Answer ... Investments in an alternative investment fund (AIF) cannot take the form of pure debt securities; nor can the AIF provide any loans. In addition, the AIF fund may not borrow funds, directly or indirectly, or engage in leverage activities.
Section 18(4) of the Alternative Investment Rules states as follows: “investment of an alternative investment fund in non-listed portfolio companies shall be made only in equity and equity linked instruments but shall not invest in pure debt securities nor provide any loan.”
In addition, the rules further provide that an AIF may carry out only those activities permitted under its registration certificate and the fund manager may make only those investments which confirm with the investment and fund management guidelines.
Answer ... The Alternative Investment Rules provide that at least 75% of the fund capital must be invested in non-listed securities of portfolio companies; in case of a delay in this kind of investment, the unused portion of the realised fund may be invested in money market instruments for a maximum period of one year. A maximum of 25% of the fund capital may be invested in listed securities and units of AIFs managed by other fund managers, of which a maximum 10% may be invested in money market instruments; however, investment in a single listed security must not exceed 5% of the fund capital. In addition, no AIF may invest more than 25% of the fund capital in a single, non-listed portfolio company. The above investment restrictions shall not apply in the event of a buyout by a private equity fund.