SEBI Flags Rampant Malpractices In Alternative Investment Fund Industry, Urges To Set Up Self Regulatory Organisation

Market regulator The Securities and Exchange Board of India (Sebi) has slammed the Alternative Investment Fund (AIF) for circumvention of regulations and red flagged widespread rampant malpractices in the ₹8.5 lakh crore industry. 

The AIF industry is utilised by the wealthy to invest in various asset classes and has gained popularity over the years.

The market regulator has urged to set up a self-regulatory organisation in the AIF that has grown more than ten times in the past five years with ₹3.5 lakh crore investment and the rest is commitment from investors. 

Ananth Narayan, whole-time member (WTM) of the market regulator, speaking at an AIF summit organised by the Confederation of Indian Industry, the Sebi official pointed out that while there have been no violations of the letter of the law, several entities have been found to be breaching the spirit of the law by investing in assets through AIFs that are otherwise not permitted.

“AIFs are being used to have fresh funding come into a stressed borrower which is being used to repay the original lender, with a junior tranche being subscribed to in an AIF” he said. 

He lamented that SEBI does not get the level of data for AIFs that it gets for mutual funds and portfolio management services. 

SEBI has recently issued several circulars related to AIFs, clarifying the standard approach for valuing the investment portfolio and the modalities for launching liquidation schemes.