Dematerialization Of Units Of AIF

• Published date: 04 April 2024
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Venture Capital, Corporate and Company Law, Securities
• Law Firm: Argus Partners
• Author: Mr Adity Chaudhury and Mayuri Kalelkar

The Securities Exchange Board of India ("SEBI") on June 21, 2023 issued a circular no. SEBI/HO/AFD/PoD1/CIR/2023/96 on 'Issuance of units of AIFs in dematerialized form' (available, here) , which directed all schemes of alternative investment funds ("AIFs") to dematerialize their units as per the following timeline:

Particulars	Schemes of AIFs with corpus more than Rs. 500 crore	Schemes of AIFs with corpus less than Rs. 500 crore
Dematerialization of all the units issued	Latest by October 31, 2023	Latest by April 30, 2024
Issuance of units only in dematerialized form	November 1, 2023 onwards	May 1, 2024 onwards

On December 11, 2023, SEBI issued another circular no. SEBI/HO/AFD/PoD1/CIR/2023/186 ("Circular"), which sets out the process to be followed for dematerializing or crediting the units issued in cases where investors are yet to provide demat account details to AIFs.

Key aspects of the Circular are as follows:

1. Units already issued by schemes of AIFs to existing investors who have not provided their demat account details, are required to be credited to a separate demat account named 'Aggregate Escrow Demat Account'. This account is required to be opened by AIFs for the sole purpose of holding demat units of AIFs on behalf of such investors.
2. Schemes of AIFs with a corpus of more than Rs. 500 Crore (Rupees five hundred crore) are required to credit units already issued to existing investors (on-boarded before November 1, 2023) who have not provided their demat account details, into the Aggregate Escrow Demat Account latest by January 31, 2024.
3. Schemes of AIFs with a corpus of less than Rs. 500 Crore (Rupees five hundred crore) are required to credit units issued to their investors who have not provided their demat account details by April 30, 2024, into the Aggregate Escrow Demat Account latest by May 10, 2024.
4. Units issued by such schemes as on April 30, 2024, to investors who have provided demat account details are required to be credited to the respective investors' demat accounts at the earliest but not later than May 10, 202
5. As and when such investors provide their demat account details to the AIF, their units held in the Aggregate Escrow Demat Account will be transferred to the respective investors' demat accounts within 5 (five) working days.
6. Units of AIFs held in the Aggregate Escrow Demat Account can be redeemed, and the proceeds shall be distributed to the respective investors' bank accounts with a full audit trail of...