Commencement of Operations and Filing Requirements

Once an Alternative Investment Fund (AIF) receives its certificate of registration (Form B) from the Securities and Exchange Board of India (SEBI), it enters the operational phase, but several regulatory conditions must be satisfied before it can launch a scheme or raise capital. SEBI’s post-registration framework ensures that every AIF begins its investment activity with full transparency, accountability, and compliance oversight.

Filing of Private Placement Memorandum (PPM)

As per Regulation 11 of the SEBI (AIF) Regulations, 2012, an AIF must file its Private Placement Memorandum (PPM) with SEBI at least 30 days prior to the launch of any scheme. This filing allows SEBI to review key aspects such as the fund’s investment strategy, governance structure, and operational model, ensuring they comply with the approved fund category (I, II, or III). No fundraising or investment activity can commence until this filing requirement is met.

Disclosure of Material Changes

Under Regulation 20(13), AIFs must promptly disclose any material changes in their fund structure, investment policy, or governance model to both SEBI and existing investors. This provision ensures that investors are always informed about strategic or structural shifts that could impact their risk exposure or expected returns. It also reinforces SEBI’s role in continuous regulatory supervision post-registration.

Alignment of Legal and Constitutional Documents

AIFs structured as trusts must ensure that their Trust Deed, and those established as LLPs or companies must ensure that their constitutional documents, remain consistent with the approved fund structure. Any deviation from the documents filed during registration can trigger regulatory scrutiny or require SEBI’s prior approval, as the legal foundation of the fund must reflect its operational realities.

Sponsor’s Continuing Commitment (Regulation 10(d))

To ensure long-term alignment of interests between fund managers and investors, Regulation 10(d) mandates that the sponsor’s continuing interest in the fund shall not be less than 2.5% of the corpus or ₹5 crore, whichever is lower. This capital commitment must be maintained throughout the fund’s tenure. It serves as a demonstration of the sponsor’s confidence and shared financial exposure, promoting responsible management and investor trust.

Ensuring Transparency and Compliance from Inception

Together, these provisions reflect SEBI’s emphasis on pre-operational discipline and compliance assurance. Before an AIF begins operations, it must demonstrate regulatory alignment in its disclosures, governance structure, and sponsor commitment. This not only instills investor confidence but also strengthens the fund’s legal and ethical foundation, setting a transparent precedent for future operations and reporting.

Investment Conditions and Restrictions (Regulation 15)

After registration and commencement of operations, every Alternative Investment Fund (AIF) must operate within the boundaries prescribed by Regulation 15 of the SEBI (Alternative Investment Funds) Regulations, 2012. This regulation establishes clear investment concentration limits, diversification requirements, and leverage restrictions to ensure prudent fund management and protection of investor interests. SEBI’s intent is to prevent excessive exposure to a single asset or entity, thereby minimizing systemic and investor-specific risks.

Investment Concentration Limits for Category I and II AIFs

As per Regulation 15(1)(c), Category I and Category II AIFs are prohibited from investing more than 25% of their investable corpus in a single investee company. This cap promotes diversification and mitigates concentration risk, ensuring that the performance of one entity does not disproportionately affect the fund’s overall returns.
Category I AIFs typically invest in startups, SMEs, social ventures, and infrastructure projects, whereas Category II AIFs focus on private equity, debt, or real estate. By imposing a 25% ceiling, SEBI ensures that these funds maintain balanced portfolios aligned with their risk-return profiles.

Investment Limit for Category III AIFs

For Category III AIFs, which employ complex and multi-strategy investment models similar to hedge funds, SEBI imposes stricter exposure norms. Under Regulation 15(1)(d), these funds are restricted to a 10% exposure of their Net Asset Value (NAV) per investee company, although this limit may extend to 20% for large-value accredited investors, subject to fund disclosures and approvals.
These exposure limits are crucial for funds employing leverage, derivatives, or short-selling, as they help maintain liquidity and prevent overexposure to any single market risk.

