-subscribed portion of the issue or to receive or deliver securities in the process of market making under Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;(c)such funds shall be exempt from regulation 3 and 3A of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in respect of investment in companies listed on SME Exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:(i)the fund shall disclose any acquisition or dealing in securities pursuant to such due-diligence, within two working days of such acquisition or dealing, to the stock exchanges where the investee company is listed;(ii)such investment shall be locked in for a period of one year from the date of investment.(4)The following conditions shall apply to social venture funds in addition to the conditions laid down in sub-regulation (1):-(a)atleast seventy five percent of the corpus shall be invested in unlisted securities or partnership interest of social ventures.(b)such funds may accept grants, provided that such utilization of such grants shall be restricted to clause (a).(c)such funds may give grants to social ventures, provided that appropriate disclosure is made in the placement memorandum.(d)such funds may accept muted returns for their investors i.e. they may accept returns on their investments which may be lower than prevailing returns for similar investments.(5)The following conditions shall apply to Infrastructure Funds in addition to conditions laid down in sub-regulation (1):-(a)atleast seventy five percent of the corpus shall be invested in unlisted securities or units or partnership interest of venture capital undertaking or investee companies or special purpose vehicles, which are engaged in or formed for the purpose of operating, developing or holding infrastructure projects;(b)notwithstanding clause (a) of sub-regulation (5), such funds may also invest in listed securitized debt instruments or listed debt securities of investee companies or special purpose vehicles, which are engaged in or formed for the purpose of operating, developing or holding infrastructure projects.
