Alternative Investment Funds (AIFs) are privately pooled investment vehicles that collect funds from Indian or foreign investors to invest in line with a pre-defined investment policy for their mutual benefit. These funds typically target asset classes such as venture capital, private equity, hedge funds, infrastructure, and debt instruments, providing investors an opportunity to diversify beyond traditional securities. The legal framework governing AIFs in India is defined by the SEBI (Alternative Investment Funds) Regulations, 2012, which outline the classification, registration, and operational norms for such funds.

The AIF Regulations aim to ensure transparency, investor protection, and sound governance, while still allowing fund managers flexibility in structuring and managing their investments. Over time, SEBI has strengthened this regulatory environment through continuous updates and circulars to align with evolving market practices. The latest SEBI Master Circular, issued in May 2024, consolidates all prior directions and introduces enhanced compliance, disclosure, and investor protection standards.

In this article, CA Manish Mishra talks about Stepwise Process for Registering an AIF under SEBI.

Legal Framework and Governing Regulations

The SEBI (Alternative Investment Funds) Regulations, 2012 form the primary legal framework governing AIFs in India. These regulations define what constitutes an AIF, categorize them into three main classes Category I, II, and III and lay down the eligibility, registration, investment restrictions, disclosure obligations, and reporting requirements applicable to each. The aim is to ensure regulatory oversight while providing operational freedom to professional fund managers.

To streamline compliance and consolidate various circulars issued over the years, SEBI released the Master Circular for AIFs on May 7, 2024. This circular integrates all prior directions related to reporting formats, private placement memorandum (PPM) standards, audit requirements, and governance norms, ensuring uniformity across the sector.

Further, SEBI introduced major amendments to the AIF framework such as the Co-Investment Schemes (Regulation 17A) in September 2025 allowing parallel investment vehicles, revised Angel Fund norms and enhanced PPM disclosures for investor transparency, and a Specialized Investment Fund (SIF) framework in February 2025 for long-short strategies under mutual fund structures.

The regulatory process relies on three key SEBI forms:

• Form A: The application form for AIF registration (First Schedule).

• Form B: The certificate of registration issued by SEBI upon approval.

• Second Schedule: Prescribes the applicable fee structure, including application, registration, and scheme filing fees.

Together, these instruments establish a comprehensive regulatory and procedural foundation for AIF operations in India.

Step 1: Choosing the Legal Structure and Category

The first and most crucial step in registering an Alternative Investment Fund (AIF) is to decide its legal structure and category, as both directly influence its regulatory obligations, governance model, and investment flexibility.

Legal Structures Permitted Regulation 2(1)(b)

Under the SEBI (Alternative Investment Funds) Regulations, 2012, an AIF can be constituted in any of the following legal forms:

• Trust: The most common structure in India due to its operational simplicity and tax efficiency. It allows sponsors and managers to operate with flexibility while maintaining investor protection through a trustee mechanism.

• Limited Liability Partnership (LLP): Favoured by smaller funds and professionals as it combines limited liability with partnership-style management.

• Company: Incorporated under the Companies Act, 2013, this form is suitable for funds that intend to operate with a corporate governance framework.

• Body Corporate: Used in special cases, typically when established under a specific statute or with government participation.

Categories of AIF – Regulation 3(4)

SEBI classifies AIFs into three categories based on their investment strategies and regulatory treatment:

• Category I AIF: These funds promote sectors of economic and social importance such as startups, early-stage ventures, SMEs, social ventures, and infrastructure projects. They receive incentives and concessions from SEBI and the government.

• Category II AIF: This includes private equity, debt, and distressed asset funds that do not employ leverage beyond day-to-day operational needs. They are typically close-ended and have longer investment horizons.

• Category III AIF: These funds use complex trading strategies, including leverage through derivatives and short-selling. Common examples include hedge funds and long-short funds, which aim to deliver higher returns but are subject to stricter risk and reporting norms.

Tenure and Corpus

Every AIF scheme must have a minimum corpus of ₹20 crore, ensuring adequate investor commitment. For Angel Funds (a sub-category of Category I), the minimum corpus requirement is ₹10 crore.
In terms of tenure:

• Category I and II AIFs must be close-ended with a minimum tenure of three years, ensuring long-term investment discipline.

• Category III AIFs may be open-ended or close-ended, offering greater liquidity and flexibility to investors depending on the strategy.

