New Delhi, Feb. 9 -- The Securities and Exchange Board of India (SEBI) has issued new rules for how alternative investment funds (AIFs) must report unit valuations to depositories, aimed at improving transparency and operational efficiency.
In a circular issued on February 6, the market regulator also provided significant timeline relief compared with what it had proposed in a consultation paper last September. While the consultation paper had suggested a 15-day timeline, the new circular allows AIFs 30 days to upload valuation details. Here's a quick explainer:
What needs to be done?
AIFs are required to carry out periodic valuations of their units. Category I and II AIFs must undertake valuations every six months, or every 12 months with the consent of 75% of investors by value.
Category III AIFs must make valuations available to investors every quarter for close-ended funds, and every month for open-ended funds.
According to the latest circular, AIFs must ensure that the valuation of each ISIN (International Securities Identification Number) of their units is uploaded to the depository system. ISINs uniquely identify each AIF unit.
What is the immediate deadline?
SEBI has asked AIFs to upload the latest net asset value (NAV) before May 1, or within 30 days from the date of valuation of the portfolio, whichever is later.
The valuation date depends on who conducts the exercise. If done by an internal valuer, the valuation date will be the one recorded in the fund's internal documents. If conducted by an independent or external valuer, the date mentioned in the valuer's report will apply.
Who is responsible for compliance?
The AIF manager will be responsible for ensuring timely and accurate uploading of NAV data.
The trustee or sponsor must ensure that the Compliance Test Report submitted by the AIF's manager complies with the circular.
What disclaimer is required?
Depositories displaying the valuations must carry a disclaimer cautioning investors that NAVs are based on the valuation methodology and accounting practices followed by the fund. The disclaimer must read, "Net Asset Value (NAV) being shown is on the basis of valuation methodology and accounting practice followed by your respective AIF. Please refer to your fund documents for more details."
What has changed from the initial proposal?
Apart from extending the timeline for uploading valuations, SEBI has made three notable changes.
First is the extended deadline for existing schemes. While the consultation paper had asked existing schemes to upload NAVs within 45 days of the circular, effectively by March-end, the latest circular allows time until May 1.
Second, depositories are now required to display a disclaimer alongside valuations.
The third is assigning the responsibility for the valuation declaration exercise to the AIF manager.
Published by HT Digital Content Services with permission from VC Circle.