The Securities and Exchange Board of India (SEBI) has outlined the process for dematerialising units issued by Alternative Investment Funds (AIFs) where investors have yet to provide demat account details.
Earlier SEBI had issued circular dated June 21, 2023 on issuance of units of AIFs in dematerialised form, all schemes of Alternative Investment Fund (‘AIFs’) were mandated to dematerialise their unit as per the following timeline:
Particulars | Schemes of AIFs with corpus ≥ INR 500 Crore | Schemes of AIFs with corpus < INR 500 Crore |
Dematerialisation of all the units issued | Latest by October 31,2023 | Latest by April 30,2024 |
Issuance of units only in dematerialised form | November 01, 2023 onwards | May 01, 2024 onwards |
As per the timeline given above, schemes of AIFs with corpus ≥ INR 500 Crore have created International Securities Identification Numbers (ISINs) for their units issued and have commenced crediting the units to the investors’ demat accounts. Based on feedback received from the stakeholders, it has been 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 issued a circular dated December 11, 2023 where it has provided clarification in relation to and credit of units of AIFs in demat form:
Details | Schemes with corpus ≥ INR 500 crore as on Oct 31, 2023. | Schemes with Corpus < INR 500 Crore as on Oct 31, 2023 and schemes launched after Oct 31, 2023 irrespective of corpus |
Investors who have provided their demat account details
| Units issued after Oct 31, 2023, shall be in demat form and credited only to investors demat accounts.
| Units issued after Apr 30, 2024, shall be in demat form and credited only to investors demat accounts.
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Investors who have not provided their demat account details
| For investors on-boarded prior to Nov 01, 2023, units shall be credited in Aggregate Escrow Demat Account temporarily, till investors provide their demat account details.
| For investors on-boarded prior to May 01, 2024, units shall be credited in Aggregate Escrow Demat Account temporarily, till investors provide their demat account details.
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Completion of credit of demat units to a) demat accounts of investors who have provided demat account details and b) Aggregate Escrow Demat Account, for those who have not provided demat account details | Latest by Jan 31, 2024
| Latest by May 10, 2024
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Under the rules issued in June 2023, AIFs with a corpus of Rs 500 crore or more were required to dematerialise all issued units by October 31, 2023. These AIFs must now issue units only in dematerialised form from November 1, 2023, onwards. Similarly, AIFs with less than Rs 500 crore corpus have until April 30, 2024, to dematerialise issued units and must issue only dematerialised units from May 1 onwards.
For existing investors who have not provided their demat account details, the units already issued by AIF schemes will be credited to a separate demat account called the Aggregate Escrow Demat Account. This account will be opened by AIFs solely for holding demat units of AIFs on behalf of such investors.
As and when these investors provide their demat account details to the AIF, their units held in the Aggregate Escrow Demat Account will be transferred to their respective demat accounts within five working days. However, the transfer of units of AIFs from or within the Aggregate Escrow Demat Account is not permitted.
Units of AIFs held in Aggregate Escrow Demat Account can be redeemed and proceeds shall be distributed to respective investors’ bank accounts with full audit trail of the same.
Managers of AIFs shall maintain investor-wise KYC details of units held in Aggregate Escrow Demat Account, including name, PAN and bank account details, along with audit trail of the transactions. The same shall also be reported to Depositories and Custodians on a monthly basis.
For this purpose, AIF industry shall adopt implementation standards as formulated by the SFA and depositories jointly, in consultation with SEBI, for compliance with the provisions of this circular. Such standards shall, inter-alia, include formats for information/ records to be maintained by managers of AIFs with respect to investor-wise holding/ transactions in the Aggregate Escrow Demat Account and reporting of the same to Depositories and Custodians.
Managers of AIFs shall adhere to such implementation standards formulated by the SFA, in consultation with SEBI. 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, within 45 days of issuance of this circular.
Furthermore, the Depositories are directed to make necessary amendments in their bye-laws, rules and regulation to give effect of above provisions.
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