The Securities and Exchange Board of India (SEBI) has tightened disclosure norms for hedge funds and other alternative investment funds (AIFs) using complex trading strategies, especially for those leveraging investments for higher returns or borrowings.
SEBI has capped the leverage limits for Indian hedge funds and investment schemes that are classified under category III AIFs.
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SEBI had notified its AIF regulations in May 2012 and issued the new directions under operational, prudential and reporting norms for alternative investment funds and said the leverage of such high-risk funds cannot exceed two times the net asset value or NAV of the fund.
This means if a fund’s net asset value is INR1 billion then its leverage after offsetting positions should not exceed INR2 billion.
Category III AIFs, which undertake leverage through investment in derivatives or by borrowing, would need to submit a report to SEBI on a monthly basis about their activities.
Category III AIFs shall have to additionally comply with norms pertaining to risk management, compliance, redemption and leverage, SEBI added.
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By GlobalDataThe regulator has also called for open ended Category III AIFs to maintain sufficient liquidity to meet redemption obligations and other liabilities. They have been asked to maintain records of their trades and provide full disclosure of their trade management practises and any conflict of interest to SEBI.
