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Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
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SEBI has a web-based centralized grievance redress system called SEBI Complaint Redress System (SCORES) where investors can lodge their complaints against AIFs.
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Category I of the Alternative Investment Funds (AIF) include funds which invest in start-up, early stage ventures, social ventures, small & medium enterprises (SME), infrastructure or other sectors or areas which the Government or regulators consider as socially or economically desirable.
It shall include venture capital funds, SME funds, social venture funds, infrastructure funds and such other AIF.
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Alternative Investment Funds (AIF) which do not fall in Category I and III and which do not undertake borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012 are Category II AIF.
Various types of funds such as real estate funds, private equity funds, funds for distressed assets, etc. are registered as Category II AIF.
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Alternate Investment Funds (AIFs), which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.
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"Angel Fund” is a sub-category of Venture Capital Fund under Category I Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of AIF Regulations.
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Debt fund is an Alternative Investment Fund (AIF) which invests primarily in debt or debt securities of listed or unlisted investee companies according to the stated objectives of the Fund. These funds are registered under Category II.
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Fund of Funds, in general, is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. In the context of Alternative Investment Funds (AIF), a Fund of Fund is an AIF which invest in another AIF.
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No scheme of an AIF (other than angel fund) shall have more than 1000 investors. (Please note that the provisions of the Companies Act, 1956 shall apply to the AIF if it is formed as a company). In case of an angel fund, no scheme shall have more than two hundred angel investors. However, an AIF cannot make invitation to the public at large to subscribe its units and can raise funds from the sophisticated investors only through private placement.
Please refer to section 4(b), 10(f) and 19E(4) of SEBI (Alternative Investment Funds) Regulations, 2012 at the link for more information
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The venture capital funds (VCF) registered under the repealed SEBI (Venture Capital Funds) Regulations, 1996 shall continue to be regulated by the said regulations until existing fund is wound up and no new fund or scheme shall be launched after that under the said regulations.
However, the existing VCF may seek re-registration under SEBI (Alternative Investment Funds) Regulations, 2012 subject to approval of two-third of its investors by the value of their investment.
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All-in-cost shall include rate of interest, other fees, expenses, charges, guarantee fees, ECA charges, whether paid in foreign currency or INR but will not include commitment fees and withholding tax payable in INR. In the case of fixed rate loans, the swap cost plus spread should not be more than the floating rate plus the applicable spread
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Lender for ECB purposes should be:
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Entities looking to raise ECB may approach the RBI with an ECB application form in prescribed format for examination through their AD Category I bank. Cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals.
ECB proposals received by the RBI above certain threshold limit (re-fixed from time to time) would be placed before the Empowered Committee set up by the Reserve Bank. The Empowered Committee will have external as well as internal members and the Reserve Bank will take the decision based on the recommendation of the Empowered Committee.
Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with their proposal along with duly filled Form 83. Formats of ECB Form and Form 83 are available at Annex I and II respectively of Part V of the Master Directions Reporting under Foreign Exchange Management Act, 1999.
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Under the (External Commercial borrowing) ECB/Trade Credit (TC) framework, ECB/TC can be raised either under the automatic route or under the approval route. Under the approval route, the prospective borrowers are required to send their requests to the RBI through their banks for examination.
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Master Direction No. 5 on ‘External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 may be referred to for guidance on the extant framework on ECB and TC. ECBs and TCs raised under the prior frameworks should continue to be in compliance with the corresponding guidelines applicable at the time of availing the ECBs and TCs.
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External Commercial Borrowing (ECB) can be raised either under the automatic route or under the approval route. For the automatic route, a case is examined by the Authorised Dealer (AD) Category-I bank. Under the approval route, the borrower is required to send the request to the Reserve Bank of India (RBI) through the AD for examination. While the regulatory provisions are mostly similar, some differences between the two routes include the amount of borrowing, eligibility of the borrowers and the permissible end-uses.
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ECB can be raised in Indian Rupees (INR) and / or any convertible currency. Any entity raising INR denominated ECB is not permitted to convert the liability arising out of this ECB into foreign currency liability in any manner or assuming foreign currency risk is any manner by either entering into a derivative contract or otherwise.
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For the purpose of raising ECB, Infrastructure Sector has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by the Government of India vide Notification F. No. 13/06/2009-INF as amended / updated from time to time. Further, for the purpose of ECB, Exploration, Mining and Refinery sectors are also deemed as in the infrastructure sector.
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The conversion of External Commercial Borrowings (ECB) in convertible foreign currency into equity is subject to the following conditions:
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Yes, ECB can be raised under Track III (i.e. INR denominated ECB) for general corporate purpose (including working capital). The minimum average maturity period will be 3 years for ECB up to $ 50 million or equivalent and 5 years for ECB beyond $ 50 million or equivalent.
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A. For listed companies
B. For unlisted companies
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There is no subsidy for the loan given under Pradhan Mantri Mudra Yojana (PMMY). However, if the loan proposal is linked to some Government scheme, wherein the Government is providing capital subsidy, it will be eligible under PMMY also.
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Yes, however, it is only permitted if external commercial borrowing (ECB) is raised from direct and indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years.
ECB raised under Tracks I or III for repayment of Rupee loans, must be raised from a foreign equity holder.
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The domestic custodian needs report the issue/transfer of sponsored/unsponsored depository receipts as per DR Scheme 2014 in ‘Form DRR’ given in Section 5, Annexure 6 of the Consolidated FDI Policy, 2017, within 30 days of close of the issue/ program.
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A limited two-way Fungibility Scheme has been put in place by the Government of India for American Depository Receipts (ADR)/ Global Depository Receipts (GDR). Under this Scheme, a stock broker in India, registered with Securities & Exchange Board of India (SEBI), can purchase shares of an Indian company from the market for conversion into ADR/GDR based on instructions received from overseas investors. Re-issuance would be permitted to the extent of ADR/GDR which have been redeemed into underlying shares and sold in the Indian market.
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As per the notification no. G.S.R 180(E) dated February 17, 2016, Alternate Investment Funds, Venture Capital Funds, Angel Fund and Seed Funds registered with SEBI can be classified as Funding bodies. These bodies are eligible for providing recommendation/ support/ endorsement letter to entities in which more than 20 percent equity is taken up by such funds.
A list of SEBI registered VCFs and AIFs has been published on Start-up India portal on http://startupIndia.gov.in
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An entity established or incorporated outside India which proposes to make investment in India and which is registered as a FII in accordance with the Securities and Exchange Board of India (SEBI) (Foreign Institutional Investor) Regulations 1995.
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Documents to be submitted by a resident person for transfer of shares to a person resident outside India by way of gift:
i) Name and address of the transferor (donor) and the transferee (donee).
ii) Relationship between the transferor and the transferee.
iii) Reasons for making the gift.
iv) In case of Government dated securities and treasury bills and bonds, a certificate issued by a CA on market value of such security.
v) In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
vi) In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by Securities & Exchange Board of India or as per any internationally accepted pricing methodology on arm’s length basis for listed companies and unlisted companies, respectively.
vii) Certificate from the concerned Indian company certifying that the proposed transfer of shares/convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.
viii) An undertaking from resident transferor that value of security to be transferred together with any security already transferred by transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of $ 50,000during a financial year*.
ix) A declaration from donee accepting partly paid shares or warrants that donee is aware of the liability as regards calls in arrear and consequences thereof.
Please refer to 'section 2' of Annexure-3 Consolidated FDI Policy at link for more information.
*RBI’s A.P. (DIR Series) Circular No. 14 Dated 15.09.2011
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If the capital instruments are not issued by the Indian company within 60 days from the date of receipt of the inward remittance, the amount so received must be refunded to the person concerned by outward remittance through banking channels or by credit to the person’s Non-Resident External (NRE)/ Foreign Currency Non-Resident (FCNR) (B) accounts, as the case may be, within 15 days from the date of completion of 60 days.
Non-compliance of instructions shall be a contravention of Foreign Exchange Management Act 20 (R) notwithstanding the fact that interest for delayed refund has been paid as per the Companies Act, 2013.
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Eligibility criteria for the grant of certificate for a trustee in the Infrastructure Investment Trusts (InvITs) are
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MUDRA, which stands for Micro Units Development & Refinance Agency Ltd, is a financial institution being set up by the Government of India under Pradhan Mantri Mudra Yojana (PMMY) for development and refinancing micro unit enterprises. It was announced by the Hon’ble Finance Minister while presenting the Union Budget for 2015-16. The purpose of MUDRA is to provide funding to the non-corporate small business sector through various last-mile financial institutions like banks, non-banking financial institutions (NBFC) and micro finance institutions (MFI).
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Any grievance against non consideration of MUDRA loan can be registered with the higher authorities in the respective Bank like Regional Manager/Zonal Manager of the Bank, provided there is any lapse from the bank officials in sanctioning the loan.
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List of documents required for availing MUDRA loans are Application form, Address Proof, ID proof, Bank Statement of defined period, Statutory return and others as may be required. This is just an indicative list.
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MUDRA Card is an innovative credit product wherein the borrower can avail of credit in a hassle free and flexible manner. It will provide a facility of working capital arrangement in the form of CC/OD to the borrower. Since MUDRA Card will be RuPay debit card, it can be used for drawing cash from ATM or Business Correspondent or make purchase using Point of Sale (POS) machine. Facility is also there to repay the amount, as and when, surplus cash is available, thereby reducing the interest cost.
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Any Indian citizen who has a business plan for a non-farm income-generating activity such as manufacturing, processing, trading or service sector whose credit need is less than INR 1 m can approach either banks, micro finance institutes or non-banking financial companies for availing of MUDRA loans under PMMY. The usual terms and conditions of the lending agency may have to be followed for availing of loans under Pradhan Mantri Mudra Yojana (PMMY). The lending rates are as per the RBI guidelines issued in this regard from time to time.
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Pradhan Mantri Mudra Yojana (PMMY) loans will be extended by all Public sector Banks such as PSU banks, Regional Rural Banks (RRBs), Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions and Non-Banking Finance Companies.
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MUDRA operates a special refinance scheme for traders and shopkeepers. You can avail the facilities under the scheme as per your requirements from any banks/MFIs/NBFCs in the area.
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For Shishu loans, normally 7 to 10 days is the turn around time for processing the loan proposals on receipt of complete information.
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The interest rates are deregulated and the banks have been advised to charge reasonable interest rates within the overall RBI guidelines.
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Non–Corporate Small Business Segment (NCSB) comprising of millions of proprietorship / partnership firms running as small manufacturing units, service sector units, shopkeepers, fruits/ vegetable vendors, truck operators, food-service units, repair shops, machine operators, small industries, artisans, food processors and others, in rural and urban areas.
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An Indian company should file Form , not later than 30 days from the date of issue of shares. The Form should be duly filled and signed by the Managing Director/Director/ Secretary of the company and submitted to the Authorised Dealer of the company who will forward it to the RBI.
For detailed list of documents, refer to Sub-section 2.2 of Annexure 6 of the FDI policy.
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No, there is no entry norm for a listed company making a Rights Issue.
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Draft Offer Document, Red Herring Prospectus, Prospectus and Letter of Offer are all types of offer documents. Since 1992, entire IPO/ FPO of companies is driven by disclosures, i.e., informing the investors as much as possible to enable them to take informed decision. The offer documents contain all the relevant information about the company, promoters, projects, financial details, objects of raising money, forms of the issue, etc.
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An offer document contains all the relevant information about the company, promoters, projects, financial details, objects of raising the money, terms of the issue, etc. and is used for inviting subscription to the issue being made by the issuer. Offer document is called a ’Prospectus’ in case of a Public Issue and ’Letter of Offer’ in case of a Rights Issue.
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A Private Placement is the issue of shares or convertible securities to a select group of persons not exceeding 49%.
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A Bonus Issue is an issue of shares to its existing shareholders without any consideration based on the number of shares already held by them as on a record date. The shares are issued out of the company’s Free Reserve or Share Premium Account in a particular ratio to the number of securities held on a record date.
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A Right Issue is an issue of shares or convertible securities to existing shareholders as on a particular date (record date) fixed by the issuer. The rights are offered in a particular ratio to the number of shares or convertible securities held as on the record date.
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The various instruments that can be issued by an Indian company include:
1) Equity shares; fully, compulsorily and mandatorily convertible debentures/ preference shares
2) Non-convertible, optionally convertible or partially convertible debentures/ preference shares
3) Rights issue
4) Composite issue
5) Bonus issue
6) Institutional placement program
7) Convertible note
8) Depository receipt (DR)
9) Foreign currency convertible bonds (FCCB)
10) Security receipt
11) Two-way fungibility scheme
12) Warrants & partly-paid shares
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DRs refer to negotiable securities representing INR denominated equity shares of a company and issued outside of India by a Depository bank on behalf of the company. The DRs listed and traded in US markets are known as American Depository Receipts (ADRs). The DRs listed and traded except in the US markets are known as the Global Depository receipts (GDRs).
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