FUNCTIONING OF AIFS

Fund raising activity Creation of AIF entity Form of Trust / Co / LLP (majority trust) Private Pooling of funds; (PMS Regulations allow to accept fund or securities) Signing of Contribution agreements & KYC Investors can be only domestic : Each scheme should have corpus of at least Rs. 20 Crore Each Scheme – Maximum 1000 Investors Investment less than Rs. 1 crore (employees / directors of AMC – 25 lacs). PE industry generally operates on inv commitments;

Fund raising terms IN pe Hurdle Rate: A minimum rate of return (e.g., 8–12%), which must be achieved before the fund manager can receive any carried interest payments. Carried Interest: A share of the profits of the fund's investments (typically up to 20%), paid to Fund Manager, as a performance incentive Catch Up: If Carried Interest is with Catch up – Investment Manager will get atleast X % above hurdle rate Initial Closing: The first closing after which units will be accepted at Premium

REGULATIONS Category I – Venture Capital (Start Ups) / SME / Social / Infra Category II – * Private equity or debt funds * Primarily Unlisted; * Cannot employ leverage – only for temporary funding requirements; * Sponsor Commitment / Seed Capital – 2.5% or 5 Crore (less) * Can only be closed ended–min 3 years tenure–extend upto 2 yrs (3/4 majority) Category III – * which employs diverse or complex trading strategies * Sponsor Commitment / Seed Capital – 5% or 10 Crore (less) * Can only be open ended or close ended: * Can undertake leverage

REGULATIONS Private Placement Memorandum prepared Filed before 30 days of launch on the Scheme Catg I & Catg II – Max Inv 25% in a single company (on commitment amt) Catg II – Max Inv 10% in a single company (on commitment amt) Co-Investment by Manager of Sponsor shall not be on terms more favourable then to the Fund Invest In Associates – approval of 75% of unitholders Report leverage report to Custodian daily;

REGULATIONS Appoint a Custodian if Fund size is more than Rs. 500 Crore Catg I & Catg II AIF – Undertake valuation of Inv every six months Category III – NAV quarterly for Cl. Ended and Monthly for Open Ended Marketing Materials can be distributed on Private Placement Basis only;

FOREIGN INV IN / BY AIF’S RBI has introduced Schedule 11 permitting foreign Investments; Downstream investment shall be regarded as foreign investment if either the Sponsor / Investment Manager is not Indian ‘owned and controlled’ & need to follow FDI Policy norms; Catg III AIF having foreign investment need to follow FPI norms; FPI’s can only invest in Catg III AIF’s (upto 25% stake in AIF) AIF’s can invest in equity of offshore unlisted Company which has presence in India, subject to SEBI approval (no RBI approval required), upto 25% of Investible Funds;