Step 2: Appointing the Sponsor and Investment Manager

Once the legal structure and category of the Alternative Investment Fund (AIF) are determined, the next step involves appointing the Sponsor and the Investment Manager two critical entities responsible for managing and operating the fund. SEBI places great emphasis on their eligibility, experience, and ongoing accountability to ensure investor protection and sound fund governance.

Fit and Proper Criteria

Both the sponsor and the manager must meet SEBI’s “fit and proper” standards as prescribed under Schedule II of the SEBI (Intermediaries) Regulations, 2008.
These criteria assess:

• Integrity and reputation: No record of fraud, moral turpitude, or regulatory violations.

• Competence and financial soundness: The entity must demonstrate adequate capital, expertise, and a clean track record in financial services or investment management.

• Professional conduct: Absence of any conviction or disciplinary proceedings that could adversely affect their credibility.

This ensures that AIFs are managed by capable and trustworthy professionals who can uphold fiduciary responsibilities toward investors.

Sponsor/Manager Contribution (“Skin in the Game”)

To align the interests of fund managers with those of investors, SEBI mandates a minimum continuing interest, commonly known as the “skin in the game” rule.

• Category I and II AIFs: The sponsor or manager must invest at least 2.5% of the corpus or ₹5 crore, whichever is lower.

• Category III AIFs: The requirement increases to 5% of the corpus or ₹10 crore, whichever is lower.

This contribution cannot be met through waiver of management fees or other forms of indirect participation and must remain invested throughout the life of the fund. This mechanism ensures that the management has a financial stake in the performance of the fund, reinforcing accountability and responsible decision-making.

Manager Experience

SEBI requires that the fund’s management be handled by a team with proven expertise. At least one key investment team member of the AIF’s manager should possess a minimum of five years of experience in portfolio management, investment advisory, or financial asset management.
This criterion ensures that investors’ money is managed by professionals with the necessary technical and market knowledge to assess risk, identify opportunities, and execute strategies effectively.

Step 3: Preparing the Fund’s Constitution Documents

After defining the fund’s structure and appointing its sponsor and manager, the next important step is to prepare the constitution documents that legally establish and govern the operations of the Alternative Investment Fund (AIF). These documents form the legal backbone of the fund, setting out its investment objectives, internal governance framework, and compliance obligations. The type of document required depends on the chosen legal form of the AIF.

Based on Legal Structure

• Trust: If the AIF is established as a trust, it must execute a Trust Deed in accordance with the Indian Trusts Act, 1882. The deed defines the roles and responsibilities of the trustee, sponsor, and manager, while ensuring that the assets of the fund are held for the benefit of investors. The Trust Deed must be registered and should explicitly authorize the undertaking of investment activities and compliance with SEBI’s AIF Regulations.

• Limited Liability Partnership (LLP): For an LLP-structured AIF, an LLP Agreement must be executed under the Limited Liability Partnership Act, 2008. This agreement should clearly specify the investment objectives, capital contribution of partners, profit-sharing ratios, and management responsibilities. It must also empower the LLP to act as an investment vehicle regulated by SEBI.

• Company: If the AIF is incorporated as a company, the Memorandum of Association (MoA) and Articles of Association (AoA) must explicitly include investment and fund management as one of its main objects. These documents must comply with the Companies Act, 2013 and SEBI guidelines, defining the powers of directors, management policies, and investor rights.

Key Provisions to Include

Regardless of the structure, all constitution documents must comprehensively cover the following elements:

• Investment Objectives: Clearly define the purpose of the fund, including target sectors, types of securities or assets to be invested in, and the overall investment strategy. This ensures transparency for investors and regulatory clarity for SEBI.

• Governance Structure: Outline the roles and responsibilities of the sponsor, trustee, manager, and investment committee. Include checks and balances to prevent conflicts of interest and promote accountability.

• Conflict Resolution and Exit Mechanisms: Provide mechanisms for resolving disputes between investors and fund managers, including arbitration clauses, mediation processes, and investor exit provisions. The documents should specify the procedure for winding up or premature termination of the fund.

• Valuation and Reporting Policies: Establish standardized methods for valuing portfolio assets and determining the Net Asset Value (NAV). Specify the frequency and format of reporting to investors and SEBI, in line with the AIF Master Circular (2024).

