The Securities and Exchange Board of India (Sebi) has released a framework for Special Situation Funds. The regulator has established a framework for Special Situation Funds (SSFs), which will invest exclusively in stressed assets. The move is noteworthy in light of ongoing attempts to resolve the problem of stressed assets in the financial sector.
SSFs have been added as a sub-category of Category I Alternative Investment Funds (AIFs), according to a notification issued by the Sebi on Monday. SSFs will only invest in stressed assets, such as stressed loans, that are available for purchase in accordance with RBI guidelines or as part of a resolution plan approved under the Insolvency and Bankruptcy Code.
These funds will also invest in Asset Reconstruction Companies (ARC) security receipts, distressed company securities, and any other asset or security that the board may prescribe from time to time. The regulator stated, "Each scheme of a special situation fund shall have a corpus as may be defined by the Board (Sebi)."
SSFs will also take an investment of the value specified by the regulator from an investor. Other than a special situation fund, it will not take investments from any other AIF. The Regulator has updated AIF rules in this regard.