Restrictions on Borrowing and Leverage

AIFs are generally prohibited from borrowing or leveraging funds, except for limited operational purposes. Under Regulation 16(1), Category I and II AIFs may employ short-term borrowings to manage temporary cash flow mismatches, but not for speculative investment. Conversely, Category III AIFs which follow hedge fund-like strategies are permitted to use leverage within SEBI-prescribed limits, provided they disclose their leverage policy, risk assessment framework, and investor consent procedures.
To maintain transparency, SEBI mandates that these funds must disclose leverage details, collateral positions, and stress-test results in their quarterly reports to investors and the regulator.

Deviation from Investment Strategy

If an AIF wishes to alter its investment strategy, structure, or asset allocation model, it must obtain prior investor consent and notify SEBI in accordance with Regulation 20(13). This ensures that investors are fully informed of any material deviation from the originally disclosed objectives in the Placement Memorandum (PM). Such changes are closely scrutinized by SEBI to prevent misuse of investor funds and ensure that the fund’s conduct remains consistent with its approved objectives and fiduciary obligations.

Regulatory Objective

Through Regulation 15, SEBI establishes a disciplined framework that balances flexibility with prudence. These investment restrictions safeguard investor interests, promote diversification, and uphold market stability. For fund managers, strict adherence to these conditions not only ensures compliance but also enhances the credibility of their fund operations within India’s growing alternative investment ecosystem.

Custodian and Valuation Requirements (Regulations 23 & 24)

Proper valuation and asset custody form the cornerstone of transparency and investor confidence in the Alternative Investment Fund (AIF) ecosystem. To ensure fairness, accountability, and consistency in financial reporting, Regulations 23 and 24 of the SEBI (Alternative Investment Funds) Regulations, 2012 lay down strict rules governing how AIFs must value their investments and safeguard fund assets. These provisions ensure that investor returns are based on accurate and independently verified asset values, minimizing the risk of manipulation or misstatement.

Valuation Standards under Regulation 23

Under Regulation 23(1), all AIFs must conduct valuation of their investments in accordance with fair, consistent, and transparent methodologies. The valuation process must comply with Indian Accounting Standards (Ind AS) and SEBI-prescribed valuation principles, ensuring comparability across funds and asset classes.
Valuation reports must reflect the true and fair value of the fund’s portfolio, providing an accurate measure of performance and risk. This requirement is particularly vital for illiquid assets, such as unlisted equity or debt instruments, where fair valuation relies heavily on independent professional assessment.

Appointment of an Independent Custodian

As per Regulation 24, all Category III AIFs and AIFs with a corpus exceeding ₹500 crore are required to appoint an independent SEBI-registered custodian. The custodian’s role is to safeguard the fund’s assets, maintain accurate records of holdings and transactions, and ensure compliance with SEBI’s operational and settlement guidelines.
By separating fund management and asset custody, SEBI ensures a robust checks-and-balances system, preventing conflicts of interest and reducing operational risk. The custodian also plays a crucial role in verifying ownership of securities, reconciling fund accounts, and monitoring adherence to leverage and exposure limits especially for Category III AIFs, which may use derivatives and short-selling strategies.

Independent Valuer Appointment

To maintain neutrality and reliability, valuations must be conducted by an independent valuer approved by the fund’s trustee or governing board. This valuer must possess the necessary professional qualifications and experience to assess complex and illiquid financial instruments. The objective is to ensure that valuations are objective, verifiable, and free from managerial influence, thereby enhancing investor trust and audit transparency.

Recent SEBI Developments (2025)

In 2025, SEBI introduced additional reforms to strengthen the valuation and disclosure framework for AIFs. These include:

• Mandatory periodic third-party valuations for all categories of AIFs, ensuring that valuation accuracy is regularly verified by independent professionals.

• Quarterly Net Asset Value (NAV) disclosures, enabling investors to monitor fund performance and risk exposure more frequently.

• Enhanced reporting obligations requiring submission of valuation details as part of quarterly regulatory filings to SEBI.

