SEBI Tightens Reins on AIFs: New Borrowing, Tenure Rules Unveiled

28 Jun 2024

In a move to streamline operations and protect investors, SEBI has announced guidelines for borrowing by Category I and II AIFs and specifying of maximum permissible limit for extension of tenure by Large Value Funds. The decisions were announced after the regulator's board meeting held on June 27. 

Category I and II AIFs are now allowed to borrow for up to 30 days. This is to cover temporary shortfalls in investor drawdowns. However, borrowing costs will be borne by the investors responsible. A cooling-off period of 30 days is mandatory between borrowings.

For Large Value Funds (LVFs), tenure extensions are capped at five years. This requires approval from two-thirds of unit holders by value. Further dissolution follows standard AIF procedures.

These measures aim to enhance transparency and provide clarity to investors. They also mitigate risks associated with delayed asset quality disclosure and performance reporting.

Existing LVF schemes not adhering to the new rules have three months to comply. They can also revise their original base tenure with unanimous investor consent.

These changes can be expected to foster a more robust and investor-friendly AIF landscape. They will also encourage greater accountability and adherence to best practices within the industry.

Read the SEBI board meeting decisions here