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Following the recommendations made by Alternative Investment Policy Advisory Committee (AIPAC), SEBI has issued a circular in which it has asked AIFs to appoint an agency that can value thinly traded or non-traded securities.
Currently, AIFs follow mutual funds regulations to value listed or unlisted securities with adequate liquidity. However, there is no standard guidelines to do valuation of listed or unlisted securities which are thinly traded or non-traded.
With this, AIFs will have to appoint a valuation agency that should be registered with the Insolvency and Bankruptcy Board of India (IBBI). Also, the authorized person of such an entity should be a member of Institute of Chartered Accountants of India (ICAI) or Institute of Company Secretaries of India (ICSI) or Institute of Cost Accountants of India (ICMAI) or Certified Financial Analyst (CFA) charter.
Also, such a valuation agency should represent at least 33% of the number of SEBI registered AIFs. SEBI said, "The eligible AIF industry association shall endorse appropriate valuation guidelines after taking into account recommendations of Alternative Investment Policy Advisory Committee of SEBI."
The regulator also said that it aims to harmonize the valuation norms so that they can be applied for valuation of investment portfolios of AIFs on or after March 31, 2025. Other changes specified by the regulator are as follows:
- The change in valuation norms will not be considered a material change implying that AIFs will not have to get approval of over 75% of unitholders to implement this new regulation
- The AIFs will have to communicate the old and new valuation methodologies to investors to ensure transparency
- The timeline for AIF managers to report valuation based on audited data to performance benchmarking agencies has been extended from 6 months to 7 months i.e. by October 31 of each year
- The trustee/sponsor of the AIF will ensure that these regulations are complied and added in the compliance test report
These regulations will come into effect immediately.