SEBI (Alternative Investment Funds) Regulations, 2012, AIFs were initially required to hold their investments in dematerialized form within a specified timeline. The SEBI Circular of January 12, 2024, later encapsulated this requirement within Chapter 21 of the Master Circular for AIFs, published on May 7, 2024.
Key Changes in the Relaxed Timelines
Investments After July 1, 2025: From July 1, 2025, all investments made by AIFs, whether directly in the investee company or acquired from another entity, will be required to be held in dematerialized form. This includes any new investments made post this date, ensuring uniformity in the treatment of securities and streamlining the entire investment process.
Investments Made Before July 1, 2025: Investments made by AIFs prior to July 1, 2025, are generally exempt from the requirement to hold investments in dematerialized form. However, there are two important exceptions to this rule:
- If the investee company has been mandated by applicable law to facilitate the dematerialization of its securities, the AIF must comply with the dematerialization requirement.
- If the AIF (either individually or along with other SEBI-registered intermediaries/entities) exercises control over the investee company, the AIF will also be required to hold its investments in dematerialized form. The term ‘control’ is defined under Regulation 2(1)(f) of the AIF Regulations.
The trustee or sponsor of an AIF must ensure that the Compliance Test Report prepared by the AIF manager, as outlined in Chapter 15 of the Master Circular for AIFs, includes adherence to the provisions of this new circular. This ensures that AIFs are accountable for their compliance with the updated timeline.
The provisions of this circular shall come into force with immediate effect.
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