The Securities and Exchange Board of India (“SEBI”) issuedan interpretive letter dated April 09, 2026 (“Interpretive Letter”)under the Securities and Exchange Board of India (Informal Guidance) Scheme,2025, in response to an application by UTI Alternatives Private Limited (“UAPL”),an Investment Manager to three Category-II Alternative Investment Funds (“AIFs”)registered under the Securities and Exchange Board of India (AlternativeInvestment Funds) Regulations, 2012 (“AIF Regulations”). TheInterpretive Letter addresses the application of the broad based fundrequirement under Regulation 24(b) of the SEBI (Mutual Funds) Regulations, 1996(“MF Regulations, 1996”),[1] tomanagement and advisory services rendered by subsidiaries of Asset ManagementCompanies (“AMCs”) to AIFs and their schemes.
Background
Regulation 24(b) of theMF Regulations, 1996 restricts the permissiblebusiness activities of an AMC. An AMC is restricted to rendering management andadvisory services to pooled assets, and includeoffshore funds, insurance funds, pension funds, provident funds, and suchcategories of Foreign Portfolio Investors (“FPIs”) as may be specified by SEBI.
An AMC may also undertake portfolio management services andadvisory services to non-broad based fund, subject to other criteria asmentioned under second Proviso to Regulation24(b) of the MF Regulations, 1996. In this regard, theExplanation to Regulation 24 of the MF Regulations, 1996,[2] defines a “broad based fund” as a fund having a minimum of twenty investors, with no singleinvestor holding more than twenty-five percent of the total corpus.
UAPL, as an AMCsubsidiary managing three Category-II AIFs, sought informal guidance from SEBIon four inter-related questions: first, whether the broad based fundrequirement is attracted when an AMC subsidiary renders management and advisoryservices to an AIF, which is a pooled asset as per AIF Regulations; second, if so, at what level, the fund or the scheme, such compliance must be required. Third,UAPL also sought clarifications on, whether a feeder fundis also required to comply with the broad-basing requirement, and, fourth,whether the look-through benefit available to FPIs underthe Master Circular for Mutual Funds dated June 27, 2024 (“Master Circular”) extends tosimilarly situated domestic regulated entities.
Key Clarifications in the InterpretiveLetter
I. AIFs asPooled Assets within Regulation 24(b)
SEBI confirmed that anAIF constitutes a “pooled asset” for the purposes of Regulation 24(b) of the MF Regulations, 1996,and accordingly, the broad based fund requirement is attracted to managementand advisory services rendered by an AMC subsidiary to an AIF and its schemes.
II. Compliance at the Scheme Level
On the question of theappropriate level of compliance, SEBI replied thatthe broad-based requirement must be satisfied independently at the schemelevel, and not merely at the level of the AIF as a whole. The basis for thisposition is Regulation 10 of the AIF Regulations, which treats each scheme ofan AIF as a distinct investment vehicle with its own investor limits, corpusrequirements and compliance obligations. Therefore, as managementand advisory services are rendered to each scheme individually, each schememust satisfy the broad-based criteria independently.
III. Master-Feeder Structures
The Interpretive Letter stated that each fund in a master-feeder arrangement, whether the master fund or any feeder fund, must independently satisfy the broad-based requirement. The factthat a feeder fund does not make independent investment decisions is nottreated as a distinguishing factor. Since management and advisory services arerendered separately to each fund in the structure, the Regulation 24(b) requirementis attracted at each level accordingly.
IV. Scope of the Look-Through Exemptionunder the Master Circular
Paragraph 17.3 of MasterCircular[3] permits AMC subsidiariesto demonstrate compliance with the broad based requirement on a look-throughbasis, that is, by looking through a pooled vehicle to the underlyinginvestors, where management services are rendered to appropriately regulatedFPIs. UAPL sought to extend this benefit to domestic regulated entities such asbanks, insurance companies and provident fund trusts, which are subject tocomparable regulatory oversight under domestic frameworks.
The Interpretive Letter stated that the look-through benefit is expressly confined to FPIs underthe FPI framework, and does not extend to domestic regulated entities. SEBIreasoned that such entities are governed by separate domestic regulatoryregimes and fall outside the scope of the FPI framework within which thelook-through benefit has been prescribed. The implication is that a schemereceiving investment from a bank, insurer or provident fund trust must countthat entity as a single investor for the purpose of the twenty-five percentconcentration limit, and cannot look through to the entity’s own beneficiaries or underlying investors.
Our View
This informal guidance comes in the backdrop of the SEBIconsultation paper dated July 07, 2025, which proposed measures aimed at easeof doing business and enhancing the scope of permissible activities underRegulation 24(b) of the MF Regulations, particularly the proposal to remove thebroad-basing requirement for pooled assets. However, this proposal was nottaken forward.
The Interpretive Letter issignificant for the growing number of AMC subsidiaries that manage AIFsalongside traditional mutual fund mandates. The confirmation that AIFsconstitute pooled assets for the purposes of Regulation 24(b) and thescheme-level compliance requirement introduces a degree of operational rigourthat the AMC must ensure in their existing compliance frameworks. It would be prudent for AMCsubsidiaries managing AIFs to undertake a scheme-by-scheme compliance review inlight of this guidance.
[1] Reproduced under Regulation 21(b) of the SEBI (Mutual Funds) Regulations, 2026(“MF Regulations, 2026”).
[2] Reproduced under Regulation 2(1)(f) of the MF Regulations, 2026.
[3] Reproduced under Paragraph 22.2 of the Master Circular dated June 20, 2026.
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