Step 4: Drafting the Private Placement Memorandum (PPM)

The Private Placement Memorandum (PPM) is one of the most crucial documents in the registration and functioning of an Alternative Investment Fund (AIF). It serves as a comprehensive disclosure document that provides investors with all necessary information regarding the fund’s structure, objectives, investment strategy, risks, and governance. SEBI mandates that every AIF prepare a standardized PPM to ensure transparency, comparability, and investor protection.

Mandatory Format

The PPM format was standardized through the SEBI Circular dated February 5, 2020, and later incorporated into the SEBI Master Circular for AIFs issued on May 7, 2024.
This uniform format was introduced to minimize inconsistencies and ensure that all AIFs disclose essential information in a structured and investor-friendly manner. The PPM must clearly state that the fund is offered only through private placement, not through public solicitation.

PPM Structure

The standardized PPM consists of two main parts:

• Part A: Minimum Disclosures:

  • This section covers essential, mandatory information about the AIF’s strategy, risk factors, governance framework, fee structure, and conflict management policies.

  • It enables investors to make informed decisions based on standardized disclosures across funds.

• Part B: Supplementary Information:

  • This section allows the fund to include additional details specific to its structure or operations, such as unique investment themes, technical strategies, or special risk factors not covered in Part A.

  • It provides flexibility for fund managers to describe complex investment methodologies, such as derivatives use or hybrid financing.

PPM Audit

Before launching any scheme, the PPM must undergo an independent audit to verify compliance with SEBI’s prescribed format.

• The audit must be conducted by a qualified independent auditor, ensuring that disclosures are complete, accurate, and not misleading.

• The auditor issues a compliance certificate in SEBI’s standard audit report format, confirming adherence to disclosure requirements.

• This certification must be filed with SEBI prior to the fund’s first close or scheme launch.

This step ensures that investors receive a verified, reliable document, thereby reducing the risk of misrepresentation.

Key Disclosures Required

A well-drafted PPM should include the following essential disclosures as per SEBI’s Master Circular:

• Investment Strategy and Target Sectors: The PPM must define the fund’s investment philosophy, target industries (such as startups, infrastructure, real estate, or debt instruments), geographic focus, and expected tenure of investments.

• Fee Structure, Carried Interest, and Expenses: Clearly outline the management fees, performance-linked carried interest (profit sharing), and fund-related expenses. SEBI mandates full transparency on how these are calculated and charged to investors.

• Risk Management and Leverage Limits: Disclose all potential risks associated with the fund’s investment approach, including liquidity, credit, market, and operational risks. For Category III AIFs, specify leverage limits and instruments used for hedging or short-selling.

• Valuation Policy and Third-Party Auditors: Define the valuation methodology for portfolio assets, identify the independent valuer, and mention how Net Asset Value (NAV) will be calculated and reported.

• Side-Letter Arrangements and Conflict of Interest Management: Disclose any special rights, terms, or privileges offered to specific investors (side letters), ensuring that such arrangements do not adversely affect other investors. Additionally, outline policies to manage conflicts of interest between the sponsor, manager, and investors, including segregation of duties and disclosure procedures.

Step 5: Filing Application – Form A

Once the fund structure and Private Placement Memorandum (PPM) are finalized, the next step in registering an Alternative Investment Fund (AIF) with SEBI is the formal submission of the registration application. This is done using Form A, as prescribed in the First Schedule of the SEBI (Alternative Investment Funds) Regulations, 2012. Form A serves as the official document through which the sponsor or manager seeks approval from SEBI to register the fund.

Application Submission

The AIF registration application must be filed online through SEBI’s SI Portal.
Form A requires detailed information about the fund’s structure, category, sponsor, manager, and investment objectives. The applicant must also confirm compliance with eligibility norms and SEBI’s “fit and proper” criteria. All information must be accurate and up to date, as any misrepresentation may lead to rejection or regulatory action under Regulation 3(1).
Once submitted, SEBI reviews the application and may seek clarifications or additional documents before issuing an in-principle approval.

Documents Required

Along with Form A, the applicant must attach certified copies of the following documents to establish the legitimacy and preparedness of the fund:

• Constitutional Documents:  Trust Deed (for a trust), LLP Agreement (for an LLP), or MoA & AoA (for a company), duly registered and containing clauses that permit investment and fund management activities.

• KYC of Sponsor and Manager: Detailed Know Your Customer (KYC) records, including identification, address proof, and regulatory registrations (if any).

