On August 08, 2025, the Securities and Exchange Board of India (“SEBI”) released two consultation papers, containing key proposals for accredited investors (“AIs”) in alternative investment funds (“AIFs”).
Consultation Paper on introduction of separate type of AIF scheme for only Accredited Investors (“Consultation Paper I”)
In this consultation paper, SEBI notes that the underlying idea of the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) was to establish AIFs as pooled investment vehicles for sophisticated investors capable of taking on higher risk. While such sophistication is generally ascertained by means of prescribing a minimum commitment amount of INR 1 crore per investor, AIs are exempt from this requirement, since their sophistication is considered to have been determined by accreditation agencies following SEBI-prescribed criteria. Consultation Paper I proposes to introduce a separate type of AIF scheme for only AIs. In this regard, SEBI proposes to adopt a long-term, gradual, consultative strategy of doing away with a minimum commitment requirement altogether and only permitting AIs to invest in AIFs. In the meanwhile, SEBI proposes to allow both systems to coexist by introducing a new kind of scheme (“AI-only scheme”) which onboards only AIs. Further, SEBI has proposed the following relaxations for AI-only schemes:
- Exemption from pari-passu rights: The AIF Regulations require the rights of investors in an AIF to be pari passu in all respects. However, this is inapplicable to large value funds (“LVFs”), i.e, AIF schemes whose constituents are AIs who have committed INR 70 crores or more. SEBI has now proposed to extend this exemption to all AI-only schemes.
- 5-year tenure extension: Currently, extension of the tenure of close ended AIFs is permitted up to 2 years subject to approval of unit holders holding two-thirds of the value of investment in the AIF. However, extension up to 5 years with similar investor consent in available in case of LVFs. SEBI has proposed that AI-only schemes may also be permitted to extend their term up to 5 years, subject to requisite investor consent.
- Certification exemption: Currently, the key investment team of the Manager of an AIF is mandated to have at least one key personnel with SEBI-specified certification. This requirement is proposed to be exempted for AI-only schemes.
- Removal of investor limit: Currently, no AIF scheme other than angel funds is permitted to onboard more than 1000 investors. This requirement is proposed to be exempted for AI-only schemes.
- Relaxation of trustees’ responsibilities: Currently, a number of responsibilities relating to oversight of the AIF and its Manager are placed on the Trustee of an AIF, so as to ensure investor protection. SEBI has proposed that such responsibilities of the Trustee may be fulfilled by the Manager, subject to the terms of agreement between the Manager and the Trustee and the AIF documents.
Further, SEBI has proposed to extend the same relaxations to LVF schemes if not already available. We are of the view that the proposals in Consultation Paper I are highly welcome, since they would contribute to ease of doing business for AIFs and are likely to enhance the inflow of funds by AIs if implemented.
Consultation paper on providing flexibilities to Large Value Funds for Accredited Investors (“LVFs”) under SEBI (AIF) Regulations (“Consultation Paper II”)
As previously noted, LVF schemes are already granted a number of relaxations vis a vis other AIFs, since they comprise sophisticated investors capable of understanding the market and the management of their investee AIF, and require a lower level of regulatory protection. In view of the same, through Consultation Paper II, SEBI has proposed the following further relaxations:
- Reduction of minimum investment amount – Currently, AIs are required to commit a minimum of INR 70 crores each to an LVF. With a view to further facilitate channelling long term sizable investments particularly in unlisted securities and improve fund raising for AIFs without compromising investor sophistication, SEBI has proposed to reduce the minimum investment amount in LVFs to INR 25 crores.
- Exemption from certification criteria -- Currently, the key investment team of the Manager of an AIF is mandated to have at least one key personnel with SEBI-specified certification. This requirement is proposed to be exempted for LVF schemes.
- Exemption from Private Placement Memorandum (“PPM”) template and annual audit requirements – Currently, an AIF or scheme in which each investor commits to a minimum capital contribution of INR 70 crores and provides a waiver to the fund is exempted from the requirement of PPM in the SEBI specified template and from annual audit of terms of PPM, which are otherwise mandatory. SEBI has proposed to exempt LVFs from requirement of PPM in the SEBI specified template and from annual audit of terms of PPM, without the need for a specific waiver stating the same.
- Exemption from Investment Committee responsibility – Currently, the members of the Investment Committee are responsible for ensuring that its decisions are in compliance with the laid down policies and procedures. However, this is exempted for an AIF or scheme in which each investor other than its Manager, Sponsor, or employees or directors of the AIF/Manager commit a minimum capital contribution of INR 70 crore, and all such investors provide a specific waiver to such effect. SEBI has now proposed to extend this exemption to LVFs without the need for a specific waiver.
- Removal of investor limit: Currently, no AIF scheme other than angel funds is permitted to onboard more than 1000 investors. This requirement is proposed to be exempted for AI-only schemes.
Further, SEBI has proposed that existing AIF schemes be given the option to converting themselves into LVF schemes and avail the corresponding benefits if all investors to the scheme consent to the same, provided that each investor meets the minimum investment threshold amount specified for LVFs and is an AI. The modalities/requirements for such conversion would be specified by way of a circular. The proposals in Consultation Paper II are highly welcome insofar as they rightly recognize that LVFs by their very constitution comprise investors capable of handling high-risk and complicated investments, and do not need intrusive regulatory handholding.
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