SEBI Issues Norms For Excluding Investors From AIF’s Investment; Provides Clarity On Fees: ELP Analysis

The Legal Library section collates quality and in-depth reports on regulatory developments, court rulings and policy changes authored by India’s top law firms and consultants. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of law and policy..ELP Update.In the year 2020, Securities and Exchange Board of India had introduced template(s) for Private Placement Memorandum for Alternative Investment Funds, in order to ascertain that certain minimum level of information in a simple and comparable format is disclosed to investors. SEBI has now decided to provide guidelines with respect to following disclosures in the PPM:1. Excuse or exclusion provision, and 2. Direct plan for investors, and constituents of fees that may be charged by the AIF/ scheme of AIF, including distribution fee/ placement fee. A. Guidelines for excusing or excluding investors from particular investments of Alternative Investment Fund: SEBI observed that there were inconsistencies and lack of adequate disclosures with respect to the information pertaining to ‘excuse and exclusion’ clauses in template PPM. In order to address this, SEBI has now introduced guidelines to provide for circumstances for excusing or excluding an investor from particular investment(s) of an AIF. An AIF may excuse its investor from participating in a particular investment in the following circumstances:Violation of Applicable Law or Regulation.Contravention of the Internal Policy of the Investor,Violation of Applicable Law or Regulation Resulting in Material Adverse on the AIF.Our Analysis:The circular provides much needed clarity on circumstances when an investor of an AIF could be excused or excluded from investments as AIFs work on a blind pool concept. However, there is also emphasis laid on the manager’s role in determining such calls, hence, the grounds on which the managers will take those decisions will be important including legal reasons..B. Direct Plan for schemes of Alternative Investment Funds and trail model for distribution commission in AIFs: On February 3, 2023, SEBI, in an effort to, inter alia, address the issue of a potential double charge to investors looking to invest through a SEBI registered intermediary; and reduce mis-selling and high commission charges, thereby ensuring parity across other SEBI products and offerings, came out with a consultation paper on direct plan for schemes of AIFs and trail model for distribution commission in AIFs. SEBI has now laid down and framed directions regarding direct plan and trail model for distribution of commission. Basis the circular, it is specified that schemes of AIFs shall have an option of a ‘Direct Plan’ for investors, which plan shall not entail any distribution fee or placement fee. Furthermore, AIFs will also have to ensure that investors who approach them through a SEBI registered intermediary, which separately charges the investor a fee (such as an advisory fee or portfolio management fee), are on-boarded via the ‘Direct Plan’ route only. The regulator through the circular has also directed AIFs to disclose distribution fee/placement fee, if any, to the investors of AIF/scheme of AIF at the time of on-boarding.Our Analysis:The circular has mandated the direct plan for investors and allows the flexibility to investors to come directly without any separate distribution / placement fees. SEBI’s step to prevent mis-selling and curbing expenses will allow clarity on availability of funds with AIFs and help in maintaining a transparent approach with the investors..Click on the attachment to read the full report:.DISCLAIMERThis alert does not constitute legal advice and is for information purpose only. This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

SEBI Issues Norms For Excluding Investors From AIF’s Investment; Provides Clarity On Fees: ELP Analysis

The circular provides clarity on when an investor could be excused/excluded from investments as AIFs work on a blind pool concept.

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