The changes, effective immediately, aim to enhance operational ease and facilitate business for these investment vehicles, according to a SEBI circular.

Previously, AIFs in these categories were restricted from borrowing, except for meeting specific short-term operational needs. The new rules now permit them to borrow funds to address temporary shortfalls in the capital called from investors for making investments. This move is expected to provide AIFs with greater agility in seizing time-sensitive investment opportunities.

Note, that this borrowing facility comes with certain conditions. The AIF must disclose its intent to borrow in its Private Placement Memorandum (PPM). The borrowing should be a last resort, limited to a maximum of 20% of the proposed investment or 10% of the scheme's investable funds, and its cost should be borne by the investors who delayed their capital contributions. The AIF also needs to maintain a 30-day cooling-off period between two borrowing instances.

In addition to the borrowing norms, SEBI has streamlined the process for LVFs to extend their tenure. The maximum permissible extension remains at five years, subject to the approval of two-thirds of the unit holders. Existing LVF schemes that haven't specified a definite extension period or have exceeded the five-year limit must align with the new guidelines within three months. They also have the flexibility to revise their original tenure with the consent of all investors.

These changes reflect SEBI's ongoing efforts to balance investor protection with the operational needs of AIFs and LVFs. By providing greater flexibility and simplifying procedures, the regulator aims to foster a more conducive environment for these investment vehicles to operate and grow.

Access the circular read here.