RBI's Revised Draft Guidelines for Investments in Alternative Investment Funds (AIFs)

The Reserve Bank of India (RBI) has introduced revised draft guidelines aimed at enhancing the oversight of investments by regulated entities (REs) in Alternative Investment Funds (AIFs). These measures are targeted at preventing potential misuse and ensuring prudent investment practices.

Key Proposals

• Limitation on Contributions: 
  • A single RE's contribution to an AIF scheme is capped at 10%.
  • Collective investments by REs in a single scheme are limited to 15%.
• Investment Thresholds: 
  • Investments up to 5% of a scheme's corpus will not face additional restrictions.
  • If an RE's investment exceeds 5% and the AIF has downstream debt exposure to a borrower linked to the RE (excluding equity shares and certain convertible instruments), a 100% provision must be made for its proportionate exposure.

These guidelines aim to mitigate risks and align RBI's regulatory compliance with those issued by SEBI on the subject.