These updates reflect SEBI’s commitment to investor protection and transparency, aligning the Indian AIF industry with international fund governance standards.

Regulatory Significance

The combined application of Regulations 23 and 24 ensures that AIFs operate with financial integrity and regulatory discipline. By enforcing independent valuation and asset custody, SEBI reduces the risk of fund mismanagement, inaccurate reporting, and asset misuse. These provisions strengthen investor confidence and reinforce India’s position as a trustworthy and globally compliant alternative investment market.

Governance and Operational Oversight (Regulation 20)

Governance and operational control lie at the heart of the SEBI (Alternative Investment Funds) Regulations, 2012, ensuring that all fund activities are conducted with integrity, transparency, and accountability. Regulation 20 specifically imposes fiduciary obligations on the manager, trustee, and sponsor of an AIF, mandating them to operate strictly within the disclosed investment objectives, legal framework, and risk management policies. These governance provisions are designed to maintain investor confidence and ensure that fund operations remain compliant with SEBI’s evolving regulatory standards.

Fiduciary Duties of the Manager and Trustee

Under Regulation 20(1), both the fund manager and trustee owe a fiduciary duty to investors. This means they must act in good faith, prioritize investor interests, and manage the fund prudently in line with its stated objectives and strategies as disclosed in the Private Placement Memorandum (PPM).
The trustee or sponsor plays an oversight role, ensuring that all fund operations, investments, and reporting activities comply with SEBI regulations and the fund’s constitutional documents. Failure to uphold these duties can lead to severe regulatory action, including suspension or cancellation of the AIF’s registration under Regulation 29.

Monitoring and Compliance Oversight

The trustee or sponsor is responsible for monitoring the fund’s adherence to its governing documents, including the Trust Deed, Investment Management Agreement, and PPM. This involves ensuring compliance with investment restrictions, leverage limits, and disclosure obligations. Regular internal reviews and independent audits must be conducted to detect and rectify compliance deviations. The trustee must also confirm that all material changes or updates to the fund’s structure or investment policy are promptly disclosed to SEBI and investors as required under Regulation 20(13).

Risk Management Policy and Compliance Manual

Every AIF is required to maintain a Risk Management Policy and Compliance Manual, tailored to its category and investment strategy. These internal control frameworks define processes for identifying, assessing, and mitigating risks such as market volatility, counterparty exposure, liquidity mismatches, and operational lapses.
SEBI expects these documents to be reviewed and updated regularly to align with emerging market dynamics and regulatory updates. The policy ensures that the AIF operates with foresight, preventing systemic or fund-specific risks that could adversely impact investors.

Adherence to Fee and Expense Disclosures

All fund expenses, performance-linked fees, and management remuneration must strictly adhere to the disclosures made in the Placement Memorandum (PPM). Any deviation from the stated fee structure constitutes a regulatory violation under SEBI norms.
This provision ensures that investors are fully aware of how costs are distributed, preventing hidden charges or excessive expense allocations. Transparency in fund economics builds investor trust and reinforces SEBI’s commitment to ethical fund management practices.

Maintenance of Records and Audit Trail

To strengthen traceability and audit reliability, SEBI mandates that all AIFs maintain books of account, records, and audit documentation for at least eight years after the closure of the fund or scheme. This requirement, introduced as part of SEBI’s enhanced compliance framework, ensures that historical data remains accessible for regulatory inspections, forensic audits, or investor disputes.
Maintaining a long-term audit trail promotes accountability and enables SEBI to verify fund operations even after its lifecycle ends, thereby deterring financial irregularities.

Regulatory Objective

Through Regulation 20, SEBI enforces a governance model that is investor-centric, transparent, and accountable. By imposing fiduciary duties, compliance oversight, and stringent record-keeping obligations, SEBI ensures that AIFs maintain operational integrity throughout their lifecycle. This structured governance framework not only mitigates regulatory risk but also strengthens India’s reputation as a globally credible jurisdiction for alternative investment funds.

