SEBI is considering expanding the scope of Category II AIFs that invest more than 50 per cent of their assets in unlisted securities to include listed debt securities as well. This move is aimed at providing more investment opportunities for Category II AIFs and allowing them to assume credit risk within the ecosystem.
Under the proposed changes, Category II AIFs may be encouraged to invest in listed debt securities with a credit rating of ‘A’ or lower, aligning with their higher risk appetite. This will also help them meet the requirement of investing more than half of their corpus in unlisted securities.
These proposals come in light of recent changes in listing regulations, such as the restriction on listed entities issuing listed debt securities after January 1, 2024. By investing in listed debt securities with lower credit ratings, Category II AIFs can diversify their portfolios while managing liquidity and credit risks associated with investing in unlisted securities.
Currently, there are 192 schemes of Category II AIFs that have invested more than half of their assets in unlisted debt securities, making them suitable candidates for investing in listed debt securities as well. This move will also help categorize these AIFs as ‘debt funds’ according to the regulator.
Overall, the expansion of investment opportunities to include listed debt securities is set to benefit Category II AIFs and enhance their risk profile in the market.
