Structured Biiz

Alternative Investment Fund

Category I AIFs

Category I Alternative Investment Funds are set up to invest in startups, early-stage ventures, SME funds, social ventures, infrastructure, or other socially / economically desired sectors. Category I AIFs include the following:

Venture Capital Funds (Including Angel Funds)

SME Funds

Social Venture Funds

Infrastructure funds

SEBI Registration Fees

Continuing Interest by Sponsor / Manager

Ability to invest in Listed Securities

Diversification

Category II AIFs

Category II AIF is a residuary category Fund that falls neither under Category I nor under Category III. Category II AIFs include the following:

Private Equity Funds

Structured Credit Funds

Debt Funds

Real Estate Funds

SEBI Registration Fees

Continuing Interest by Sponsor / Manager

Ability to invest in Listed Securities

Diversification

Category III AIFs

Category III AIFs includes funds which trade for short term returns or for which no specific incentives or concessions are given by the Government. Category III AIFs include the following:

Hedge Funds

Long Only Funds

Long Short Funds

SEBI Registration Fees

Continuing Interest by Sponsor / Manager

Ability to invest in Listed Securities

Diversification

How AIF structure works?

An AIF could be established in the form of a Trust or a Company or a LLP or a Body Corporate. Most of the AIFs registered with SEBI are in the form of Trust.

Sponsor is any person who set up the Fund and includes Promoter in case of a Company / Designated Partner in case of a LLP.

Role of Investment Manager is to supervise the investments and divestments of the Investor and to supervise the board of directors of the fund.

The interest of Sponsor / Investment Manager in an AIF Category I / II must be not less than 2.5% (Two and a Half percent) of the corpus or Rs. 5 Crore (Rupees Five crore), whichever is lesser.

The interest of Sponsor / Investment Manager in an AIF Category III must be not less than 5% (Five percent) of the corpus or Rs. 10 Crore (Rupees Five crore), whichever is lesser.

For angel funds, such interest shall be not less than 2.5% (Two and a Half percent) of the corpus or Rs. 50 Lakh (Rupees Fifty Lakh), whichever is lesser.

Corpus is the total amount of funds committed by investors to the AIF by way of a written contract or any such document as on a particular date.

Each scheme of the Fund shall have corpus of at least Rs. 20 Crore. In case of an Angel Fund, it shall have a corpus of at least Rs. 5 Crore (Amended w.e.f. June 1, 2008 from Rs. 10 Crore to Rs. 5 Crore in case of an Angel Fund).

An AIF (other than angel fund) shall not accept from an investor, an investment of value less than Rs. 1 Crore.  Angel funds shall not accept an investment of value less than Rs. 25 lakh from an Angel Investor.

Category I and II AIF enjoy the tax benefits of pass through status which provides that any income accruing or arising to, or received by, a unit-holder of Category I and Category II AIF shall be chargeable to income-tax in the hands of the Unitholder in the same manner as if it were the income accruing or arising to, or received by such unitholder, had the investments made by the investment fund been made directly by the Unitholder. However, tax pass through status has not been accorded to Category III AIF.

Stamp duty on issuance and transfer on units of an AIF

Vide SEBI Circular No. SEBI/HO/IMD/DF6/CIR/P/2020/113 dated June 30, 2020, the SEBI has clarified the requirement of complying with the Indian Stamp Act, 1899 as amended and enforced in by the Finance Act, 2019 in regard to collection of stamp duty on issue, transfer and sale of units of AIFs. Fund Managers needs to appoint a Registrar and Transfer Agent, in case not already appointed with effect from July 01, 2020.

In case of issuance of AIF units, stamp duty needs to be recovered from the Contributors to AIFs.

In case of transfer of AIF units, stamp duty needs to be recovered from the Transferor before effecting the transfer.

Calculation of Stamp Duty on AIF Units

Issue of Units of AIF

Transfer of Units of AIF