Summary of this article
India's Sebi introduced GARUDA to expedite AIF scheme launches.
Regular funds can launch ten days after filing application documents.
Specialized funds receive immediate launch approvals without merchant bankers.
Alternative Investment Funds (AIFs) have gained in popularity in the past few years. Investor interest in this category has been driven by high-net-worth individuals and institutional participants seeking high yield and portfolio diversification through alternative assets.
Amid the rise in interest in the asset category, the Securities and Exchange Board of India (Sebi) has introduced a new mechanism to increase access to market opportunities. Notably, Sebi has amended its AIF Regulations to pave the way for the operationalisation of the Green-Channel: AIF Rollout Upon Document Acknowledgement (GARUDA) mechanism.
What Is Sebi's GARUDA Mechanism?
The GARUDA mechanism is a regulatory pathway made by the Sebi to ease and expedite the process by which schemes and funds are launched by AIFs. In its circular, Sebi has introduced new operational rules for filing the Private Placement Memorandum (PPM) and launching schemes. The PPM is a document used by companies or funds to provide critical details, risks, and terms to prospective investors during a private securities offering.
Under the new modalities, AIFs can now proceed with the launch of their new scheme after ten working days of filing their application on the Sebi Intermediary portal, provided the scheme is a regular scheme. However, if a fund is launching its first scheme, it can proceed from the date of grant of SEBI registration or after ten working days of filing the application, whichever is later.
The new modalities also mandate funds to file their placement documents through a Sebi-registered merchant banker for regular schemes. The filing has to include a duly signed Merchant Banker Due Diligence Certificate, signed Fit and Proper declarations for the fund sponsor and manager, and specific declarations regarding minimum continuing interest commitments.
The circular also mandates that a disclaimer clause has to be included in the placement memoranda of all regular schemes. This disclaimer clearly states that the submission of the document to Sebi should not in any way be deemed or construed that the same has been approved by the regulator. Sebi explicitly notes that it does not assume any responsibility for the accuracy and correctness of disclosures, facts, and claims made in the document, nor does it vouch for the capability and performance of the manager.
Furthermore, the circular introduces specific modalities for specialised funds. Accredited Investor only funds, Large Value Funds, and Angel Funds have been made exempt from filing their placement documents through a merchant banker; instead, they must submit a duly signed and stamped undertaking by the Chief Executive Officer and Compliance Officer of the fund manager. Specialised funds are also exempt from intimating changes in the terms of their placement memorandum through a merchant banker, allowing them to directly file any changes with Sebi.
How Is Sebi's GARUDA Expected To Help Investors
The modalities of Sebi’s new GARUDA mechanism are aimed at aiding investors by bringing specialised financial products to the market at a faster pace. By potentially decreasing the waiting time to launch new schemes to ten working days for regular schemes, investors are set to have quicker access to fresh alternative investment opportunities.
Additionally, accredited investor-only funds and Large Value Funds can launch their schemes immediately upon filing their documents with Sebi, and Angel Funds can proceed with the circulation of their memorandum to investors from the exact date they receive their regulatory registration. These expedited launch capabilities are set to offer quicker access to investors operating in fast-moving sectors.
Through the GARUDA rules, Sebi has also sought to protect investor interests by holding fund managers and intermediaries accountable to make disclosures. Notably, mandatory, independent due diligence by merchant bankers for regular schemes can also ensure that disclosures are fair and adequate to enable investors to make informed decisions.
