SUMMARY
- SEBI has introduced an updated framework for determining the value of the investment portfolios of AIFs.
- Excluding investments that are unlisted, non-traded, or have limited trading, will now be assessed in accordance with the existing regulations for mutual funds.
- The process for evaluating securities that are non-traded will be standardized across entities regulated by SEBI by March 31, 2025.
The Securities and Exchange Board of India (SEBI) has introduced an updated framework for determining the value of the investment portfolios of alternative investment funds (AIFs).
Under the updated guidelines, the regulatory body has stated that investments, excluding those that are unlisted, non-traded, or have limited trading, will now be assessed in accordance with the existing regulations for mutual funds (SEBI (Mutual Funds) Regulations, 1996).
The announcement also mentioned that the process for evaluating securities with limited trading or those that are non-traded will be standardized across entities regulated by SEBI by March 31, 2025.
Moreover, the guidelines have assigned the task of establishing valuation standards for securities that are not thinly traded or non-traded to AIF associations.
The changes in valuation, though significant, will not be classified as “material changes”. This means that AIFs will not require additional approval for modifications to their valuation methods but are obligated to inform their investors about these changes.
Additionally, the regulatory authority has required that independent assessors involved in these evaluations be registered with the Insolvency and Bankruptcy Board of India.
SEBI has also specified that these assessors must possess relevant qualifications and be members of professional bodies such as the Institute of Chartered Accountants of India (ICAI) or the CFA Institute.
AIFs will now have an additional seven months to report valuations based on audited financial statements from the companies they invest in, compared to the previous six months. AIF trustees or sponsors are also required to include compliance with these guidelines in their compliance reports.
In the announcement, SEBI has stated that these changes will take effect immediately.
This announcement follows the feedback received from stakeholders in the AIF sector regarding the challenges they face with the current valuation framework. Subsequently, SEBI has made adjustments to the framework in response to these feedback and internal discussions.
The recent guidelines are being introduced at a time when SEBI is increasing its oversight of the Indian investment landscape. Last month, Inc42 reported that the regulatory body directed all AIFs to adhere to established certification processes for at least one key individual in their investment teams.
Earlier this month, SEBI was investigating issues related to side letters or contribution agreements that dictate preferential terms for certain limited partners in a venture fund.
Last month, the market regulator also issued new regulations aimed at simplifying the process for the registration of foreign venture capital investors.
