SEBI Makes Changes to Regulations for Alternative Investment Funds

author Shreyika Walia , Upamanyu Banerjee

calender November 23, 2022

SEBI Makes Changes to Regulations for Alternative Investment Funds

Alternative Investment Funds (AIF) are funds acting as privately pooled investment vehicles and are established or incorporated in India as per the provisions of the SEBI (Alternative Investment Funds) Regulations, 2012 as provided and administered by the Securities and Exchanges Board of India (SEBI) which is the official sectoral regulator for AIFs. AIFs aim to pool funds from various categories of investors and invest monies from that corpus as their pre-determined policies of the respective AIF. Recent reports indicate that there has been increasing interest in AIFs as an investment instrument with estimates recording a more than 40% growth in AIF funding year-on-year from 2021 coupled with an increase in the number of AIFs registered in the country. Recognizing this ever-increasing popularity of AIFs in India SEBI has made multiple changes to the regulations dealing with AIFs to ensure that the regulatory framework can deal with this added workload and protect the interests of the investors.

Additionally, in recognition of the fact that more well-established investors do not require intensive regulatory oversight, especially with regards to governance practices, SEBI had introduced a specialized class of funds termed Large Value Funds for Accredited Investors (LVF) where accredited investors can pool in their money of a minimum amount of INR 70,00,00,000 as provided by the SEBI guidelines about LVFs dated 24 June 2022 thus aiming to provide a light-touch regulatory regime of investors who met the specified criteria. Key relaxations as provided by SEBI guidelines dated 24 June 2022 are:

  1. exemption from filing PPM with SEBI through merchant banker. LVFs may launch schemes post intimation to SEBI in the form of an undertaking;
  2. extension of tenure beyond 2 years subject to terms of the contribution agreement, other fund documents and such conditions as may be specified by SEBI from time to time.

SEBI November Circular on Alternative Investment Funds

SEBI by way of a circular dated 17 November 2022 (Circular) has provided guidelines amending certain provisions of the AIF Regulations on the declaration of the first close of an AIF scheme along with introducing applicable regulatory fees for the change in control or change of the manager or sponsor of any AIF.

The Circular has mandated that the first close of AIF schemes (the point of time the initial investor commitments are received by the scheme) will need to be declared within 12 (twelve) months from the date of SEBI communication for putting the Private Placement Memorandum (PPM) of the scheme on record. Existing AIFs should declare their first closing within 16 November 2023, compulsorily unless already achieved. The guidelines further state that the first close for Category III open-ended AIFs refers to the close of their initial offer period. Existing AIF schemes with PPMs that were recorded 12 months before the Circular and that haven't announced their first close must submit the revised PPM to SEBI in the required manner. Further, if a scheme's first close is not announced within the required time frame, the AIF will need to submit a new application before the scheme can be launched. The Circular further provides that the first close of LVFs shall be declared within 12 months from the date of grant of registration of the AIF or the date of filing of PPM of the scheme with SEBI, whichever is later. Existing LVFs schemes shall declare the first close within 12 months from the date of this Circular.

The Circular further mandated that in the case of close-ended schemes, the tenure will be calculated from the date when the first close is declared. Furthermore, an AIF may modify the tenure of a close-ended scheme at any time before the declaration of its respective first close. Before the declaration of the first close, the investor may alter their respective commitment made or withdraw the commitment provided to such scheme. Existing close-ended schemes which have not declared the first close as of date are mandated by the guidelines to follow the timeline as provided in their respective PPMs. In such instances, the scheme managers do not have the discretion to alter the timeline from the one already provided in the PPM.

The Circular additionally provides for an application fee to be levied depending on the category and sub-category of the concerned AIF in instances of change in control or change in the manager or sponsor to ensure that only genuine parties come forward. The fee charged is not to be passed on to the investors of the AIF in any manner. In instances of a simultaneous change in control and change of a manager or sponsor, the equivalent of a single regulatory fee is to be levied. The fee shall not be levied in cases of change in sponsor or change in control of sponsor in the following instances:

  1. when the manager acquires control in or replacing the sponsor; and
  2. exit of sponsor(s) in case of AIF having multiple sponsors.

SEBI requires such fee to be paid within 15 (fifteen) days of effecting the proposed change in manager/sponsor or change in control of manager/sponsor. In case of pending applications for change in control or change of manager or sponsor, the requirement for payment of fee will only be required in instances where the respective scheme has not declared first close. The guidelines additionally provide that the prior approval obtained from SEBI for instances of change in control or change of the manager or the sponsor as covered by this guideline will have a validity period of 6 (six) months from the date of communication of SEBI approval.

SEBI FAQ on Registration of AIFs

SEBI on 3 November 2022 introduced an FAQ on the registration of AIFs to provide a standardized guide to the procedure for registration. The FAQs state that to register an AIF an applicant needs to apply through the SEBI portal and file an application for registration which may also be tracked through the portal post submission with regards to its status. The FAQs also provide the requisite application fees which need to be paid for purposes of registration depending on the category of the AIF. Once accepted the AIF is registered and a certificate of registration is provided to the applicant.

The documents which are required for purposes of a successful application are as enumerated under the First Schedule of SEBI (AIF) Regulations, 2012 apart from other information as provided in the FAQ such as:

  1. application under Form A;
  2. undertaking to be submitted by the Trustee/ Board of Directors/ Designated Partners of the applicant (Name of the proposed AIF), depending upon the legal structure of the AIF in the format as provided under Annexure A of the FAQ;
  3. proof of incorporation and address of the applicant;
  4. details of the Investment Manager, Sponsor and Trustee of the AIF;
  5. financial information of the investment manager or sponsor;
  6. scheme documents as well as a due diligence certificate in the format provided in Annexure B of the FAQ and PPM;
  7. details of shareholders and partners of sponsor and investment manager;
  8. whether sponsors and investment managers with voting rights or partnership interest of more than 20% are registered with the applicable authorities;
  9. information to be provided concerning controlling entities, individuals or key managerial personnel;
  10. information about group companies of applicant and sponsor or investment manager;
  11. key members of the investment team; 
  12. declarations are to be provided by the applicant as per the provisions of the SEBI (AIF) Regulations, 2012. 

SEBI AIF Application Fee Structure

The requisite application fees as provided by the FAQ are as enumerated below:

Sr. No Category of the ApplicantRegistration Fee
1. Category I AIF (except Angel Funds)INR. 500,000/- + 18% GST
2. Category I AIF – VCF - Angel FundINR 200,000/- + 18% GST
3. Category II AIFINR 10,00,000/- + 18% GST
4. Category III AIFINR 15,00,000/- + 18% GST


This Circular has been brought in by SEBI to ensure the smooth functioning of AIFs in response to representations made by industry representatives, it aims to facilitate the smooth functioning of AIFs and prevent investors acting in bad faith from exploiting the process of providing approval to the proposed change in control of the manager/sponsor of AIFs. The Circular along with the FAQ aim to simplify the overall regulatory framework for the establishment and operation of AIFs in India considering the growing popularity of the sector. With these steps, SEBI aims to ensure that the current growth trajectory of the AIF sector continues to have a significant impact on the growth of the Indian economy. 

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