A SEBI Adjudicating Officer recently ruled in the matter of
Indgrowth Capital Fund – I that the term 'investible
funds' under the AIF Regulations must be strictly construed,
leaving no scope for commercial nuances. The 'investible
funds' of an AIF are calculated by netting the estimated
expenditure from the corpus of the fund. While calculating
'investible funds', Indgrowth Capital had reduced the
amount of its estimated expenditure by expected income streams in
the form of dividends and returns from short-term investments. SEBI
held that this was in violation of the AIF Regulations.
In this analysis, we examine the theoretical framework underpinning
the two competing views at play. We note that AIFs are a
sophisticated asset class with a fairly significant entry barrier
and therefore it may not be appropriate for the regulator to adopt
a paternalistic approach to protecting AIF investors.
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