• Private Placement Memorandum (PPM) Draft and Audit Certificate: The latest version of the PPM, duly audited and certified by an independent auditor as per SEBI’s standard format.

• Details of Key Managerial Personnel (KMPs): Profiles, experience records, and declarations confirming compliance with SEBI’s minimum experience criteria (at least five years in portfolio or fund management).

• Financial Statements and Group Structure: Audited financial statements of the sponsor and manager for the last three financial years. A diagrammatic chart of the ownership and control structure, showing linkages between sponsor, manager, and associate entities.

• Declarations under Press Note 3 (FDI Compliance): If the fund has foreign ownership or participation, declarations must confirm compliance with Press Note 3 of 2020 and FEMA (Non-Debt Instruments) Rules, ensuring that the AIF does not have any restricted FDI from countries sharing a land border with India.

Application Fee

A non-refundable application fee must be paid as prescribed under the Second Schedule of the AIF Regulations. The fee varies depending on the fund category:

• Category I & II AIFs: ₹1 lakh

• Category III AIFs: ₹1 lakh

• Angel Funds: ₹25,000

The fee must be paid online through SEBI’s designated payment gateway at the time of filing the application.

Step 6: SEBI Review and Clarifications

After the submission of Form A and all supporting documents, SEBI begins its detailed examination process to ensure that the proposed Alternative Investment Fund (AIF) complies with all regulatory, financial, and governance requirements. This stage is crucial, as SEBI’s approval is contingent on the completeness, accuracy, and reliability of the information provided by the applicant.

Purpose of SEBI’s Review

The review process enables SEBI to assess whether:

• The sponsor and manager meet the fit and proper criteria under Schedule II of the SEBI (Intermediaries) Regulations, 2008.

• The fund’s structure, objectives, and governance framework comply with the SEBI (AIF) Regulations, 2012.

• The fund’s risk management, compliance, and reporting systems are sufficient to protect investors’ interests.

This examination ensures that only credible, professionally managed entities are allowed to operate as AIFs in India.

Key Areas Where SEBI Seeks Clarifications

During its review, SEBI may issue a clarification letter requesting additional information or revised documents. Common areas include:

• Experience and Competence of Management: SEBI verifies the background, qualifications, and track record of the sponsor, manager, and key managerial personnel (KMPs). It may request additional documentation or professional credentials to confirm compliance with the requirement of at least five years of fund or portfolio management experience.

• Fund Strategy and Compliance Systems: SEBI ensures that the fund’s investment strategy, asset allocation plan, and risk management framework are clearly defined in the Private Placement Memorandum (PPM). It may seek more details on the fund’s operational processes, valuation methodology, and internal controls.

• Conflict Management Framework: The applicant must demonstrate a robust system for identifying and mitigating potential conflicts of interest between the sponsor, manager, and investors. SEBI may require detailed disclosures or revised policies to ensure transparency and independence in investment decision-making.

• Source of Sponsor/Manager Commitment Funds: SEBI verifies the source of the “continuing interest” contribution (minimum 2.5% or ₹5 crore for Category I/II, and 5% or ₹10 crore for Category III). It may ask for bank statements or financial declarations confirming that these funds are not borrowed or indirectly financed by investors.

Response Timeline

Typically, SEBI provides applicants 21 days to respond to its clarification letter. However, the timeline may vary depending on the complexity of the queries and SEBI’s discretion. Applicants are expected to respond promptly and comprehensively to avoid delays in processing. Failure to respond within the stipulated period can result in the application being kept in abeyance or rejected.

Outcome: In-Principle Approval

Once SEBI is satisfied with the responses and finds that all requirements under the AIF Regulations have been met, it grants an “In-Principle Approval” to the applicant.
This approval confirms SEBI’s preliminary satisfaction with the fund’s compliance and allows the applicant to proceed with the final steps, such as payment of the registration fee under the Second Schedule and issuance of the Certificate of Registration (Form B).

Step 7: Payment of Registration Fee and Issuance of Form B

Once SEBI grants the in-principle approval after reviewing the application and clarifications, the next and final procedural step in obtaining registration is the payment of the registration fee as prescribed under the Second Schedule of the SEBI (Alternative Investment Funds) Regulations, 2012. After the fee is paid and verified, SEBI issues the official Certificate of Registration (Form B) to the applicant, thereby formally recognizing the entity as an Alternative Investment Fund (AIF).

