Answer ... The successful establishment of an alternative investment fund (AIF) in India depends on the meticulous structuring of investments right from inception. Our top tips for the smooth establishment and management of AIFs are as follows:

• Gain a comprehensive understanding of the regulations governing AIFs in India, including the guidelines issued by the Securities and Exchange Board of India (SEBI) and the International Financial Services Centre (IFCS) Authority.
• Assemble a team with the requisite professional qualifications and experience, satisfying SEBI’s criteria for the key investment team. A professional services firm can provide end-to-end assistance and coordinate with all stakeholders. Alternatively, specialised professionals – including legal advisers, tax advisers, merchant bankers, custodians, fund accounting teams and auditors – can be engaged depending on specific requirements.
• Establish robust infrastructure for the management of AIFs, considering factors such as:
• • office space;
  • equipment;
  • communication facilities; and
  • manpower.
• Ensure that all key personnel – including the principal officer, directors, partners and designated partners – meet SEBI’s ‘fit and proper’ criteria, demonstrating integrity and financial soundness.
• Ensure that investment managers exercise due diligence in assessing the target investors, their jurisdiction of residence, the intended sectors and the instruments to determine the appropriate structure and combination of vehicles. This structure should fully align with both the intent and the explicit provisions of the regulatory framework. Notably, due to the relative novelty of many regulations, there is a dearth of direct jurisprudential or regulatory guidance on the subject.
• Disclose this strategy transparently in the private placement memorandum (PPM). The PPM should be comprehensive, as it serves as the pivotal legal marketing document for an AIF, encompassing all material information.
• Clearly define the rights and responsibilities of each party to mitigate, if not entirely prevent, the emergence of disputes during exit or winding-up procedures, thus preventing value erosion at the portfolio level.
• Ensure that the documentation and structure are sufficiently flexible to accommodate potential alterations in the regulatory and tax landscapes in the future. Given the nascent stage of pooling vehicle regulations in India, changes in the legal framework during the fund’s lifecycle may have adverse consequences for the AIF.

Establishing and managing an AIF in India can be complex. The regulatory landscape, governed by SEBI, requires in-depth understanding for effective compliance. Operating in the IFSC requires adherence to specific requirements, including ringfencing operations. Investment limitations, tax implications and timely approval processes pose operational challenges. Maintaining proactive engagement with SEBI during and after the application process, and promptly seeking approval for any change of control, are crucial to ensure smooth operations.

Co-Authored by Shammi Khanna and Sarthak Kasliwal