Executive Summary:
SEBI circular SEBIHOAFDPoD1PCIR2025 issued on February 14, 2025, relaxes timelines for Alternative Investment Funds (AIFs) holding investments in dematerialized form. Investments made on or after July 1, 2025, must be dematerialized. Investments made before this date are exempt, with exceptions for investee companies mandated to dematerialize or when the AIF exercises control. Investments covered under the exceptions must be dematerialized by October 31, 2025.
Key Points / Main Content:
Dematerialization Requirements:
* Investments made by AIFs on or after July 1, 2025, must be held in dematerialized form.
Exemptions:
* Investments made before July 1, 2025, are exempt from dematerialization, except when:
* The investee company is legally required to facilitate dematerialization.
* The AIF, along with other SEBI-registered intermediaries mandated to hold investments in dematerialized form, controls the investee company (as defined in Regulation 21f of AIF Regulations).
* Schemes of AIFs ending on or before October 31, 2025 (including permissible extensions), and schemes in extended tenure as of February 14, 2025, are exempt.
Deadline for Exempted Investments:
* Investments made before July 1, 2025, falling under the exception criteria, must be dematerialized by October 31, 2025.
Compliance:
* Trustees/sponsors of AIFs must ensure the Compliance Test Report includes compliance with this circular.
Effective Date:
* The circular is effective immediately.
Impact Analysis:
Alternative Investment Funds (AIFs):
* Impact: AIFs need to comply with the revised dematerialization timelines for their investments.
* Action Required: AIFs must review their existing investment portfolios and ensure compliance with the new requirements, particularly regarding investments made before July 1, 2025, and plan for dematerialization where applicable by October 31, 2025.
Depositories and Custodians:
* Impact: These entities will likely see increased activity related to dematerialization of AIF investments.
* Action Required: Depositories and custodians should prepare for an increase in dematerialization requests from AIFs and ensure their systems and processes are aligned with the new timelines.
Trustees/Sponsors of AIFs:
* Impact: Responsible for ensuring compliance with the circular.
* Action Required: Must update the Compliance Test Report to include provisions of this circular.
Key Entities Referenced
Alternative Investment Funds: Refers to all entities categorized as Alternative Investment Funds (AIFs) that are subject to the regulations and circulars mentioned in the document.
Depositories: Entities that hold securities in dematerialized form.
Custodians: Entities responsible for safeguarding financial assets.
SEBI Alternative Investment Funds Regulations, 2012: The primary regulatory framework governing Alternative Investment Funds in India.
SEBI Circular dated January 12, 2024: A circular issued by SEBI regarding AIFs, later subsumed into the Master Circular.
Master Circular for AIFs dated May 07, 2024: A comprehensive circular providing guidelines and regulations for Alternative Investment Funds.
Securities and Exchange Board of India Act, 1992: The act of parliament that established the Securities and Exchange Board of India (SEBI) and defines its powers and functions.
Sanjay Singh Bhati: Deputy General Manager at SEBI, who issued the circular.
CIRCULAR
SEBI/HO/AFD/PoD-1/P/CIR/2025/17 February 14, 2025
To,
All Alternative Investment Funds
All Depositories
All Custodians
Dear Sir/Madam,
Subject: Relaxation in timelines for holding AIFs’ investments in
dematerialised form
1. SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) have
been amended and notified on January 05, 2024, with respect to AIFs holding their
investments in dematerialised form.
2. Subsequently, SEBI Circular dated January 12, 2024 [subsumed subsequently in
Chapter 21 of Master Circular for AIFs dated May 07, 2024 (“Master Circular”)]
prescribed timelines for AIFs with respect to holding their investments in
dematerialised form.
3. In this regard, it has been decided to relax the aforesaid timelines, and accordingly
relevant provisions of Para 21 of the Master Circular stand modified as under:
21.1. Any investment made by an AIF on or after July 01, 2025 shall be held in
dematerialised form only, irrespective of whether the investment is made
directly in the investee company or is acquired from another entity.
21.2. The investments made by an AIF prior to July 01, 2025 are exempted from
the requirement of being held in dematerialised form, except in the following
cases:
21.2.1. Investee company of the AIF has been mandated under applicable
law to facilitate dematerialisation of its securities;
21.2.2. The AIF, on its own, or along with other SEBI registered
intermediaries/entities which are mandated to hold their investments
in dematerialised form, exercises control over the investee company.
Page 1 of 2For the purpose of the aforesaid clause, the definition of ‘control’ shall be
construed with reference to Regulation 2(1)(f) of AIF Regulations.
21.3. The investments made by an AIF prior to July 01, 2025 which are covered
under conditions as specified in Para 21.2.1 and Para 21.2.2 above, shall be
held in dematerialised form by the AIF on or before October 31, 2025.
21.4. The aforesaid requirement of holding investments in dematerialised form
shall not be applicable to:
21.4.1. Scheme of an AIF whose tenure (not including permissible extension
of tenure) ends on or before October 31, 2025;
21.4.2. Scheme of an AIF which is in extended tenure as on February 14,
2025.
4. The trustee/sponsor of AIF, as the case may be, shall ensure that the ‘Compliance
Test Report’ prepared by the manager in terms of Chapter 15 of the master circular
for AIFs, includes compliance with the provisions of this circular.
5. The provisions of this circular shall come into force with immediate effect.
6. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 15(1)(i) and
Regulation 36 of AIF Regulations, 2012 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities markets.
7. The circular is available on SEBI website at www.sebi.gov.in under the categories
“Legal framework -Circulars" and "Info for - Alternative Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Tel.No: 022 26449222
ssbhati@sebi.gov.in
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