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Introduction: The Securities and Exchange Board of India (SEBI) has issued a circular, SEBI/HO/AFD/PoD1/CIR/2023/186, on December 11, 2023, regarding the credit of units of Alternative Investment Funds (AIFs) in dematerialised form. This article delves into the key aspects, guidelines, and implications of the circular.

Detailed Analysis:

1. Dematerialisation Timeline:

  • AIFs with corpus ≥ INR 500 Crore: Dematerialisation by October 31, 2023.
  • AIFs with corpus < INR 500 Crore: Dematerialisation by April 30, 2024.
  • Issuance of units only in dematerialised form from November 01, 2023, for larger AIFs and from May 01, 2024, for smaller AIFs.

2. Process for Units Issued without Demat Account Details:

  • AIF managers to reach out to investors for demat details.
  • Depictors to assist in the process following SFA guidelines.
  • Units not linked to demat accounts credited to “Aggregate Escrow Demat Account.”

3. Crediting Process and Timeline:

  • Units held in Aggregate Escrow Demat Account transferable to investors’ demat accounts within 5 working days once details provided.
  • Larger AIFs to credit units by January 31, 2024, for existing investors without demat details.
  • Smaller AIFs to credit units by May 10, 2024, for investors without demat details.

4. Redemption and Reporting:

  • Units in Aggregate Escrow Demat Account redeemable with proceeds to investors’ bank accounts.
  • AIF managers to maintain investor-wise KYC details and report to depositories and custodians monthly.

5. Implementation Standards:

  • AIF industry and depositories to adopt SFA standards for compliance.
  • Standards to include formats for records and reporting related to Aggregate Escrow Demat Account.

6. Depositories’ Role:

  • Amendments to Bye-laws for implementing provisions, including facilitating Aggregate Escrow Demat Account.
  • Dissemination of circular provisions to members and participants.

Conclusion: SEBI’s circular brings clarity to the dematerialisation of AIF units, outlining the process, timelines, and guidelines for both larger and smaller AIFs. The emphasis on the “Aggregate Escrow Demat Account” provides a structured approach to handle units without linked demat accounts. AIF managers and depositories are urged to adhere to the implementation standards for seamless compliance.

Securities and Exchange Board of India

Circular  No. SEBI/HO/AFD/PoD1/CIR/2023/186 Dated: December 11, 2023

To,
All Alternative Investment Funds
All Depositories
All Custodians

Sir / Madam,

Sub: Credit of units of AIFs in dematerialised form

1. In terms of para 3.1 of SEBI circular no. SEBI/HO/AFD/PoD1/CIR/2023/96 dated June 21, 2023 on ‘Issuance of units of AIFs in dematerialised form’, all schemes of Alternative Investment Funds (‘AIFs’) were mandated to dematerialise their units 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

2. As per the timeline given at para 1 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.

3. Managers of AIFs shall continue to reach out to existing investors to obtain their demat account details and credit the units issued to them to their respective demat accounts. Depositories shall also aid in this process as advised by SEBI. In this regard, AIF industry and depositories shall adopt implementation standards as formulated by the pilot Standard Setting Forum for AIFs (‘SFA’), along with the two depositories, in consultation with SEBI. The standards shall detail steps to be taken by AIF managers and depositories to reach out to investors and facilitate conversion and credit of their units in demat form.

4. Units already issued by schemes of AIFs to existing investors who have not provided their demat account details, shall be credited to a separate demat account named “Aggregate Escrow Demat Account”. This account shall be opened by AIFs for the sole purpose of holding demat units of AIFs on behalf of such investors. New units to be issued in demat form shall be allotted to such investors and credited to the Aggregate Escrow Demat Account.

5. As and when such investors provide their demat account details to the AIF, their units held in Aggregate Escrow Demat Account shall be transferred to the respective investors’ demat accounts within 5 working days. No transfer of units of AIFs from/within Aggregate Escrow Demat Account shall be allowed, other than for the aforesaid purpose.

6. Schemes of AIFs with corpus ≥ INR 500 Crore shall credit units already issued to existing investors (on-boarded prior to November 01, 2023) who have not provided their demat account details, into Aggregate Escrow Demat Account latest by January 31, 2024. Units already issued by such schemes to existing investors who have provided demat account details shall be credited to respective investors’ demat accounts at the earliest, but not later than January 31, 2024.

7. Schemes of AIFs with corpus < INR 500 Crore shall credit units issued to their investors who have not provided their demat account details by April 30, 2024, into Aggregate Escrow Demat Account latest by May 10, 2024. Units issued by such schemes as on April 30, 2024, to investors who have provided demat account details shall be credited to respective investors’ demat accounts at the earliest, but not later than May 10, 2024.

8. Accordingly, the following is clarified with respect to issuance 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 not 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.
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.
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

9. 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.

10. 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.

11. 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.

12. 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.

13. Further, Depositories are directed to –

13.1. make necessary amendments to their relevant Bye-laws, Rules and Regulations for the implementation of the above provisions, including facilitation of Aggregate Escrow Demat Account for AIFs; and,

13.2. bring the provisions of this circular to the notice of their members / participants and also disseminate the same on their websites.

14. The circular shall come into force with immediate effect.

15. This circular is issued with the approval of the competent authority.

16. 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 10(aa) of SEBI (Alternative Investment Funds) Regulations, 2012, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

17. The circular is available on SEBI website at 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.: +91-22-26449222
[email protected]

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One Comment

  1. Srijita Adak says:

    Can you tell me what is the SFA Guideline?
    Can you please tell me the process of getting ISIN Number?
    What amendment needs to be done by depositories wrt Aggregate Escrow Demat A/c?

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