Banking, Finance & Insurance

Fund Formation — AIF & PMS

Legal advisory for Alternative Investment Fund and Portfolio Management Service formation and SEBI registration — covering fund structuring, trust deed and investment management agreement drafting, regulatory filing, and ongoing compliance obligations. Corpus Juris Legal advises fund sponsors, managers, and institutional investors on AIF and PMS structures in India.

Overview

India's alternative investment management industry has grown substantially, with AIF commitments now exceeding INR 10 lakh crore. The regulatory framework governing AIFs and PMS — established by the SEBI (Alternative Investment Funds) Regulations 2012 and the SEBI (Portfolio Managers) Regulations 2020 — has also matured, with SEBI issuing increasingly detailed guidance on fund governance, investment conditions, valuation norms, and reporting obligations. AIF formation involves structural and regulatory choices with long-term implications. The three AIF categories — Category I (venture capital, SME, infrastructure, and social impact funds), Category II (private equity, debt funds, and funds of funds not using leverage), and Category III (hedge funds, long-short funds, and funds using complex trading strategies) — each carry distinct investment conditions, leverage restrictions, tax pass-through treatment, and investor eligibility requirements. Category I and II AIFs enjoy pass-through tax treatment under the Income Tax Act; Category III funds are taxed at the fund level. The category choice must be made with clear understanding of the fund's investment strategy and investor expectations. The AIF documentation suite includes the placement memorandum, the contribution agreement, the trust deed (for trust-structured AIFs) or LLP agreement (for LLP-structured AIFs), and the investment management agreement. The placement memorandum must comply with the SEBI prescribed format and contain the disclosures specified by the AIF Regulations, including the fund's investment strategy, risk factors, fee structure, valuation methodology, and governance framework. SEBI has recently emphasised the quality of PM disclosures as a regulatory priority. For PMS, the SEBI (Portfolio Managers) Regulations 2020 require a minimum net worth of INR 50 crore, a qualified personnel requirement, and a comprehensive compliance and reporting framework. The PMS agreement between the portfolio manager and each client must comply with SEBI's prescribed terms and contain the required disclosures. SEBI's PMS inspection programme has become more active, with emphasis on investment rationale documentation, client communication records, and fee computation accuracy. Fund-of-funds structures, co-investment arrangements, and manager GP commitment requirements each add further regulatory and documentation complexity that Corpus Juris Legal navigates for fund sponsors and institutional investors.

Key Service Components

◆AIF registration application — SEBI filing, regulatory liaison and approval management
◆AIF category selection advisory — Category I, II and III eligibility and implications
◆Trust deed and LLP agreement drafting for AIF structure
◆Placement memorandum drafting in compliance with SEBI AIF Regulations
◆Investment management agreement and advisory agreement drafting
◆Contribution agreement and unit subscription documentation
◆PMS registration advisory and SEBI (Portfolio Managers) Regulations 2020 compliance
◆PMS client agreement drafting and disclosure compliance
◆Fund governance framework — investment committee, valuation policy and compliance manual
◆SEBI inspection preparation and regulatory correspondence for AIFs and PMS

Why This Matters for Your Business

An AIF that operates outside SEBI registration requirements, or that has a placement memorandum with inadequate disclosures, creates liability for the sponsor and the manager — and potential recourse for investors who suffer losses and can point to disclosure deficiencies. SEBI's enforcement actions against AIF managers have increased in frequency and severity, covering mis-selling, undisclosed conflicts of interest, and side-letter arrangements that create discriminatory investor treatment. Fund formation done properly creates a governance framework that protects all parties.

Our Approach

Corpus Juris Legal advises on AIF and PMS formation with a thorough understanding of SEBI's regulatory expectations and the market practice that governs fund documentation in the Indian alternative investment space. We work with fund sponsors from the strategy stage — helping to determine the optimal structure before filing — through SEBI registration and the launch of the fund. Our documentation reflects both regulatory compliance and commercial best practice, protecting the manager and meeting institutional investor due diligence requirements.