The Securities and Exchange Board of India introduced new guidelines on Monday on how category I and category II alternative investment funds can borrow money. Under the new guidelines, these funds cannot borrow money to make investments or use leverage, except for covering temporary shortfalls in their daily operations.
Category I AIFs invest in areas like startups, small and medium-sized enterprises, social ventures that aim to make a positive impact, and infrastructure projects like railways and airports. Category II AIFs include funds like private equity, which helps unlisted companies raise capital, and debt funds, which invest in the debt securities of these companies.
If an AIF needs to borrow funds because they have not received promised funds from investors in time for an investment, they can do so under specific conditions. This borrowing should be disclosed in the fund’s scheme documents and only used in emergencies. according to SEBI’s circular.