INDIA Law and Practice Contributed by: Tejesh Chitlangi, Sushreet Pattanayak, Pooja Mehta and Anita Jain, IC Universal Legal
2.4 Operational Requirements Domestic AIFs
Financial Intelligence Unit – India in the event of suspicious transactions. The appointment of a designated director and a principal officer to monitor implementation is required. GIFT Funds Please refer to 2.3.1 Regulatory Regime for dis- cussion of restrictions on the types of activity or investment made by Gift Funds and details of the regulations to protect Gift Fund assets. GIFT Funds need to adopt various policies cov - ering areas such as risk, valuation, insider trad - ing, AML, etc, on lines similar to those adopted by Domestic AIFs. Generally, GIFT Funds that are Restricted Schemes may undertake short selling subject to leverage limitations. 2.5 Fund Finance Domestic AIFs Category I and Category II Domestic AIFs Category I and Category II Domestic AIFs may borrow funds to cover a drawdown shortfall for investments. The borrowed amount cannot exceed 20% of the proposed investment in the investee company, 10% of the fund’s investable funds, or the pending commitment from inves - tors, whichever is lower. Borrowing for day-to- day operational requirements cannot be for more than 30 days, on not more than four occasions in a year and the amount must not represent more than 10% of the investable funds. Category III AIFs Category III Domestic AIFs can borrow or use leverage – eg, by investing in derivatives or by borrowing or any other means – and must com - ply with the prudential requirements laid down by the SEBI. The leverage ratio of a Category III Domestic AIFs limited to two times the NAV of
AIF Regulations and various circulars issued by the SEBI for market participants require the Domestic AIF/manager to adopt various policies covering areas such as risk, valuation, insider dealing and market abuse, and anti-money laun - dering. Some key policies and its features are provided below. Risk management As per the applicable Code of Conduct, AIFs must ensure that an effective risk management process and appropriate internal controls are in place, including making disclosures to inves - tors. Also, for investments in listed securities, the manager is mandated to adopt a steward - ship code. Valuation and pricing of the assets held by the fund AIFs are required to follow standardised valu - ation practices per the AIF Regulations. For unlisted and thinly traded securities, valuations SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) require the manager to formulate a code of conduct to regulate, monitor and report trading by designated persons and immediate relatives of the designated persons, as applicable in the case of certain AIFs. Anti-money laundering Domestic AIFs must adopt Countering the Financing of Terrorism (CFT) and anti-money laundering (AML) policies, inter alia, covering client due diligence, investor-risk categorisa - tion, transaction monitoring and reporting to the are based on the IPEV Guidelines. Insider dealing and market abuse
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