Disclosure Obligations to Investors (Regulation 21)

Transparency forms the foundation of the SEBI (Alternative Investment Funds) Regulations, 2012, and is a key pillar of investor protection. Regulation 21 mandates every Alternative Investment Fund (AIF) to maintain a high level of disclosure and reporting to its investors throughout the fund’s lifecycle. These disclosures ensure that investors have complete and timely access to financial, operational, and governance-related information. By reinforcing accountability, SEBI’s disclosure regime minimizes information asymmetry and promotes ethical fund management.

Periodic Financial and Performance Reporting

As per Regulation 21(1), every AIF is required to furnish periodic reports to investors detailing the fund’s financial position, performance, and fee structure. These reports must clearly outline the returns generated, management fees, performance-linked fees (carried interest), and expenses charged to investors. The objective is to ensure full transparency in how investor funds are managed and utilized, thereby preventing hidden charges or misrepresentation of performance data.

Disclosure of Risk Management and Valuation Practices

AIFs must disclose their risk management framework, including methodologies used to assess market, credit, liquidity, and operational risks. Additionally, the fund must provide valuation reports prepared as per Regulation 23 and SEBI’s valuation norms, reflecting a fair and consistent assessment of asset values.
These disclosures enable investors to understand how risks are identified, measured, and mitigated, and how asset valuations impact overall fund performance.

Portfolio Composition and Sectoral Allocation

Under Regulation 21(2), AIFs are required to share portfolio-level details, including investee company exposure, sectoral allocation, and investment concentration. Such disclosures help investors assess the diversification of their investments and the level of exposure to specific industries or entities. For example, a fund with heavy exposure to one sector may carry higher volatility or concentration risk, and timely reporting allows investors to make informed evaluations.

Disclosure of Material Changes

Regulation 21 also requires AIFs to disclose any material changes in their investment strategy, management team, or governance structure. This includes the appointment or resignation of key personnel, alterations in fee models, or revisions to investment objectives.
Such transparency ensures that investors are kept informed about significant operational or structural developments that could influence fund performance or alter its risk profile.

Quarterly Reporting under SEBI’s 2025 Circular

In accordance with SEBI’s Circular on Disclosure and Transparency (2025), AIFs are now mandated to submit quarterly reports to both investors and SEBI. These reports must include:

• Fund performance data and asset-wise valuation metrics.

• Risk exposure details, including leverage ratios and liquidity position.

• Any deviations from the stated investment strategy or portfolio diversification norms.

The quarterly reporting requirement enhances SEBI’s ability to conduct real-time oversight and ensures that investors receive consistent and standardized information across the AIF industry.

Additional Obligations for Category III AIFs

Given their complex trading strategies and use of derivatives or leverage, Category III AIFs have additional disclosure responsibilities. They must periodically report leverage positions, risk exposure, and results of portfolio stress testing. These disclosures help investors understand how leverage impacts fund volatility and potential downside risks, particularly during adverse market movements.

Regulatory Objective and Impact

Through Regulation 21 and subsequent circulars, SEBI has created a robust transparency framework for AIFs. The emphasis on frequent, standardized, and detailed reporting ensures that investors are not passive participants but informed stakeholders. This high level of disclosure not only fosters trust and accountability but also aligns India’s AIF governance framework with global standards in alternative fund regulation.

Reporting and Regulatory Filings

Continuous regulatory reporting is a key component of SEBI’s post-registration compliance framework for Alternative Investment Funds (AIFs). To maintain transparency and ensure effective oversight, SEBI has mandated structured and periodic reporting through its digital compliance infrastructure. The latest SEBI Circular on Reporting Standards dated January 2025 has standardized the format, frequency, and scope of reporting to improve data quality and enable consistent monitoring of fund activities across all AIF categories.

Quarterly Reporting via SEBI’s Online Portal

Every registered AIF must submit quarterly reports through SEBI’s online reporting system within the timelines specified by the regulator. These filings serve as a compliance snapshot of the fund’s operational and financial status, allowing SEBI to assess adherence to investment limits, leverage norms, and investor protection requirements.

