Introduction
Alternative investment funds (“AIF”) being considered an investment avenue for sophisticated investors with high risk-appetite and ticket-size, are subject to certain restraints in their marketing and placement to keep it restricted to the intended investors. The Securities and Exchange Board of India (“SEBI”) (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) define an AIF as[1] “a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors…”. Regulation 11[2] further provides that an “AIF shall raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called”. Moreover, it has been provided[3] that no scheme of an AIF shall have more than 1000 investors and where an AIF is set-up as a company, the provisions of the Companies Act, 2013 shall apply.[4]
It is important to note that the AIF Regulations do not explicitly define ‘privately pooled’ or ‘private placement’, which implies that an AIF shall have multiple investors, and therefore it necessitates the reliance on broader legal jurisprudence. AIFs are prohibited from making an invitation to the public at large for subscription to its units.[5] Unlike certain European jurisdictions[6], the concept of “reverse solicitation” / “reverse enquiry” is not legally recognised defence in India. Therefore, in this regard it becomes pertinent to analyse what constitutes private placement and what are the key considerations that fund managers and distributors/placement agents should keep in mind while marketing an AIF/scheme.
Ambiguity in private placement norms
The regulatory framework for AIFs in respect of marketing and placement is notably fragmented, with compliance obligations dispersed across various regulations, acts, guidance and circulars. In the absence of definition of private placement, resort is made to the company law jurisprudence on ‘private placement’ to understand the broad principles governing the same.
Reading the Section 42 of the Companies Act, 2013 with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 provides defines the private placement as “any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer cum-application…” and such offer or invitation to subscribe securities shall not be made to more than two hundred persons in the aggregate in a financial year. The determination of the question of an offer being made to the public depends upon the facts and language of the notice and the particular circumstances of each case.[7] But, generally, an offer to select and small circle of friends, promoters, relations or customers cannot be said to be an ‘offer to the public’.[8]
On the other hand, the AIF Regulations allows the number of investors in any scheme of an AIF is at a maximum of one thousand (except in the case of angel funds). While these provisions do not provide any conclusive legal guidance on this matter, the argument in favour of 1000 investors can be taken as AIF Regulations is the special law which should prevail over the general law (Companies Act, 2013). If we combine the provisions of company law and AIF Regulations, one possible interpretation may be taken that, if an AIF intends to onboard 1000 investors, it will have to onboard them in batches of 200 investors every year for the next 5 years. However, the prevailing industry practice does not adhere to such interpretation unless the AIF is structured as a company (a very rare occurrence in the Indian context where most AIFs are set-up as trusts).
Furthermore, ambiguity exists regarding the treatment of ‘joint contributors’ within any scheme of an AIF and whether they should be counted as a single investor or multiple investors when calculating the 1000 investor limit.
Finally, there is also no clarity on whether the cap of 1000 investors is to be calculated on an aggregate basis (including past investors who might have transferred their units and exited the AIF) or whether the same is to be calculated as the number of investors any scheme of an AIF has at any given point in time.
Therefore, because of the above legislative gaps in placement provisions, fund managers and distributors often seek legal guidance for analysing the compliance risk of their specific marketing programmes.
Common instances of marketing by fund managers
Uploading social media posts about milestones, deals and job openings
Several fund houses and fund manager frequently upload their milestones, achievements, investment deals, job vacancies etc over their social media accounts such as LinkedIn, Twitter (now ‘X’), Facebook etc. These posts are general in nature and should be allowed since these cannot, per se, be construed as a public offer of its units. For this, appropriate disclaimers are usually included in the posts and analysis of a legal counsel is generally sought.
Another key compliance with marketing over social media platform comes from the SEBI Press Release dated March 21, 2025[9] titled “Advisory to SEBI Registered Intermediaries-Uploading advertisements on Social Media Platforms (SMPs)” (“Advisory”), wherein, all SEBI registered intermediaries (which includes AIFs) uploading/ publishing advertisements on SMPs including Google/ Meta etc., have been mandated to register on such social media platforms using their email ID and mobile number registered on SEBI SI Portal. The SMPs will thereafter carry out advertiser verification of the AIF after which, it will be permitted to upload/ publish advertisements on these platforms.
While SEBI has not provided any concrete definition of “advertisement” in their press release or under the AIF Regulations, we may draw guidance from Advertisement code for Investment Advisers (“IA”) and Research Analysts (“RA”) released by SEBI in 2023[10] wherein a broad understanding of advertisement is provided as “advertisement shall include all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor”.
