FAQs on SEBI – IVCA Annual Activity Report (AAR) is Prepared with reference to SEBI (Alternative Investment Funds) Regulations, 2012 and SEBI Master Circular for AIFs dated May 07, 2024.
Annual Activity Report (“AAR”) introduced by SEBI in consultation with IVCA is a significant step towards standardized and granular reporting by Alternative Investment Funds (“AIFs”). The revised reporting framework seeks to capture detailed information relating to investor commitments, deployment of funds, portfolio concentration, leverage, valuation, co-investments, related party transactions, and operational activities of AIFs.
While the reporting utility provides extensive data fields, certain terminologies and reporting requirements are not expressly defined under the SEBI (Alternative Investment Funds) Regulations, 2012 or the SEBI Master Circular for AIFs dated May 07, 2024. As a result, practical interpretational issues may arise while preparing and validating the disclosures required under the AAR.
Accordingly, this FAQ document has been prepared with reference to:
- SEBI (Alternative Investment Funds) Regulations, 2012,
- SEBI Master Circular for AIFs dated May 07, 2024,
- relevant circulars and regulatory provisions, and
- prevailing industry practices followed by AIF managers and compliance professionals.
The objective of this document is to provide practical interpretational guidance on certain key reporting concepts appearing in the AAR utility and to assist Fund Managers, Compliance Teams, Trustees, Sponsors, Advisors, and Consultants in adopting a consistent and supportable reporting approach.
Frequently Asked Questions (FAQs)
1. Whether AAR reporting should be done at Fund Level or Scheme Level?
The AIF Regulations recognize schemes separately for corpus, tenure, investments, and investor participation.
Regulation 10(b) provides that “each scheme” of an AIF shall have minimum corpus requirements.
Further, Regulation 12 separately governs launch of “schemes” and filing of PPM for each scheme.
Accordingly, the reporting framework under AAR should generally be interpreted at the scheme level, unless the reporting field specifically seeks:
- manager-level,
- sponsor-level, or
- AIF-level information.
2. What should be considered as “Corpus” in AAR reporting?
Regulation 2(1)(h) defines corpus as:
“the total amount of funds committed by investors to the Alternative Investment Fund by way of a written contract or any such document as on a particular date.”
Accordingly:
- Corpus refers to committed capital,
- and not actual drawdown or NAV.
For reporting purposes, corpus should ordinarily reconcile with:
- contribution agreements,
- commitment schedules,
- side letters (where relevant).
3. What should be considered as “Investable Funds”?
Regulation 2(1)(p) defines investable funds as:
“corpus of the scheme of Alternative Investment Fund net of expenditure for administration and management of the fund estimated for the tenure of the fund.”
Therefore, investable funds should generally mean:
- deployable capital available for investments after reducing estimated lifetime expenses.
Estimated expenditure may include:
- management fees,
- trustee fees,
- custodian fees,
- administration expenses,
- legal and audit costs.
4. What is the regulatory meaning of “First Close”?
SEBI Master Circular, Para 2.3, prescribes timelines for declaration of First Close.
Para 2.3.1 states:
“The First Close of a scheme shall be declared not later than 12 months from the date of SEBI communication for taking the PPM of the scheme on record.”
Further, Para 2.3.3 provides that:
“Corpus of the scheme at the time of declaring its First Close shall not be less than the minimum corpus specified in AIF Regulations…”
Accordingly, First Close may be interpreted as:
- formal closure of initial fundraising,
- after achieving minimum corpus requirement,
- and after acceptance of binding commitments.
5. What should be considered as “Final Close”?
The AIF Regulations do not expressly define Final Close.
However, based on scheme operations and PPM practice, Final Close may be interpreted as:
- the last date on which additional commitments or investors are admitted to the scheme in accordance with fund documents.
Managers should maintain consistency with:
- PPM disclosures,
- contribution agreements,
- investor notices.
6. What should be considered as “Uncalled Commitment”?
Though not specifically defined under AIF Regulations, uncalled commitment may generally be interpreted as:
Total committed capital less capital drawdowns issued by the scheme.
This interpretation is consistent with:
- the definition of corpus under Regulation 2(1)(h),
- and operational drawdown mechanisms under contribution agreements.
7. What should be considered as “Investee Company”?
Regulation 2(1)(o) defines investee company as:
“Any company, special purpose vehicle or limited liability partnership or body corporate or real estate investment trust or infrastructure investment trust in which an Alternative Investment Fund makes an investment.”
Accordingly, reporting may include:
- direct investee entities,
- SPVs,
- LLPs,
- REITs,
- InvITs.
8. What should be considered as “Associate” for related party disclosures?
Regulation 2(1)(c) defines associate as:
“a company or a limited liability partnership or a body corporate in which a director or trustee or partner or Sponsor or Manager of the Alternative Investment Fund or a director or partner of the Manager or Sponsor holds, either individually or collectively, more than fifteen percent…”
Accordingly, related party disclosures in AAR may generally include:
- sponsor group entities,
- manager-affiliated entities,
- controlled LLPs/body corporates,
- entities crossing 15% threshold.
9. What is the regulatory position regarding investment in associates?
Regulation 15(1)(e) provides that:
AIF shall not invest in associates except with approval of 75% of investors by value.