Fees (Second Schedule)

The registration fee is a one-time, non-refundable payment, varying based on the category of the AIF:

• Category I and II AIFs: ₹5,00,000

• Category III AIFs: ₹10,00,000

• Angel Funds: ₹2,00,000 (as per the 2025 SEBI Amendment)

The payment must be made through SEBI’s designated online payment system, and the proof of payment must be submitted promptly. These fees are in addition to the application fee of ₹1,00,000 (₹25,000 for Angel Funds) paid earlier at the time of filing Form A.

The purpose of this fee is to cover SEBI’s administrative and regulatory oversight costs for processing, supervising, and monitoring AIFs.

Certificate of Registration (Form B)

Upon confirmation of payment, SEBI issues the Certificate of Registration in Form B, as prescribed under the First Schedule of the AIF Regulations. This certificate formally authorizes the AIF to commence its activities and launch schemes in accordance with the provisions of the regulations.

Key Points about the Certificate of Registration:

• Legal Status: It is an official acknowledgment from SEBI that the applicant complies with all conditions of the AIF Regulations.

• Validity: The registration remains valid until the fund is wound up, as provided under Regulation 29, unless suspended or cancelled by SEBI due to non-compliance or violation of regulatory provisions.

• Scope: Once registered, the AIF can launch multiple schemes under the same registration, subject to filing of placement memoranda for each new scheme and payment of the ₹1 lakh scheme filing fee.

• Ongoing Compliance: After registration, the AIF must adhere to periodic reporting, valuation, audit, and investor disclosure obligations outlined in the SEBI Master Circular (May 2024).

Step 8: Launching Schemes and Filing Placement Memoranda

After obtaining the Certificate of Registration (Form B) from SEBI, an Alternative Investment Fund (AIF) is legally recognized and eligible to commence operations. However, before raising money or launching any investment scheme, the AIF must comply with SEBI’s filing requirements for its Placement Memorandum (PM) a disclosure document that describes each scheme’s investment strategy, structure, and risk profile.

Scheme Filing

Under the SEBI (AIF) Regulations, 2012, each scheme proposed to be launched by a registered AIF must be filed with SEBI at least 30 days before launch. This filing ensures regulatory oversight and gives SEBI the opportunity to review the scheme structure for compliance with the applicable category rules.

Key filing requirements include:

• Submission of the Placement Memorandum (PM), which details the scheme’s investment focus, tenure, corpus, and governance structure.

• Payment of a filing fee of ₹1 lakh per scheme, as specified in the Second Schedule, unless the fund qualifies for an exemption (for example, certain Angel Funds or schemes continuing under the same AIF umbrella).

• The PM must comply with SEBI’s standardized PPM template and, if applicable, be accompanied by an audit certificate confirming adherence to disclosure norms.

Once SEBI “takes the memorandum on record,” the AIF can proceed to solicit commitments from investors and declare its first close.

Co-Investment Schemes Regulation 17A (2025 Amendment)

A major reform introduced through the SEBI (AIF) Amendment Regulations, 2025 is the creation of Co-Investment Vehicles (CIVs) under Regulation 17A. These are parallel investment entities launched by Category I and II AIFs that allow investors to participate directly in specific portfolio investments alongside the parent AIF.

Key features and requirements of Co-Investment Schemes include:

• Eligibility: Only Category I and II AIFs can launch CIVs. Category III AIFs are excluded due to their leveraged and trading-oriented nature.

• Filing Obligation: CIVs must file a Shelf Placement Memorandum with SEBI prior to launch. A ₹1 lakh filing fee per co-investment scheme applies.

• Investment Rules: CIVs must invest on a pro-rata basis with the parent AIF in identical securities of the same investee company, ensuring fair allocation and identical exit terms. They cannot make independent investment decisions that diverge from the parent fund’s approved strategy.

• Conflict Management: The sponsor or manager may manage both the main AIF and its CIVs, but must implement strong conflict-of-interest safeguards including Chinese walls, transparent allocation policies, and disclosure to all investors. All co-investment opportunities must be offered equitably to eligible investors without preferential treatment.

Step 9: Compliance and Ongoing Obligations

Once an Alternative Investment Fund (AIF) is registered and begins its operations, it must adhere to a strict set of ongoing compliance and reporting obligations prescribed under the SEBI (Alternative Investment Funds) Regulations, 2012 and the SEBI Master Circular for AIFs (May 7, 2024). These post-registration responsibilities are essential to ensure transparency, investor protection, and continued regulatory supervision throughout the fund’s lifecycle.

