Alternative Investment Funds Required to Hold Investments in Dematerialized Form; SEBI Notifies Amended Regulations [Read Order]

The Securities Exchange Board of India (SEBI), vide notification No. SEBI/LAD-NRO/GN/2024/163 dated 5th January 2024 has notified the amendment in SEBI (Alternative Investment Funds) Regulations, 2012. The newly amended Regulations may be called the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2024.

According to the new amendment, Alternative Investment Funds shall hold their investments in dematerialised form, subject to such conditions as may be specified by the Board from time to time. However, the same shall not applied to following:

1. investments by Alternative Investment Funds in such type of instruments which are not eligible for dematerialisation,
2. investments held by a liquidation scheme of the Alternative Investment Funds that are not available in the dematerialised form, and
3. such other investments by Alternative Investment Funds and such other schemes of Alternative Investment Funds as may be specified by the Board from time to time.

Further, the new amendment also mentions the appointment of a custodian registered with the Board by the sponsor or manager for safekeeping of the securities of the Alternative Investment Fund. The board has also mentioned the duties of the custodian to the newly amended regulation.

Who can act as a Custodian?

According to the newly amended Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2024, a Custodian which is an associate of the Sponsor or Manager of an Alternative Investment Fund may act as a custodian for that Alternative Investment Fund only when all the following conditions are met:

1. the Sponsor or Manager has a net worth of at least twenty thousand crore rupees at all points of time;
2. fifty per cent or more of the directors of the Custodian do not represent the interest of the Sponsor or Manager or their associates;
3. the Custodian and the Sponsor or Manager of the Alternative Investment Fund are not subsidiaries of each other;
4. the custodian and the Sponsor or Manager of the Alternative Investment Fund do not have common directors; and
5. the Custodian and the Manager of the Alternative Investment Fund sign an undertaking that they shall act independently of each other in their dealings of the schemes of the Alternative Investment Fund.

Duties of Custodian

The Custodian appointed by the Sponsor or Manager of a Category III Alternative Investment Fund shall keep the custody of the securities and goods received in delivery against the physical settlement of commodity derivatives.

Further that the Custodian appointed by the Sponsor or Manager of an Alternative Investment Fund shall report or disclose such information regarding investments of the Alternative Investment Fund in such manner as may be specified by the Board from time to time.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates