How SEBI plans to make alternative investment funds more accessible
What's the story
The Securities and Exchange Board of India (SEBI) has proposed changes to the regulations governing alternative investment funds (AIFs). The proposed changes include lowering the minimum investment threshold for large value funds (LVFs) from ₹70 crore to ₹25 crore. The regulator has also suggested removing the cap on the number of investors in LVFs and exempting them from annual audits of private placement memorandums (PPMs).
Regulatory changes
Introduction of accredited investor-only AIF schemes
SEBI has proposed a separate type of AIF scheme that would only admit accredited investors. The regulator has suggested that existing AIF schemes should be allowed to convert themselves into LVF schemes with appropriate investor consent. This is part of the broader regulatory changes aimed at making it easier for funds to raise capital and invest in unlisted securities.
Investor sophistication
Investor sophistication and risk understanding
SEBI has defended its proposal by saying that accredited investors are sophisticated enough to understand the risks associated with investment products. They also have the ability to negotiate necessary risk mitigation norms with investment providers in their client agreements. The regulator believes that lowering the minimum threshold for LVF schemes shall broaden the investor base without compromising on investor sophistication levels.
Market traction
Growth of LVF schemes in India
Since its introduction in August 2021, the traction for LVFs has improved significantly. As of June 30, there are 62 LVF schemes with commitments of over ₹1.34 lakh crore. These schemes have invested almost ₹60,000 crore according to SEBI data. The regulator believes that reducing the investment threshold would further facilitate channeling long-term and sizable investments into unlisted securities.