Periodic Reporting

An AIF must maintain a consistent reporting cycle to SEBI and its investors, providing updates on fund performance, risk, valuation, and compliance.

• Quarterly Reports to SEBI: Every AIF is required to submit quarterly reports through SEBI’s online portal, detailing information on fund corpus, investor commitments, deployment of capital, borrowings, leverage (if any), and risk exposures.

  • Category I & II AIFs: must report financial and investment data quarterly.

  • Category III AIFs: must report monthly, due to their higher trading activity and leverage exposure.

• Annual PPM Audit Reports: The AIF’s Private Placement Memorandum (PPM) must undergo an annual compliance audit conducted by an independent auditor.
  The audit verifies that all disclosures, expenses, and investment activities conform to SEBI’s prescribed format. A copy of this audit report must be shared with both SEBI and the investors.

• Disclosure of Valuation, Risk, and Leverage Positions: AIFs must provide periodic disclosures regarding portfolio valuation, risk management practices, and leverage positions. These disclosures ensure investors have a clear understanding of the fund’s performance and associated risks.

Custodian and Valuation

• Custodian Appointment: The appointment of a custodian a SEBI-registered entity responsible for safekeeping securities and assets—is mandatory for Category III AIFs due to their use of leverage and trading activities. For Category I and II funds, custodian appointment is optional but recommended for enhanced governance.

• Valuation Requirements: AIFs must appoint an independent valuer to ensure fair and unbiased valuation of portfolio assets. The valuer must be competent and independent of the fund manager or sponsor.

  • Category I and II AIFs: Must disclose Net Asset Value (NAV) at least once every six months.

  • Category III AIFs: Due to active trading strategies, must disclose NAV on a quarterly basis or more frequently if required by investors.

Proper valuation ensures fairness in performance reporting, fee computation, and investor redemptions or exits.

Side Letters and Differential Rights

Side Letters are special contractual agreements between a fund and individual investors that grant preferential rights such as fee waivers, additional reporting, or co-investment privileges. While SEBI allows side letters, they must adhere to strict conditions to prevent discrimination or harm to other investors:

• Such arrangements are permitted only if they do not adversely impact the rights or economic interests of other investors.

• All side-letter agreements must be fully disclosed in the Private Placement Memorandum (PPM) and reflected in the annual PPM audit report.

• Managers must ensure that all investors are treated fairly, and material terms remain consistent across the investor base.

Change in Sponsor or Manager

A change in the Sponsor or Manager of an AIF is considered a material event that requires:

• Prior SEBI Approval: The fund must obtain SEBI’s written approval before effecting any change in control, ownership, or management structure of the sponsor or manager. This ensures regulatory oversight over who holds ultimate responsibility for fund operations.

• Investor Consent: The fund must also obtain the consent of at least two-thirds (by value) of its investors, confirming that they are aware of and approve the proposed change.

Such changes could occur during mergers, acquisitions, internal restructuring, or replacement of the fund manager. The new sponsor or manager must continue to satisfy SEBI’s fit and proper criteria and maintain the required continuing interest contribution.

Step 10: Post-Registration Legal Compliances

Once an Alternative Investment Fund (AIF) is registered and operational, it enters a phase of continuous regulatory compliance under the SEBI (Alternative Investment Funds) Regulations, 2012 and subsequent circulars. These post-registration obligations ensure transparency, investor protection, and orderly conduct of fund operations throughout its lifecycle until closure.

Annual Filing and Reporting Obligations

Every registered AIF must file annual returns and financial statements with SEBI in the prescribed format. This includes:

• Annual Financial Statements: The AIF must prepare audited financial statements comprising the balance sheet, profit and loss account, and notes to accounts reflecting fund performance and financial position. These statements must be submitted to SEBI within six months from the end of each financial year.

• Compliance Certificate: Along with financial statements, the fund must submit an annual compliance certificate signed by the Compliance Officer or statutory auditor. This certificate confirms adherence to key provisions of the AIF Regulations, SEBI’s Master Circular (May 2024), and the fund’s internal policies on valuation, reporting, and governance.

• Investor Disclosures: Annual reports must also be shared with investors, detailing the fund’s performance, fees charged, valuation methodology, and any material changes in management or investment strategy during the year.

These filings allow SEBI to monitor the financial soundness and operational discipline of the AIF on an ongoing basis.