In the light of the above, it would be advisable to all AIFs and their managers to comply with the Advisory even if they just post updates on milestones, transactions, events, or recruitment opportunities so as to avoid any potential violation.
Soft-marketing of AIF/scheme prior to receipt of SEBI registration
Unlike jurisdictions such as European Union[11] which permit ‘pre-marketing’ i.e. marketing/promoting the AIF prior to receipt of registration, the Indian regulatory framework does not formally recognize this concept. However, it should be possible to ‘soft-market’ the AIF post the receipt of ‘in-principle’ approval from SEBI for registration of the AIF although practically this poses an issue since the obtaining an in-principle approval from SEBI and obtaining a final registration certificate takes almost the same time. Managers often engage in some pre-marketing on a no-name basis to test the market interest and market depth, however, each marketing strategy must be assessed on a case-by-case basis from a legal and regulatory perspective along with appropriate legal disclaimers drafted by a legal counsel.
Sponsorship of various events/conferences and hosting of educational material on websites etc.
Frequently, a lot of the fund houses consider sponsoring various events/conferences etc., with the intention of creating a brand recall value of the organisation. In this regard, and subject to various caveats and factual analysis, generally it should not raise any regulatory issues as the long as the investment manager does not offer its units for subscription to the public at large. Similarly, hosting of educational articles on market trends, asset allocation principles, and the general nature of alternative investments etc. on the website of the AIF/fund manager shall not amount automatic breach of private placement norms on a non-solicitation basis. In this regard, certain safeguards can be considered, viz. such content/articles can be accompanied by disclaimers stating that it is solely for educational/information purposes, and not to be construed as an offer for its units and there are no direct links from the articles to specific fund documents or subscription forms. Similarly, targeted outreach to select number of sophisticated investors on social media platforms (subject to compliance with the Advisory) and invite-only/close-door conferences with a select number of sophisticated investors may not per se amount to a breach of the private placement norms.
Conclusion
From the above analysis it becomes clear that SEBI has prescribed certain restrictions and safeguards for marketing by AIFs to keep it restricted to certain type of investors and to avoid it spilling into the territory of mutual funds. However, the same is fragmented across circulars/press releases etc. and has several legislative gaps. Foreign jurisdictions like the European Union have a separate consolidated framework for marketing by AIFs suggesting a potential roadmap for SEBI to enhance clarity and cohesiveness in the Indian context. The fragmented nature of guidance from SEBI w.r.t. marketing of AIFs only heightens uncertainty and increases compliance costs and compliance risk for fund managers. A consolidated framework for marketing by AIFs can be included by way of a separate chapter in the Master Circular.
Furthermore, while the Advisory is a step towards regulating digital advertisements, a lot more can be done by SEBI in this regard for instance by introducing a code of conduct for issue of advertisements by AIFs in consultation with industry associations like IVCA. Similar marketing codes already exist for other SEBI registered intermediaries such as investment advisors[12] and research analysts etc.[13] While the above analysis tries to capture all the regulatory considerations, marketing of AIFs continues to present legal uncertainties that must be navigated through careful factual analysis and legal interpretation for each circumstance.
[1] Regulation 2(1)(b)(i) of the AIF Regulations
[2] Regulation 11 of the AIF Regulations
[3] Regulation 10(f) of the AIF Regulations
[4] Under the Companies Act, 2013 read with Companies (Prospectus and Allotment of Securities) Rules, 2014, the private placement norms cap the number of investors to not more than 200 in aggregate in a financial year.
[5] SEBI FAQs on AIF Regulations available at https://www.sebi.gov.in/sebi_data/faqfiles/jan-2017/1485861425527.pdf (FAQ no. 11 and 17)
[6] See for instance Norway: https://practiceguides.chambers.com/practice-guides/comparison/1018/14490/22695-22696-22697-22698 and Finland: https://iclg.com/practice-areas/alternative-investment-funds-laws-and-regulations/finland
[7] Rattan Singh v. Moga Transport Co., (1959) 29 Com Cases 165
[8] A. Ramaiya’s Guide to the Companies Act, Volume – 1, 19th Edn. at page 451
[9] SEBI | Advisory to SEBI Registered Intermediaries- Uploading advertisements on Social Media Platforms (SMPs)
[10] Advertisement code for Investment Advisers (IA) and Research Analysts (RA) now subsumed in their respective Master Circulars.
[11] https://www.cssf.lu/en/pre-marketing-aifms/
[12] Paragraph 10 of SEBI Master Circular for Investment Advisers dated May 21, 2024.
[13] Paragraph 8 of SEBI Master Circular for Research Analysts dated May 21, 2024
