The Securities and Exchange Board of India (Sebi) has fixed a higher share of continuing interest for fund managers of hedge funds when compared to those managing private equity/venture funds, infrastructure funds or those looking at the small and medium enterprises (SMEs).

According to the Alternate Investment Funds (AIF) norms notified on Monday, the regulator has pegged the continuing interest level in Category III AIF at 5% or R10 crore, whichever is lower. For all other funds, the same has been fixed at 2.5% or R5 crore, whichever is lower.

At the board meet, the regulator had laid down that the manager or sponsor will have a continuing interest in the AIF of not less than 2.5% of the initial corpus or R5 crore, whichever is lower, and such interest will not be through the waiver of management fees.

The AIF guidelines will regulate all private equity players, venture funds, real estate funds, and even hedge funds. The notification comes nearly a month-and-a-half after the Sebi board approved the guidelines. Interestingly, the capital market regulator has allowed existing funds that fall within the ambit of AIF norms to continue operations for six months, which, in special cases could extend for 12 months, before getting registered under the new guidelines.

Such funds, however, will not be able to raise any fresh funds other than commitments already made till registration is granted.

The regulator has created three broad categories of funds, based on the investment style and the potential impact on the markets and the economy. For instance, Category I AIF includes those that invest in start-ups, early stage ventures, social ventures, SMEs, infrastructure or other sectors that the government or regulators consider as socially or economically desirable.

Similarly, Category II AIF includes those that do not undertake leverage or borrowing other than to meet day-to-day operational requirements. Category III AIF will cover all those that employ diverse or complex trading strategies and also leverage, including through investment in listed or unlisted derivatives.

While units of close-ended AIF may be listed on stock exchange subject to a minimum tradeable lot of R1 crore, the listing of AIF units will be permitted only after final close of the fund or scheme.