SEBI issued its first informal guidance dated 28 February, 2014, on the SEBI (Alternative Investment Funds) Regulations, 2012, in response to queries raised by Motilal Oswal Real Estate Investment Advisors Private Limited. Motilal Oswal Real Estate sought interpretative guidance on four crucial points under the AIF Regulations which required clarity. In relation to the question, whether the investment limit of 25% (in one investee company) of the investible funds is to be complied with at the time of final close of the Fund or at the time of each investment by the Fund, SEBI clarified that this restriction must be complied with throughout the life cycle of the Fund or the scheme. In addition, SEBI clarified that the phrase “Category II Alternative Investment Funds shall invest primarily in unlisted investee companies or in units of other Alternative Investment Funds”, in Regulation 17(a) is indicative of where the “main thrust” of a Category II Fund ought to be. In other words, the requirement is to ensure that investments in unlisted securities or units of other AIF are more than other investments i.e. greater than 50% of the funds invested at all times. Further, even this requirement ought to be complied with throughout the life cycle of the Fund or the scheme. Another query raised by Motilal Oswal Real Estate was in relation to the understanding of the phrase “investible funds” SEBI clarified that the amount of investible funds is to be computed on the basis of commitment made by the sponsor inclusive of green shoe option, as may be exercised, as on the date of computation. These are welcome clarifications which would facilitate continual compliance by fund managers and thereby avoid the issue of infringement of investment limits. In the current market practice, managers seek to comply with investment limits only towards subsequent closings. Moreover, the informal guidance has provided clarity regarding what constitutes “primary investment”.