Wind-Up Process Regulation 29

The process of winding up an AIF or any of its schemes is governed by Regulation 29 of the AIF Regulations. This regulation ensures an orderly exit for investors while safeguarding their interests.

Key Steps in the Wind-Up Process:

• Investor Approval: The decision to wind up a scheme requires the approval of two-thirds of investors by value of their investment. This ensures that the process is initiated only with the consent of the majority stakeholders.

• Grounds for Wind-Up:

  • Expiry of the scheme’s tenure.

  • Fulfilment of the investment objective.

  • A decision taken by investors or SEBI in case of regulatory breaches.

• Auditor Certification: An independent auditor must certify the realization of all assets, settlement of liabilities, and distribution of residual proceeds to investors. This report must be submitted to SEBI upon completion of the winding-up process.

• Final Reporting: The fund must file a final report with SEBI confirming closure, distribution of proceeds, and no pending obligations. Only after SEBI’s acknowledgment can the AIF be treated as dissolved.

This structured exit mechanism enhances investor confidence by ensuring that funds are wound up transparently and fairly.

Change of Category of AIF

An AIF may, after registration, seek to change its category for instance, from Category II to Category III if it wishes to modify its investment strategy or risk profile. Such conversion is regulated by Regulation 20(1) and requires SEBI’s prior approval.

Procedure for Category Change:

• Application and Fee: The fund must apply to SEBI along with the prescribed fee of ₹1 lakh as specified in the Second Schedule.

• Investor Withdrawal Option: Before implementing the category change, the AIF must provide an exit option to existing investors who do not consent to the new category or strategy. This ensures investor protection and voluntary participation.

• Temporary Suspension of Investments: During the transition phase, the AIF must suspend new investments, except in liquid instruments such as mutual funds or bank deposits, until SEBI grants formal approval.

• Revised Documentation: The AIF must also update its Private Placement Memorandum (PPM) and other governance documents to reflect the new category and file the revised documents with SEBI.

Recent SEBI Updates (2024–2025)

The years 2024 and 2025 have witnessed major reforms by the Securities and Exchange Board of India (SEBI) in the Alternative Investment Fund (AIF) ecosystem. These updates aim to bring greater transparency, flexibility, and investor participation in private investment vehicles while aligning India’s fund management landscape with global best practices. The key reforms include the introduction of the Co-Investment Schemes Framework, Angel Fund reforms, and the creation of a new class of Specialized Investment Funds (SIFs).

Co-Investment Schemes Framework – September 2025

To enhance investor flexibility and allow direct participation in specific investment opportunities, SEBI introduced the Co-Investment Scheme Framework through the SEBI (AIF) Amendment Regulations, 2025, inserting Regulation 17A into the AIF Regulations.

Key Highlights:

• Introduction under Regulation 17A: The new framework allows Category I and II AIFs to launch Co-Investment Vehicles (CIVs), which operate parallel to the main AIF. These CIVs enable investors to co-invest in specific portfolio companies alongside the AIF, giving them targeted exposure to individual assets.

• Mandatory Filing of Shelf Placement Memorandum: Each co-investment vehicle must file a Shelf Placement Memorandum (SPM) with SEBI, disclosing details of the investment strategy, governance, and risk factors. The filing must be made before launch, ensuring that SEBI maintains oversight on all such structures.

• Filing Fee: A ₹1 lakh filing fee per co-investment scheme is payable to SEBI. This fee structure ensures uniformity with other AIF scheme filings.

• Investment and Governance Rules:

  • Investments made through CIVs must be on a pro-rata basis with the main AIF.

  • Exit terms and valuation methodologies must be identical for both CIV and AIF participants.

  • The sponsor or manager can manage both the main AIF and its CIVs but must have robust conflict-of-interest safeguards and disclosure systems in place.

This reform brings India’s AIF regime closer to global co-investment models used by institutional investors and family offices, offering more control and flexibility while maintaining transparency.

Angel Fund Reforms September 2025

To strengthen early-stage startup funding, SEBI introduced complete reforms for Angel Funds, which are a sub-category of Category I AIFs. These reforms modernize investment limits, compliance timelines, and investor qualification standards.

Key Highlights:

• Increased Investment Limits: The revised norms raise the maximum investment limit per startup from ₹5 crore to ₹10 crore, expanding funding opportunities for high-potential early-stage ventures.

