Can an AIF change its category pursuant to registration? Is the sponsor/management mandated to have an interest in AIF ?

I. Can an AIF change its category pursuant to registration? As per Regulation 7(2) of the SEBI (Alternative Investment Funds) Regulations, 2012, an Alternative Investment Fund (AIF) which has been granted registration under a particular category cannot change its category subsequent to registration, except with the approval of SEBI . However, SEBI Circular No. CIR/IMD/DF/12/2013 dated 07th August, 2013, provides further clarity: Eligibility for Change: Only AIFs that have not made any investments under the category in which they were registered earlier are allowed to apply for a change in category. Application Process: Such AIFs must make an application in Form A along with necessary supporting documents and pay an application fee of ₹1,00,000/-. They are not required to pay registration fees again. Investor Option: If the AIF has received commitments/raised funds prior to applying for a category change, it must send letters/emails to all investors, offering them the option to withdraw their commitments/funds without any penalties/charges. Any fees collected from investors seeking to withdraw must be returned. Partial withdrawal may be allowed subject to minimum investment requirements. Investment Restriction: The AIF shall not make any investments other than in liquid funds/bank deposits until approval for category change is granted by SEBI. Disclosure Post-Approval: Upon approval, the AIF must send a copy of the revised placement memorandum and other relevant information to all its investors. II. Is the sponsor/management mandated to have an interest in AIF? Yes, the sponsor/manager is mandated to have a continuing interest in the AIF. Regulation 10(d) of the SEBI (Alternative Investment Funds) Regulations, 2012, envisages this to ensure that the interest of the Manager/Sponsor is aligned with the interest of the investors in the AIF. This continuing interest shall not be through the waiver of management fees. The minimum continuing interest requirements are: For Category I and II AIFs: Not less than two and a half percent (2.5%) of the corpus or ₹5 crore , whichever is lesser. For Category III AIFs: Not less than five percent (5%) of the corpus or ₹10 crore , whichever is lesser. For Angel Funds: Not less than two and a half percent (2.5%) of the corpus or ₹50 lakh , whichever is lesser. This requirement ensures that the sponsor/manager has 'skin in the game', promoting responsible management and alignment with investor objectives.