Mandatory Reporting Components

The quarterly report must contain a comprehensive set of data points as specified under the 2025 SEBI Circular, including:

• Corpus Raised and Investor Commitments: Details of the total capital raised, investor commitments received, and drawdowns made during the reporting period. This ensures SEBI tracks fund mobilization and investor participation in real time.

• Deployment of Funds and Sectoral Exposure: Information on how the raised corpus has been deployed across sectors, industries, and asset classes. This enables regulatory oversight of portfolio concentration and diversification in line with Regulation 15.

• Investor Category-Wise Participation: Breakdown of investors based on residency and category domestic, foreign, institutional, or individual investors—helping SEBI monitor compliance with FEMA regulations and cross-border investment limits.

• Financial Statements and NAV Disclosure: Funds must provide periodic financial statements, Net Asset Value (NAV) computations, and valuation summaries consistent with Regulation 23 and SEBI’s valuation guidelines. These ensure that fund performance metrics are transparent and reflect fair valuation of assets.

• Risk Exposure Levels: Disclosure of market, credit, and operational risks faced by the fund, particularly for Category III AIFs, which use leverage and derivatives. SEBI uses this information to monitor systemic risk and safeguard investor interests.

Annual Compliance Test Report (CTR)

In addition to quarterly reports, every AIF must file an Annual Compliance Test Report (CTR) confirming that the fund has operated in full compliance with SEBI’s regulations throughout the year.

• The CTR must be certified by a Chartered Accountant (CA) or a designated Compliance Officer with relevant regulatory experience.

• It covers verification of investment limits, governance provisions, valuation practices, and disclosure compliance as per Regulations 15, 20, 21, and 23.

• The certified report acts as an annual regulatory attestation, providing SEBI with assurance that the fund’s internal controls and compliance mechanisms remain effective.

Purpose and Regulatory Intent

The introduction of standardized quarterly and annual reporting is part of SEBI’s broader initiative to strengthen data-driven supervision in the AIF sector. These filings enhance transparency, traceability, and accountability, allowing SEBI to detect compliance deviations early. For fund managers, maintaining accurate and timely filings reflects strong governance practices and boosts investor confidence.

Ultimately, the Reporting and Regulatory Filings framework reinforces SEBI’s mission to align India’s alternative investment environment with global best practices, ensuring that AIFs operate responsibly under a regime of constant regulatory visibility and financial integrity.

Annual Audit and PPM Review

To strengthen transparency and accountability in the Alternative Investment Fund (AIF) ecosystem, the Securities and Exchange Board of India (SEBI) introduced mandatory annual audits of the Private Placement Memorandum (PPM) through its Circular on PPM Audit dated May 7, 2024. This reform aims to ensure that the operations of AIFs continue to align with their disclosed investment strategy, governance framework, and fee structures, thereby preventing discrepancies between what is promised to investors and what is practiced by fund managers.

Purpose and Scope of the Audit

The annual PPM audit serves as a formal compliance verification mechanism. It evaluates whether the AIF’s activities remain consistent with the disclosures made in the Placement Memorandum (PM) submitted to SEBI during registration and scheme launch.
The audit primarily examines:

• Adherence to investment strategy and asset allocation policy.

• Compliance with fee disclosures, including management and performance-linked fees.

• Implementation of governance standards, such as the functioning of trustees, risk management procedures, and conflict-of-interest mitigation.

• Accuracy of financial and operational disclosures shared with investors.

This ensures that AIFs do not deviate from their approved mandate or engage in practices inconsistent with their fiduciary obligations.

Appointment of an Independent Auditor

The audit must be conducted by an independent auditor a professional external to the fund management and trustee structure. The auditor is responsible for reviewing fund records, compliance manuals, valuation reports, and governance documentation to ensure all activities align with SEBI’s regulations.
Upon completion, the auditor prepares an attestation report that is submitted to both the trustee and SEBI. This dual reporting mechanism reinforces oversight and prevents internal bias or misreporting.

