SEBI suggests making adjustments to Special Situation Funds. Who should invest in SSFs and what are they?

 SEBI suggests making adjustments to Special Situation Funds. Who should invest in SSFs and what are they?

SEBI suggests making adjustments to Special Situation Funds. Who should invest in SSFs and what are they?

Special Situations Funds, a subcategory of Category I AIFs that SEBI launched in January 2022, were designed to make only investments in distressed assets. As of now, there are three funds in India that focus on unique circumstances. Details may be found here.

A proposal to modify the regulations governing Special Category Funds (SSFs), a subset of Alternative Investment Funds (AIFs), was recently proposed by the Securities and Exchange Board of India (SEBI). moves. The goal of this reform is to enable SSF to purchase high-risk loans and encourage the settlement of distressed assets in India.

Special Situation Funds (SSF): What are they?

Special Situations Funds, a subcategory of Category I AIFs that SEBI launched in January 2022, were designed to make only investments in distressed assets. These funds were established in response to the mounting difficulties that the Indian financial sector is facing as a result of stressed loans. Their purpose was to support asset reconstruction companies (ARCs) and other institutions by providing additional risk capital when dealing with stressed debts owned by banks and non-banking financial firms (NBFCs).

 View the special status funds that are currently in place.

ICICI Pru India Opportunities Fund, Axis Special circumstances Fund, and Aditya Birla Sun Life Special Opportunities Fund are the three Indian funds that currently have a special circumstances focus.

suggested modifications

Key changes to redefine the operating scope of SSFs have been suggested by SEBI in a consultation document. Among the suggested adjustments are:

'Special Status Assets' defined: To ascertain the extent of investments that SSFs are required to make, it is imperative to provide clarification on the definition of "Special Status Assets."

Investors must meet the requirements outlined under Section 29A of the Insolvency and Bankruptcy Code, 2016 in order to be eligible to participate in SSF.

Investment limitations in related entities: In order to avoid conflicts of interest and guarantee ethical business operations, restrictions should be placed on investments made in firms that are closely associated with SSF.

Minimum holding period: Regulations establishing the time frame for which SSFs must retain stressed assets prior to any further transfers or sales.

Establish the structure for continuing oversight and monitoring of SSFs in order to ensure regulatory compliance and standards are maintained.

Who ought to think about funding SSF?

SSFs may be a desirable investment choice for those looking to invest in stressed assets and benefit from a structured regulatory framework in order to potentially increase their returns. On the other hand, experts assert that prospective investors must do due diligence and have a thorough awareness of the dangers related to distressed properties.