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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

Investments in Alternative Investment Funds (AIFs)

27-Mar-2024 | RBI/2023-2024/140 DOR.STR.REC.85/21.04.048/2023-24

RBI has issued circular on Investments in Alternative Investment Funds (AIFs) the circular DOR.STR.REC.58/21.04.048/2023-24 dated December 19, 2023 in terms of which instructions were issued to address certain regulatory concerns relating to investment by regulated entities (REs) in the AIFs.

By virtue of this circular following has been advised:-

(i) Downstream investments referred to in paragraph 2 (i) of the Circular shall exclude investments in equity shares of the debtor company of the RE, but shall include all other investments, including investment in hybrid instruments.

(ii) Provisioning in terms of paragraph 2(iii) of the Circular shall be required only to the extent of investment by the RE in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme.

(iii) Paragraph 3 of the Circular shall only be applicable in cases where the AIF does not have any downstream investment in a debtor company of the RE. If the RE has investment in subordinated units of an AIF scheme, which also has downstream exposure to the debtor company, then the RE shall be required to comply with paragraph 2 of the Circular.

(iv) Further with regard to paragraph 3 of the Circular:
? proposed deduction from capital shall take place equally from both Tier-1 and Tier-2 capital.
? reference to investment in subordinated units of AIF Scheme includes all forms of subordinated exposures, including investment in the nature of sponsor units.
(v) Investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the Circular

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