Compliance Verification and Reporting

The auditor’s report serves as a compliance certificate, confirming that:

• The AIF’s operations match the disclosures made in the approved PPM.

• Any material deviation has been reported to SEBI.

• The fund continues to uphold the required transparency and governance standards.

This process also ensures that fund managers periodically re-examine their compliance frameworks and make timely corrections to operational gaps or outdated disclosures.

Consequences of Non-Compliance (Regulation 29)

Failure to comply with the audit requirements or detection of material deviation during the audit can lead to enforcement action under Regulation 29 of the SEBI (AIF) Regulations, 2012. Penalties may include:

• Suspension or cancellation of the fund’s registration,

• Monetary penalties, or

• Directions to refund investor contributions in severe cases.
  These sanctions underline SEBI’s zero-tolerance policy toward governance lapses and its focus on ensuring that investor interests remain fully protected.

Regulatory Objective

By institutionalizing the annual PPM audit, SEBI aims to foster a culture of self-regulation, continuous compliance, and investor transparency. The audit acts as a preventive control identifying deviations before they evolve into regulatory violations and strengthens confidence in India’s rapidly expanding alternative investment sector.

Investor Grievance Redressal (Regulation 22)

Investor protection is one of the central objectives of the SEBI (Alternative Investment Funds) Regulations, 2012, and Regulation 22 specifically addresses this through a mandatory grievance redressal mechanism. Every Alternative Investment Fund (AIF) must have a well-defined system to handle investor complaints efficiently and transparently. This framework ensures that investors can seek redress for issues such as delayed disclosures, misrepresentation, valuation discrepancies, or non-compliance with fund terms, thereby strengthening overall investor confidence and fund accountability.

Mandatory Establishment of a Grievance Mechanism

Under Regulation 22(1), each AIF is required to establish an internal grievance redressal process. This mechanism should be easily accessible to investors and structured to handle complaints promptly and fairly. The objective is to provide a first level of resolution within the fund itself before escalation to SEBI or external authorities.
A robust grievance system acts as an early-warning mechanism for governance lapses, ensuring that disputes are addressed internally without undermining investor trust or causing reputational damage.

Disclosure in the Placement Memorandum (PPM)

As part of SEBI’s transparency requirements, the Private Placement Memorandum (PPM) of the fund must explicitly outline the grievance redressal procedure. This includes:

• The contact details and designation of the Grievance Officer, who is responsible for receiving, tracking, and resolving complaints.

• A time-bound process for acknowledgment and resolution of grievances, ensuring that investor concerns are not left unattended.

• The hierarchical process for escalation, including the right to approach SEBI if internal mechanisms fail to deliver a satisfactory resolution.
  Disclosing this process in the PPM ensures that all investors are aware of their rights and the procedural channels available to them from the outset.

Role of the Grievance Officer

The AIF must designate a Grievance Officer who serves as the primary point of contact for investors. The officer’s duties include maintaining a record of all complaints, ensuring timely responses, coordinating with fund management for resolution, and filing periodic updates with SEBI as required.
This position is critical in maintaining operational accountability and investor communication, reinforcing the fund’s commitment to fair dealing and ethical conduct.

Use of SEBI’s SCORES Platform

If an investor’s grievance remains unresolved through the fund’s internal mechanism, they can escalate the matter to SEBI through the SCORES (SEBI Complaints Redress System) platform. SCORES is SEBI’s centralized, web-based grievance handling system that enables investors to lodge, track, and monitor complaints online.
AIFs are obligated to register on SCORES and address complaints routed through the platform within prescribed timelines. This digital system enhances transparency and traceability, ensuring that no investor grievance is ignored or left unresolved indefinitely.

Importance of Grievance Redressal in SEBI’s Framework

SEBI views the grievance redressal mechanism as a critical pillar of its investor protection framework. It not only empowers investors to hold fund managers accountable but also promotes better internal governance within AIFs. Timely redressal of complaints helps prevent regulatory escalation, mitigates reputational risks, and demonstrates the fund’s commitment to ethical and compliant conduct.

