Sebi Implements New NAV Reporting Mandate for Alternative Investment Funds
The Securities and Exchange Board of India (Sebi) has established a crucial regulatory deadline for Alternative Investment Funds (AIFs) operating within the country. According to the latest directive, all AIFs must submit their Net Asset Value (NAV) for each International Securities Identification Number (ISIN) of AIF units to designated depositories. This submission must occur through authorized Registrars and Transfer Agents (RTAs) by the firm deadline of 1 May 2026.
Understanding the Valuation Timeline and Reporting Framework
Sebi's circular specifies that the NAV must be uploaded within 30 days of the valuation date of the investment portfolio, or by the May 2026 cutoff, whichever date occurs later. This provides funds with a clear compliance window while ensuring timely reporting. The determination of the valuation date follows a structured approach:
- When an independent valuer is appointed, the valuation date corresponds precisely to the date mentioned on the official valuation report.
- For valuations conducted by internal valuers within the fund, the date recorded in the fund's internal documentation and records will serve as the official valuation date.
The primary responsibility for ensuring accurate and punctual NAV reporting rests squarely with the AIF manager. This individual or entity must guarantee that all data submitted to depositories is correct and meets the regulatory timeline.
Sebi's Strategic Objectives Behind the New Regulation
Through this significant regulatory move, Sebi aims to achieve multiple strategic goals aimed at strengthening India's financial market infrastructure. The key objectives include:
- Enhancing Transparency: By mandating standardized NAV reporting to depositories, Sebi seeks to create a more transparent environment for investors and stakeholders.
- Boosting Operational Efficiency: The streamlined process is designed to reduce administrative bottlenecks and improve the overall operational workflow for AIFs, RTAs, and depositories.
- Facilitating System Readiness: The regulation compels all involved parties—AIFs, registrars, transfer agents, and depositories—to develop and implement robust technological systems capable of handling the new reporting requirements.
Depositories' Critical Role and Infrastructure Requirements
Sebi has issued specific instructions to depositories regarding their responsibilities under the new framework. Depositories must:
- Develop and deploy the necessary technological infrastructure and platforms to enable RTAs to upload NAV data seamlessly.
- Ensure that once uploaded, the NAV information is properly displayed within the depository system for authorized access.
- Include a mandatory disclaimer wherever AIF NAVs are displayed to investors. The disclaimer must state: "Net Asset Value (NAV) being shown is on the basis of valuation methodology and accounting practice followed by your respective AIF. Please refer to your fund documents for more details."
Current AIF Regulatory Framework and Valuation Norms
Under the existing regulatory framework, AIFs are permitted to raise capital from a diverse investor base, including domestic Indian investors, foreign participants, and non-resident Indians. This capital is raised through the issuance of units, whose value is intrinsically linked to the valuation of the AIF's underlying investment portfolio.
The valuation requirements vary across different AIF categories:
- Category I and Category II AIFs: These funds must conduct a formal investment valuation at least once every six months, and this valuation must be performed by an independent valuer. However, with the explicit approval of at least 75% of investors (based on the value of their investments), this valuation frequency can be extended to once per year.
- Category III AIFs: For this category, a strict separation is mandated. The NAV calculation must be performed independently of the fund's management function. Furthermore, investor communication requirements stipulate that NAV must be provided to investors at least quarterly for closed-ended funds and at least monthly for open-ended funds.
This comprehensive regulatory update by Sebi represents a significant step toward modernizing India's alternative investment landscape, aligning it with global best practices while addressing specific domestic market needs.
