RBI revises rules for investment in Alternative Investment Funds

The Reserve Bank of India (RBI) has revised draft guidelines for investments by regulated entities (REs) in Alternative Investment Funds (AIFs), aiming to enhance oversight and prevent potential misuse.

Key proposals include capping a single RE’s contribution to an AIF scheme at 10 per cent and limiting collective RE investments to 15 per cent in a single scheme.

Investments up to 5 per cent of a scheme’s corpus will not face additional restrictions. However, if an RE’s investment exceeds 5 per cent and the AIF has downstream debt exposure to a borrower linked to the RE (excluding equity shares and certain convertible instruments), the RE must make a 100 per cent provision for its proportionate exposure. These guidelines are designed to mitigate risks and ensure prudent investment practices.

Jyoti Prakash Gadia, managing director at Resurgent India, said the proposed revised guidelines of the RBI on AIF are intended to bring the regulatory compliance of the RBI directions in alignment those issued by Sebi on the subject. Taking into account the more robust and comprehensive structure provided under the SEBI guidelines, there was a scope and need for bringing in some relaxations