By enforcing Regulation 22, SEBI ensures that investor relations remain at the forefront of fund operations turning transparency and accountability into measurable governance practices.

Enhanced Reporting and Governance Reforms (2024–2025)

The years 2024–2025 have marked a transformative phase for the Alternative Investment Fund (AIF) regulatory framework in India. The Securities and Exchange Board of India (SEBI) has introduced multiple reforms to strengthen transparency, investor confidence, and governance standards. These reforms, reflected in several circulars and amendments including those to the SEBI (Alternative Investment Funds) Regulations, 2012 aim to bring India’s AIF ecosystem in line with international best practices while enhancing operational accountability and data accuracy.

Quarterly Reporting Made Mandatory

Under SEBI’s 2025 Circular on Reporting Standards, quarterly reporting to both SEBI and investors has been made mandatory across all categories of AIFs.
This reform eliminates information asymmetry and ensures real-time monitoring of fund activities. Each report must contain details on corpus mobilized, investor commitments, fund deployment, sectoral diversification, risk exposure, and NAV valuation.
The move strengthens SEBI’s surveillance capabilities and empowers investors to make data-driven decisions based on standardized disclosures.

Mandatory Certification of PPM

To reinforce due diligence at the fund inception stage, SEBI has made Private Placement Memorandum (PPM) certification compulsory prior to the launch of any scheme.
This certification must be issued by either a SEBI-registered Merchant Banker or a Chartered Accountant (CA) experienced in fund regulatory compliance.
The certifying professional verifies that the PPM fully complies with SEBI’s disclosure standards, is free from material misstatements, and transparently details investment strategy, governance, and risk factors.
This requirement ensures that investors receive accurate, audited information before committing capital, thereby minimizing legal and reputational risks for fund managers.

Co-Investment Schemes (Regulation 17A, September 2025)

A major reform in September 2025 was the introduction of Co-Investment Schemes under Regulation 17A.
AIFs offering co-investment opportunities to investors are now required to file a Shelf Placement Memorandum for each scheme with SEBI, along with a ₹1 lakh filing fee per scheme.
This measure brings uniformity to co-investment structures, mandates disclosure of co-investor rights and risk exposures, and prevents conflicts of interest between main fund investors and co-investors.
By regulating this previously unstructured segment, SEBI has reinforced equitable treatment among all classes of investors.

Angel Fund Reforms (2025)

In 2025, SEBI revised the Angel Fund framework to make it more aligned with the current startup ecosystem.
Key changes include:

• Raising the maximum investment limit per startup from ₹5 crore to ₹10 crore, encouraging higher participation in innovative ventures.

• Extending audit and compliance deadlines for Angel Funds to April 2026, providing operational flexibility to smaller funds.
  These amendments facilitate better capital flow to early-stage enterprises while maintaining compliance discipline within the startup investment ecosystem.

Specialized Investment Funds (SIFs) – February 2025

The introduction of Specialized Investment Funds (SIFs) in February 2025 represents SEBI’s push towards regulating sophisticated and high-risk investment vehicles.
SIFs are designed for institutional or high-net-worth investors employing long-short, leverage, or complex trading strategies.
To manage associated risks, SEBI has mandated enhanced disclosure norms, including detailed risk management frameworks, leverage caps, stress-test reporting, and real-time NAV updates.
This ensures that while fund managers retain flexibility in strategy, investor protection remains paramount.

Impact on Governance and Transparency

Collectively, these reforms have elevated the governance standards of AIFs to a new level. By embedding regulatory checks at every stage from pre-launch certification to post-investment reporting SEBI ensures that the AIF sector operates with greater integrity, reliability, and investor alignment.
These initiatives not only enhance regulatory compliance but also position India’s AIF framework as a globally credible investment regime, capable of attracting both domestic and international institutional capital.

