As part of its efforts to curb speculative trading, the Securities & Exchange Board of India (Sebi) toughened disclosure rules for hedge funds and other alternative investment funds.

The capital market regulator asked hedge funds and other alternative investment funds to implement an all-inclusive risk management framework and have a sturdy compliance function according to the size, complexity and risk profile of their business.

Such funds have also been asked to uphold proper records of their trades and reveal the complete disclosure of their trade management practices as well as any conflict of interest to the regulator.

The regulator made the directions through its `Operational, prudential & reporting norms for alternative investment funds' that were introduced by it in 2012 as a separate product class.

Sebi divided the alternative investment funds into three categories. The 1st category includes alternative investment funds that invest in start-ups, social ventures, small & medium enterprises and other areas which can receive government incentives for being socially/economically desirable. The 2nd category includes private equity funds and debt funds that don't receive any government incentives or concessions.

The 3rd category includes hedge funds or other funds that invest in order to get short-term returns.

Alternative investment funds will not only have to make sure that leverage doesn't exceed the prescribed limit, but also have to report the leverage to the custodian at the end of the trading day.