SEBI Introduces a Direct Plan allowing Investors to Invest in AIFs without Distribution Fee

Circular No. SEBI/HO/AFD/PoD/CIR/2023/054; dated: 10.04.2023

With a view to providing flexibility to investors for investing in AIFs, the SEBI has introduced a Direct Plan for schemes of AIFs. Such a direct plan shall not entail any distribution fee/placement fee.

The AIFs shall also ensure that investors who approach the AIF through a SEBI registered intermediary which is separately charging the investor any fee (such as advisory fee or portfolio management fee), are on-boarded via Direct Plan only.

Further, the SEBI has prescribed the Trail model for the distribution of commission in AIFs. They shall disclose the distribution/placement fee, to the investors at the time of on-boarding. Also, Cat III AIFs shall charge distribution fee/placement fee to investors only on an equal trail basis i.e., no upfront distribution fee/ placement fee shall be charged by Category III AIFs directly or indirectly to their investors.

Also, Category I AIFs and Category II AIFs may pay up to one-third of the total distribution fee/placement fee to the distributors on upfront basis, and the remaining distribution fee/placement fee shall be paid to the distributors on equal trail basis over the tenure of the fund. The AIFs shall be required to comply with the aforesaid provisions for investors on-boarded in AIFs/schemes of AIFs from May 01, 2023 onwards.

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