Alternative Investment Funds and SEBI's New Face

Will they accept the regulatory change and do business in a transparent manner?

Over a period of long time, the Indian sub-continent has witnessed a sea change in its regulatory functions in many sectors and the most important one is in the form of SEBI Acts. When compared to the pre and post era of Harshad Mehta scam, today the Sebi has got more ammo and power with greater regulatory authority over the stock and financial market – with some overriding power assumed with the RBI.

Investment avenues and financial intermediaries:

Among the various actions of the financial market, the main resource of sourcing of funds for private companies or start-ups are available through Alternative Investment Funds such as Private Equity, Venture Capital Funds, Hedge Funds and many more. With the ever changing global financial market, the market regulator Sebi comes with timely amendment of existing laws or with new regulations. Till very recently, any form of funds either private equity or venture capital or hedge funds do not have any restriction on stipulation of minimum level of funds collection from any single investor or with group entities. Further they were not required to register with the Sebi to carry their business.

Now the Sebi has come with a new regulation for the Alternative Investment Funds. It’s declared in the law that any form of alternative investment funds must register with it and also stipulated with a minimum collection of Rs.1 crore from one single investor. This is to curb malpractice of misleading the investor community and to have a more vibrant and transparent market intermediaries to raise funds. While the primary market is not very conducive for a quite long time for any small ticket companies, more specifically the companies in the SME sector, the alternative investment companies are providing a lifeline of investment funds for the most well managed companies. It’s more precisely stated by the Sebi chairman, U.K. Sinha ‘if you are raising money in India, you need to submit to our registration.’