Fund Due Diligence & KIM Review

Alternative Investment Funds are regulated under SEBI (Alternative Investment Funds) Regulations 2012. Regulation 14 mandates the Private Placement Memorandum (PPM); Regulation 13 sets out the Key Information Memorandum (KIM) disclosure requirements. Category I and II AIFs must also comply with Regulation 12 on investment conditions and SEBI Circular SEBI/HO/AFD/AFC-2/P/CIR/2024/154 on KIM standardisation.

For AY 2026-27 (FY 2025-26) under ITA 1961: Category I and II AIF income passes through to investors under Section 115UB — the fund is not taxable at entity level; investors are taxed as if they had earned directly. Category III AIF is taxed at the fund level at maximum marginal rate under Section 115AD read with Section 115UB(2). From TY 2026-27 onward, ITA 2025 Section 202 (new regime) applies to individual investors. TDS obligations under Section 194LBB apply on income distributed by Category I/II AIFs.

The review verifies: (1) SEBI registration number and category under AIF Regulations 2012 Regulation 3; (2) disclosure of all fees, hurdle rate, carried interest, and waterfall mechanism per Regulation 14(1)(j); (3) risk factors statement per Regulation 14(1)(k); (4) valuation policy aligned with SEBI Circular SEBI/HO/IMD/DF6/CIR/P/2022/098; (5) whether the fund manager holds a valid SEBI registration under Regulation 4. Investors relying on a deficient KIM have limited recourse after commitment.

Yes. Foreign investment in a SEBI-registered AIF is governed by FEMA 1999 and RBI Master Direction — Foreign Investment in India (updated 2024). Category I and II AIFs with foreign capital are treated as Indirect Foreign Investment under Schedule 4 of FEMA (Non-Debt Instruments) Rules 2019. The AIF manager must ensure portfolio companies receiving indirect foreign investment comply with sectoral FDI caps and pricing guidelines under Rule 7 of the NDI Rules. FC-GPR filings with RBI via the SMF portal are required for downstream investments.

Fund management fees paid by an AIF to its manager attract GST at 18% under SAC 997150 (portfolio management services) as per Entry 16 of Notification No. 11/2017-Central Tax (Rate). The AIF manager must hold a GSTIN and issue a tax invoice under Section 31 of the CGST Act 2017. Input Tax Credit is generally not available to the AIF itself because the fund's output (securities income) is an exempt supply under Section 2(47) read with Schedule III of the CGST Act.