SEBI in its recent circular has issued guidelines for credit of units of Alternative Investment Funds (AIFs) in dematerialised form.
Readers will recall that earlier SEBI had issued a circular directing AIFs with a corpus of INR 500 crore or above were to complete the dematerialization of all issued units by October 31, 2023. Additionally, starting November 1, 2023, these AIFs were mandated to exclusively issue units in dematerialized form. Likewise, AIFs possessing a corpus of less than INR 500 crore were required to dematerialize all issued units by April 30, 2024, and from May 1, 2024, these AIFs shall exclusively issue units in dematerialized form.
Based on feedback received by SEBI from the stakeholders, SEBI has decided to specify the process to be followed for dematerialising / crediting the units issued, in cases where investors are yet to provide demat account details to AIFs.
SEBI has directed AIFs to maintain a distinct demat account called “Aggregate Escrow Demat Account” which shall be used for crediting the AIF units of those existing investors who have not furnished their demat account details yet. If any new units will be issued to such investor, it will be issued in the demat form and will be credited to the “Aggregate Escrow Demat Account”.
Once such investors provide their demat account details to the AIFs, their units held in the Aggregate Escrow Demat Account will be transferred to their respective demat account within 5 working days. No transfer of units of AIFs from or within the Aggregate Escrow Demat Account will be permitted, except for the aforementioned purpose.
The Timeline for crediting the AIF units to Aggregate Escrow Demat Account is as follows:
i. Schemes with Corpus ≥ INR 500 Crore (as of Oct 31, 2023) shall transfer the units of existing investors who have not provided their demat account details by January 31, 2024.
ii. Schemes with Corpus < INR 500 Crore shall transfer the units of existing investors who have not provided their demat account details by May 10, 2024.
SEBI has directed the Depositories to amend relevant Bye-laws, Rules, and Regulations for necessary implementation, including the setup of Aggregate Escrow Demat Accounts for AIFs. Additionally, the AIF industry and depositories shall adopt implementation standards as formulated by the pilot Standard Setting Forum (SFA) for AIFs and such standards shall be published on websites of Depositories and the industry associations which are part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PEVC CFO Association and Trustee Association of India.
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