INDIA Law and Practice Contributed by: Tejesh Chitlangi, Sushreet Pattanayak, Pooja Mehta and Anita Jain, IC Universal Legal
ally permitted to invest in Domestic AIFs under the automatic route under the Non-Debt Instru - ments Rules. Investors from countries sharing a land border with India or those with beneficial owners from these countries can invest through the government approval route. Foreign inves - tors may prefer to invest via a feeder vehicle into Domestic AIFs to avoid the requirement of a per - manent account number, or PAN. Category III Domestic AIFs accepting foreign investment can only make portfolio investments in those securities authorised for a foreign port - folio investor. GIFT funds There are no specific restrictions on types of investors that can invest in GIFT Funds. Partici - pation by Indian investors in GIFT Funds would be subject to Indian overseas investment laws. 2.3 Regulatory Environment 2.3.1 Regulatory Regime Domestic AIFs The main features of Domestic AIFs are as fol - lows: • Diversification norms Categories I and II Domestic AIFs cannot invest more than 25% (or 50% in the case of Large Value Fund for Accredited Investors (LVF)), and Category III Domestic AIFs cannot invest more than 10% (or 20% in the case of LVFs) of their invest - able funds in a single portfolio entity, whether directly or through investment in the units of other Domestic AIFs. The SEBI allows Category III Domestic AIFs to calculate their 10% (or 20% in the case of LVFs) investment concentration limit in one investee company either based on their investable funds or the net asset value of the fund if such Domestic AIFs are investing in listed equity.
• Tenure: Category I and II Domestic AIFs are closed-ended in nature, while Category III Domestic AIFs may be open-ended or closed-ended. Closed-ended Domestic AIFs must have a minimum tenure of three years. Type of investment • Category I Domestic AIFs generally invest in the securities of start-up or early-stage ven - tures, social ventures, SMEs, infrastructure or social impact funds, infrastructure funds, or special situation funds. • Category II Domestic AIFs are required to invest primarily in the securities of unlisted companies, either directly or through invest - ment in units of other Domestic AIFs. • Category III Domestic AIFs may invest in the securities of listed or unlisted investee com - panies, derivatives, units of other Domestic AIFs, or complex/structured products. • Overseas investment: Domestic AIFs must obtain prior approval from the SEBI to make overseas investments. These cannot exceed 25% of their investable funds and are sub - ject to specified limits for Domestic AIFs in aggregate. Minimum ticket size • The minimum investment per investor for Domestic AIFs is INR10,000,000. Lower thresholds are available for employees and directors of the manager of the Domestic AIF, “accredited investors” and angel funds. • For LVFs, the minimum commitment is INR700 million (about USD8.3 million). • For angel funds, the minimum commitment by an angel investor is INR2.5 million (about USD30,000). The minimum corpus for Angel Domestic AIFs is INR5 crore. • Safe keeping of securities: appointment of custodians is mandated under the AIF Regu - lations for the protection and safe keeping of
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