SEBILoan Guidelines: The Securities and Exchange Board of India (SEBI) on Monday introduced new guidelines governing borrowing practices for Category I and II Alternative Investment Funds (AIFs) and established new rules to extend the term of High Value Accredited Investor Funds (LVFs).
Under the new rules, Category I and II AIFs are generally prohibited from borrowing or leveraging to make investments, except under certain conditions to meet temporary financial needs. These funds can borrow to cover short-term cash flow shortfalls or manage operating expenses, but within strict limits. Borrowing is restricted to a maximum of 30 days and can only be done up to four times a year, with the amount borrowed capped at 10 percent of the fund’s investable capital.
To improve operational flexibility, SEBI has allowed these AIFs to borrow to cover temporary shortfalls in the amount borrowed from investors, known as the “drawdown amount.” However, such borrowing must be clearly stated in the fund’s Private Placement Memorandum (PPM) and used only as a last resort.
The guidelines stipulate that the loan amount should not exceed 20 percent of the targeted investment, 10 percent of the fund’s total investable assets or outstanding commitments from other investors. Importantly, only investors who fail to meet their drawdown obligations will bear the cost of the loan. SEBI AIFs were also ordered to maintain a minimum gap of 30 days between two loan periods, calculated from the date of repayment of the previous loan.
For LVF, SEBI has allowed an extension of up to five years with the consent of two-thirds of unitholders. Funds that have not disclosed an extension period or those with an extension of more than five years will have to adjust to the new five-year limit by November 18.
Any revision of the original deadline requires the unanimous agreement of investors, and SEBI They must be informed of these changes before the same date. Updated details of the extension must be included in the quarterly report for the period ending December 31, 2024.
(with PTI inputs)
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.