SEBI Mandates 'Broad-Based' Rules for AIFs, Tightening Oversight on AMC Advisory Services

SEBI Tightens Grip on AIFs: Broad-Based Norms Now Apply to AMC Managed Funds​

The Securities and Exchange Board of India (SEBI) has clarified a significant extension of its regulatory reach into Alternative Investment Funds (AIFs). The regulator mandates that Asset Management Companies (AMCs) and their subsidiaries must adhere to the "broad-based fund" requirement when managing or advising AIFs. This move effectively extends established mutual fund norms to these pooled investment vehicles.

This clarification was issued in an informal guidance on April 9, following a query received from UTI Alternatives Pvt Ltd. SEBI determined that AIFs fall under the definition of pooled assets within the regulatory framework.

Key Compliance Benchmarks for AIF Schemes Established​

Under the newly clarified rules, AIFs are now subject to specific structural requirements. The core condition dictates that a fund must maintain at least 20 investors. Furthermore, no single investor is permitted to hold more than 25 percent of the fund's corpus.

SEBI stressed that this compliance check must be conducted at the scheme level, not at the overall fund level. The regulator emphasized that treating each scheme as a distinct investment vehicle is crucial.

Scheme-Level Assessment for Investor Structure Adherence​

The department explicitly stated that the broad-based requirement must be assessed at the individual scheme level. This granularity ensures that the actual investor composition receiving management or advisory services is accurately reflected.

This scheme-level focus allows for precise monitoring of investor limits and corpus requirements, treating each pool of assets independently for regulatory purposes.

Implications for Master and Feeder Fund Structures​

Addressing complex fund structures, SEBI confirmed that every component must meet the broad-based standard independently. Both master funds and feeder funds are required to comply with this criterion separately.

The regulator clarified that this mandate remains in place irrespective of where the final investment decisions are taken. This confirms there is no blanket relaxation available for structured feeder fund arrangements.

Clarifications on Exemptions and Domestic Entities​

SEBI also provided clarity on existing exemptions. The regulator noted that specific relaxations available to certain categories of Foreign Portfolio Investors (FPIs) under mutual fund regulations do not extend to domestic regulated entities.

Banks, insurance companies, and provident fund trusts, which operate under their own separate domestic frameworks, are therefore excluded from such FPI-based exemptions.

Regulatory Caveats on Guidance Issuance​

The regulator issued a necessary disclaimer regarding the guidance provided. SEBI underlined that this guidance is based on the specific facts presented during the query. It serves as the department's interpretative position only.

Crucially, SEBI confirmed that this informal guidance does not constitute a binding decision from the Board and may vary depending on differing circumstances.