• Extended PPM Audit Compliance: SEBI extended the timeline for Angel Funds to comply with standardized Private Placement Memorandum (PPM) audit requirements until April 2026, providing additional time for smaller funds to align with the new audit framework introduced in the 2024 Master Circular.

• Accredited Investor Onboarding Norms: New guidelines introduce accredited investor criteria for Angel Fund participants, allowing experienced investors meeting minimum net worth or income thresholds to invest with reduced minimum commitment requirements. This enhances inclusivity while maintaining investor protection.

The updated Angel Fund regime aims to promote innovation-driven entrepreneurship by simplifying entry barriers for investors and providing funds with regulatory flexibility to support diverse startup sectors.

Specialized Investment Funds (SIFs) – February 2025

In February 2025, SEBI introduced a new category of funds called Specialized Investment Funds (SIFs) to cater to sophisticated investors seeking exposure to advanced long-short and hybrid investment strategies. These funds operate under the mutual fund framework, but they share structural similarities with AIFs in terms of flexibility and strategy design.

Key Highlights:

• Distinct Regulatory Framework: SIFs are regulated separately from AIFs and are primarily designed for high-net-worth and institutional investors seeking more complex investment products.

• Strategy and Objective: SIFs can engage in long-short strategies, derivatives trading, and structured instruments, similar to Category III AIFs but under mutual fund-level governance and disclosure norms.

• Minimum Investment Requirement: Each investor in an SIF must contribute a minimum of ₹10 lakh, ensuring that participation is limited to financially sophisticated individuals and institutions.

• Separation from AIF Regime: While SIFs are not governed by the AIF Regulations, they are strategically relevant for fund managers designing new investment vehicles. SIFs offer greater liquidity and regulatory parity with international hedge fund structures, positioning India as a competitive jurisdiction for alternative investments.

Conclusion

Registering an Alternative Investment Fund (AIF) with SEBI is a comprehensive and legally intensive process that requires careful planning, accurate documentation, and adherence to the SEBI (Alternative Investment Funds) Regulations, 2012. Every stage from choosing the fund’s legal structure and appointing qualified sponsors to filing Form A and obtaining the registration certificate (Form B) demands strict compliance with disclosure, eligibility, and governance requirements. The process ensures that only credible, experienced, and financially sound entities are authorized to manage investor capital within a regulated framework.

The SEBI reforms introduced during 2024–2025 signify the regulator’s progressive vision for India’s growing alternative investment sector. Enhanced oversight on Private Placement Memorandum (PPM) audits, transparency in side-letter arrangements, and the introduction of Co-Investment Schemes under Regulation 17A have strengthened investor confidence. To maintain credibility and long-term sustainability, fund sponsors must implement robust internal controls and transparent reporting mechanisms aligned with SEBI’s evolving compliance expectations.

Frequently Asked Questions (FAQs)

Q1. What is an Alternative Investment Fund (AIF)?

Ans. An AIF is a privately pooled investment vehicle that collects funds from investors Indian or foreign under a defined investment policy to invest in specific assets such as startups, infrastructure, or private equity.
AIFs are regulated under the SEBI (Alternative Investment Funds) Regulations, 2012, and classified into Category I, II, and III based on their investment strategy and risk profile.

Q2. Who can register as an AIF in India?

Ans. Any entity established in India as a trust, company, LLP, or body corporate can apply for registration, provided it:

• Has a fit and proper sponsor/manager under Schedule II of SEBI (Intermediaries) Regulations, 2008.

• Complies with the minimum corpus, net worth, and continuing interest requirements.

• Operates through a private placement mechanism, not a public offer.

Q3. Which SEBI form is used for AIF registration?

Ans. Applicants must submit Form A (as per the First Schedule of the AIF Regulations) along with supporting documents and prescribed fees through SEBI’s SI Portal.
Once approved, SEBI issues the Certificate of Registration in Form B.

Q4. What are the minimum investment requirements for investors in an AIF?

Ans. As per Regulation 10(c) and SEBI’s circulars:

• General Investors: Minimum ₹1 crore

• Employees/Directors of AIF: ₹25 lakh

• Angel Investors (Angel Funds): ₹25 lakh

Q5. What is the minimum corpus requirement for an AIF?

Ans. The minimum corpus of each scheme shall be:

• ₹20 crore for regular AIFs.

• ₹10 crore for Angel Funds (Category I – sub-type).