Consequences of Non-Compliance

Non-compliance with SEBI’s AIF Regulations invites strict action under Regulation 29, including suspension or cancellation of registration, monetary penalties, and restrictions on launching new schemes. SEBI may also direct refunds to investors in cases of fund misuse or misrepresentation in the Placement Memorandum (PPM).

In serious violations, SEBI can appoint forensic auditors to investigate fund operations and initiate criminal prosecution under the SEBI Act, 1992, for fraud or willful misconduct. These measures ensure that AIFs operate with integrity, transparency, and accountability, safeguarding investor interests and maintaining market trust.

Conclusion

Frequently Asked Questions (FAQs)

Q1. What are the key post-registration compliances for an AIF under SEBI Regulations?

Ans. After registration, an AIF must comply with SEBI’s continuous obligations, including filing the Private Placement Memorandum (PPM) before scheme launch, maintaining sponsor commitment (Reg. 10(d)), adhering to investment limits (Reg. 15), conducting annual audits, submitting quarterly reports, and following disclosure norms under Reg. 21.

Q2. How soon must an AIF file its Placement Memorandum after registration?

Ans. As per Regulation 11, an AIF must file its PPM with SEBI at least 30 days prior to the launch of a new scheme. Any material change in the fund’s investment strategy, structure, or management must be reported to SEBI and disclosed to investors in accordance with Regulation 20(13).

Q3. Are AIFs required to appoint a custodian and independent valuer?

Ans. Yes. Under Regulation 23, all Category III AIFs and AIFs with a corpus above ₹500 crore must appoint a SEBI-registered custodian. Moreover, valuation must be conducted by an independent valuer approved by the trustee or governing body to ensure fair pricing and transparency.

Q4. What are the periodic reporting requirements for AIFs to SEBI and investors?

Ans. According to SEBI’s Circular on Reporting Standards (2025), all AIFs must file quarterly reports detailing corpus raised, investor commitments, fund deployment, valuation, and leverage exposure. The same must be shared with investors to maintain transparency. Category III AIFs must additionally disclose leverage details and stress-test results.

Q5. What are the disclosure obligations under Regulation 21?

Ans. Under Regulation 21, AIFs must provide periodic disclosures on:

• Financial performance and fund expenses.

• Portfolio composition and concentration risks.

• Valuation methodology and asset class exposure.

• Material changes in key personnel or investment strategy.
  These disclosures must be timely, accurate, and easily accessible to investors.

Q6. What are the recent SEBI reforms (2024–2025) impacting post-registration compliance?

Ans. Major reforms include:

• Regulation 17A (Sept 2025): Filing of Shelf Placement Memorandum for Co-Investment Schemes with ₹1 lakh fee per scheme.

• Angel Fund Reforms (2025): Investment limit raised to ₹10 crore per startup and audit compliance extended till April 2026.

• Specialized Investment Funds (Feb 2025): Introduced for sophisticated investors using long-short strategies.

• Quarterly reporting and PPM certification made mandatory for all AIFs.

Q7. What is the audit and compliance certification requirement for AIFs?

Ans. As per SEBI’s Master Circular (May 7, 2024), AIFs must undergo annual audits of their PPMs by an independent auditor. They must also file an Annual Compliance Test Report (CTR) certified by a Chartered Accountant or Compliance Officer confirming adherence to SEBI Regulations.

Q8. How are investor grievances handled by AIFs under SEBI Regulations?

Ans. Under Regulation 22, AIFs must establish a grievance redressal mechanism with a designated Grievance Officer. Investors may escalate unresolved issues via SEBI’s SCORES platform. A clear process for complaint handling and response timelines must be disclosed in the PPM.

Q9. What are the penalties for non-compliance by an AIF?

Ans. Failure to comply with SEBI’s AIF Regulations can lead to penalties under Regulation 29, including suspension or cancellation of registration, monetary fines, and restrictions on fund operations. SEBI may also direct refunds to investors or initiate forensic audits or prosecutions in cases of serious violations.