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SEBI Releases Borrowing Guidelines for Category I & II AIFs
ECONOMY & POLICY

SEBI Releases Borrowing Guidelines for Category I & II AIFs

23 Aug 2024 2 Min Read CW Team
The Securities and Exchange Board of India (SEBI) has introduced detailed guidelines for borrowing by Category I and II Alternative Investment Funds (AIFs). These guidelines aim to enhance the management and operational efficiency of AIFs while safeguarding investors' interests.

Under the new regulations, Category I and II AIFs can borrow only to meet temporary funding requirements, including meeting their day-to-day operational needs or to bridge capital calls. SEBI has capped such borrowings at 10% of the investable funds. The borrowing should be repaid within 30 days from the date of borrowing, ensuring that the leverage does not become a permanent feature of the fund's operations.

Furthermore, SEBI emphasised that borrowings should not be used to meet redemptions or distributions to investors. Instead, they are to be used exclusively for short-term liquidity mismatches or emergencies. AIFs are also required to maintain a credit rating from a registered rating agency if they intend to borrow, ensuring transparency and accountability in their borrowing practices.

SEBI's move comes in response to growing concerns about the leverage levels within AIFs and aims to prevent any systemic risks arising from excessive borrowing. By implementing these measures, SEBI seeks to maintain the financial stability of AIFs and protect the interests of investors.

These new guidelines are expected to bring greater discipline and risk management to the operations of Category I and II AIFs, reinforcing SEBI's commitment to a robust regulatory framework in the investment sector.

The Securities and Exchange Board of India (SEBI) has introduced detailed guidelines for borrowing by Category I and II Alternative Investment Funds (AIFs). These guidelines aim to enhance the management and operational efficiency of AIFs while safeguarding investors' interests. Under the new regulations, Category I and II AIFs can borrow only to meet temporary funding requirements, including meeting their day-to-day operational needs or to bridge capital calls. SEBI has capped such borrowings at 10% of the investable funds. The borrowing should be repaid within 30 days from the date of borrowing, ensuring that the leverage does not become a permanent feature of the fund's operations. Furthermore, SEBI emphasised that borrowings should not be used to meet redemptions or distributions to investors. Instead, they are to be used exclusively for short-term liquidity mismatches or emergencies. AIFs are also required to maintain a credit rating from a registered rating agency if they intend to borrow, ensuring transparency and accountability in their borrowing practices. SEBI's move comes in response to growing concerns about the leverage levels within AIFs and aims to prevent any systemic risks arising from excessive borrowing. By implementing these measures, SEBI seeks to maintain the financial stability of AIFs and protect the interests of investors. These new guidelines are expected to bring greater discipline and risk management to the operations of Category I and II AIFs, reinforcing SEBI's commitment to a robust regulatory framework in the investment sector.

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