Investors of Alternative Investment Funds (AIFs) are finding themselves in a tight spot in their effort to convert their outstanding units from physical form to electronic or dematerialised form.
The process involves a lot of paperwork, and a few of the service providers have put the onus of conversion on their unitholders. The regulatory body has stated that the conversion of units at the end of an investor is not mandatory, given in case an unitholder is unable to submit details on time.
While complicating the matter further, some AIFs are yet to obtain the International Securities Identification Number (ISIN) from a depository, which is a prerequisite for Demat (dematerialisation) of units.
Earlier, there were anticipations in the industry that the investor would not be able to go to the depository participant and get it demated.
Especially in the case of those who were outside the country will find it more difficult. A few others are likely to completely avoid the trouble of going through the entire procedure, which could result in the possible failure of the whole objective of dematerialisation.
An investor looking forward to converting the existing units to demat needs to submit the conversion request form along with details of ISIN, lock-in details, Depository Participant (DP) identify to the AIF or the Registrar and Transfer Agent (RTA) in addition to a copy of the latest Statement of Account (SoA) and a copy of client master report issued by the DP.
The National Securities Depository (NSDL) and Central Securities Depository (CDSL) have introduced an operational procedure for investors of AIFs to convert their existing units in the demat form.
The move has been introduced during a phase when opacity persists over the regulatory compliance around the mandatory dematerialisation of units issued by AIFs.
Markets regulator, the Securities and Exchange Board of India (SEBI), had mandated AIFs, with more than Rs 500 crore corpus, to convert outstanding units into electronic form and issue fresh units only in this form, with effect from November 1, 2023.
The AIF industry has discussed with SEBI highlighting the implementation challenges related to demat transition. It looks forward to further directions from the market regulator.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.