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The alternates industry witnessed several regulatory changes and milestones in 2024. Let's look at the major developments that shaped the industry.
Mandatory APRN registration for PMS distributors
SEBI made it mandatory for PMS distributors to obtain Association of Portfolio Managers India registration number (APRN) by January 1, 2025 to sell PMS. Also, distributors selling PMS will have to abide by the code of conduct issued by APMI.
Growth in Alternate assets
A study released by PMS Bazaar, a PMS distribution firm and aggregator of PMS products shows that the Indian alternative investment industry is poised for explosive growth with AUM expected to surpass Rs. 100 lakh crore by 2030 PMS and AIF.
This projection represents a nearly five-fold increase from current levels in just six years.
Both the PMS and AIF categories have demonstrated remarkable growth, maintaining a compound annual growth rate (CAGR) of approximately 33% over the past decade, says the report.
Onboarding of clients become completely digital in PMS
SEBI digitized the PMS client onboarding process from October 1, 2024, eliminating the need for handwritten notes and wet signatures.
Earlier, investors were required to submit a handwritten note along with a wet signature on a letter declaring that they understood the fees and charges associated with PMS. Due to this requirement, digital onboarding of PMS clients was not possible.
New tax rules boost debt PMS
The revised tax structure made debt PMS more attractive compared to debt mutual funds. While debt funds face marginal tax rates regardless of holding period, debt PMS investors benefit from LTCG rates of 12.5% after 12 months on mark-to-market gains.
Changes in AIF regulations
SEBI introduced several changes for AIFs, including allowing them to liquidate illiquid assets within one year from the liquidation period expiry.
The regulator also permitted Category I and II AIFs to borrow for drawdown shortfalls, with specific conditions like a 30-day borrowing limit and mandatory cooling period.
However, in a circular in December, SEBI clarified that investors who have defaulted or have excluded themselves from any drawdown request of AIFs will not be eligible for pro-rata rights i.e. return equivalent to their commitment in the scheme.
IFSC developments
The International Financial Service Centers saw significant changes. SEBI removed limits on NRI, OCI, and RI contributions in IFSC-based AIFs, allowing 100% aggregate contribution. IFSCA announced plans for hosting over 1000 companies by 2025 and mandated 15-day complaint resolution for regulated entities.
Introduction of SM REITs
SEBI introduced Small and Medium REITs with a minimum ticket size of Rs.10 lakh and a 3-year lock-in period. The regulator also allowed REITs, InvITs, and SM REITs to invest up to 20% of their corpus in mutual fund liquid schemes.
A dedicated event for alternates
The launch of the CafeAlt Conference marked a significant industry milestone, bringing together SEBI, PMS players and alternative investment leaders to discuss industry growth and trends.
Additional AIF guidelines
SEBI issued important guidelines around investor rights in AIFs. The regulator clarified that AIFs cannot give priority to any specific class of investors, requiring them to distribute rights based on pro-rata commitment in the scheme.
For foreign venture capital investors, SEBI revised criteria covering various aspects including certification, eligibility, registration renewal, and information requirements.