New Delhi: Markets regulator Sebi on Thursday proposed allowing alternative investment funds (AIFs) to retain limited funds beyond the scheme’s life to ease the winding-up process and facilitate surrender of registration.
In a consultation paper, Sebi said AIFs that do not retain any funds after expiry of their fund life may also be permitted to seek an ‘inoperative’ status, subject to prescribed conditions. The proposals are based on the principle that while entry into the securities market is governed by eligibility norms, the exit framework should be clear, predictable and operationally efficient, the regulator said.
Sebi noted that AIFs often need to retain small amounts to meet residual operational expenses such as legal and consultancy fees, registrar and transfer agent payments, and costs related to filing PPM audit reports. Industry participants have highlighted that such expenses typically arise toward the end of the financial year or during the surrender process, making it difficult to maintain a nil bank balance at the end of the permissible fund life.
Currently, AIFs can surrender registration only after discharging all liabilities, forcing them to comply with full regulatory requirements despite having no active fund management activity.
To address this, Sebi has proposed permitting AIF schemes to retain liquidation proceeds beyond the scheme life solely for meeting operational expenses. Such expenses would need to be supported by invoices or align with costs incurred in the previous year. AIFs would also be required to justify the need for retaining funds and specify the duration, which should not exceed three years.