Accordingly, wherever associate investments are disclosed in AAR, managers should ensure:
- investor approval records,
- conflict management documentation,
- valuation support,
- IC/trustee approvals.
10. What should be considered as “Leverage” for Category III AIFs?
SEBI Master Circular Chapter 5 specifically governs leverage norms for Category III AIFs.
Para 5.2.1 states:
“leverage shall be calculated as the ratio of the exposure to the NAV of the AIF.”
Para 5.2.2 further prescribes:
Leverage = Total Exposure / NAV
11. What is the maximum leverage permitted for Category III AIFs?
Para 5.2.3 of the Master Circular provides:
“The leverage of a Category III AIF shall not exceed 2 times of the NAV of the fund.”
Accordingly:
- if NAV = INR 100 Crores,
- maximum permitted exposure = INR 200 Crores.
12. What should be considered as “Exposure” while calculating leverage?
Para 5.2.5 of the Master Circular states:
“The total exposure of the fund… shall be the sum of the market value of all the securities/contracts held by the fund.”
Further, exposure includes:
- spot positions,
- derivative exposure,
- futures,
- options,
- short exposure,
- SLBM exposure.
13. What should be considered as NAV for leverage calculation?
Para 5.2.10 of the Master Circular states:
“NAV of the AIF shall be the sum of value of all securities adjusted for mark to market gains/losses (including cash and cash equivalents). The NAV shall exclude any funds borrowed by the AIF.”
Accordingly:
- borrowed funds should not form part of NAV,
- MTM adjustments should be considered.
14. Whether leverage and exposure limits apply at Fund Level or Scheme Level?
Para 5.2.11 of the Master Circular expressly states:
“All the above restrictions/limits shall apply at the scheme-level.”
Accordingly, AAR reporting relating to:
- leverage,
- exposure,
- investment concentration
should ordinarily be scheme-specific.
15. What is the regulatory position on investment concentration limits?
Regulation 15(1)(c) provides that Category I and II AIFs:
“shall invest not more than twenty five percent of the investable funds in an Investee Company…”
For Category III AIFs, Regulation 15(1)(d) prescribes:
- 10% limit,
- and 20% for LVFs.
16. What should be considered while reporting co-investments?
Regulation 2(1)(fa) defines co-investment as:
“investment made by a Manager or Sponsor or investor of a Category I or II Alternative Investment Fund in unlisted securities of investee companies where such a Category I or Category II Alternative Investment Fund makes investment.”
Accordingly, co-investment disclosures may generally include:
- sponsor co-investments,
- manager co-investments,
- investor side-by-side investments.
17. What is the regulatory position regarding borrowing by Category I and II AIFs?
Regulation 16(1)(c) provides that Category I AIFs:
“shall not borrow funds directly or indirectly or engage in leverage… except for borrowing funds to meet temporary funding requirements…”
The borrowing is subject to:
- maximum 30 days,
- not more than four occasions in a year,
- not more than 10% of investable funds.
A similar framework applies to Category II AIFs.
19. What should be considered as “Temporary Funding Requirement”?
Though not separately defined, based on Regulation 16 and industry practice, temporary funding requirements may generally include:
- timing mismatch in capital calls,
- settlement obligations,
- short-term liquidity gaps,
- delay in receipt of investor contribution.
Borrowing for:
- investment leverage,
- structured exposure,
- return enhancement
would generally not align with the regulatory framework applicable to Category I and II AIFs.
19. What is the regulatory requirement regarding PPM consistency?
Para 2.5.2 of the Master Circular states:
“Any changes in terms of PPM and in the documents of the fund/scheme shall be intimated to investors and SEBI…”
Further, Para 4.4 states:
“The terms of contribution or subscription agreement… shall be aligned with the terms of the PPM and shall not go beyond the terms of the PPM.”
Accordingly, AAR disclosures should remain consistent with:
- PPM,
- side letters,
- investor agreements,
- valuation methodology.
20. What governance approach should managers adopt while filing AAR?
Considering the detailed reporting requirements under Chapter 15 of the SEBI Master Circular relating to reporting by AIFs, managers should maintain:
- scheme-wise reconciliations,
- leverage workings,
- valuation support,
- investor approval records,
- related party documentation,
- investment committee approvals,
- supporting schedules for all reported figures.
In absence of explicit definitions for certain utility fields, maintaining:
- documented assumptions,
- internal interpretation notes,
- consistent reporting methodology
would be advisable from a governance and inspection perspective.
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Disclaimer: This document has been prepared for interpretational guidance in relation to the Annual Activity Report (AAR) applicable to Alternative Investment Funds (“AIFs”). The responses below are based on: SEBI (Alternative Investment Funds) Regulations, 2012, SEBI Master Circular for AIFs dated May 07, 2024 and prevailing industry practices.Certa in fields and terminologies appearing in the AAR utility are not expressly defined under the AIF Regulations or SEBI circulars. Accordingly, the views mentioned herein are interpretational in nature and intended to facilitate consistent reporting practices. This document should not be construed as legal advice, regulatory clarification, or binding interpretation from SEBI. In case of any inconsistency, the provisions of applicable law, SEBI circulars, and regulatory guidance shall prevail.
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