All fresh AIF investments from Sept 2024 to be in demat form — what it means & who benefits

Dematerialisation, often shortened to demat, refers to converting physical securities like shares, bonds, and so on, into an electronic format. This makes trading and holding these securities easier and more secure.

Decoding the new rules

What the new rules essentially mean is that all fresh investments made by AIFs from September 2024 must be held in dematerialised form, transitioning from physical securities to the electronic format. It must be noted that liquidation schemes, short-term tenure schemes, and extended tenure schemes have been exempted from this rule, recognising their unique operational requirements.

Currently, investments made by AIFs are generally exempted from this demat requirement, with some specific exceptions such as cases mandated by investee companies or where AIFs are directed to hold their investments in demat form.

Key benefits

Dematerialisation fosters greater transparency, reducing operational risks, and offer investors increased accuracy in transactions. With this, SEBI can monitor AIF activities more efficiently, accessing crucial information via depositories, thus ensuring adherence to regulations and safeguarding investor interests.

Industry experts stress the importance of dematerialisation for the sustained growth of the AIF sector. Rajeev Saptarshi, Director & COO at Kotak Alternate Asset Managers, in an exclusive conversation with CNBC-TV18, emphasised the significance of dematerialisation for the AIF industry's long-term progress, citing benefits akin to those experienced by public market investors.

Siddarth Pai, Founding Partner & CFO at 3one4 Capital, hailed SEBI's initiative, highlighting the collaborative effort between industry associations and regulatory bodies to establish frameworks catering to the unique needs of AIFs.