The Securities Exchange Board of India (“SEBI”) in its board meeting held on 12th September 2025, (“September Board Meeting”) inter alia approved amendments to SEBI (Alternative Investment Fund) Regulations, 2012 (“AIF Regulations”) to introduce a separate category of AIF schemes, which would be limited exclusively to Accredited Investors (“AI-only Schemes”).
The exemptions/benefits approved in the September Board Meeting for AI-only Schemes are as follows:
- AI-only Schemes shall be exempted from treating their investors on a pari-passu basis. Presently, in terms of Regulation 20 (22) of AIF Regulations, the rights of investors of a scheme of an AIF must be pari-passu in all aspects. Any differential rights that are offered to select investors of a scheme of an AIF should not affect the interests of other investors in that scheme. This exemption, previously available only to LVFs, will now also apply to AI-only Schemes.
- AI-only Schemes will not have any cap on the number of investors. In regular AIF schemes, the extant limit of 1,000 investors will apply only in respect of non-AIs.
- AI-only Schemes can extend their tenure up to 5 years (as opposed to 2 years for regular AIF schemes) subject to requisite investor consent.
The September Board Meeting also approved a number of relaxations for Large Value Funds (“LVF”). These include exemptions from the requirement to use the standard template for Private Placement Memorandum (PPM) and from mandatory PPM audits, both of which continue to apply to other categories of AIFs. SEBI also reduced the minimum investment threshold for LVFs from INR 70 crore to INR 25 crore.
All the decisions taken at the September Board Meeting are based on proposals floated earlier by SEBI through a consultation paper dated August 08, 2025.
| ELP Comments |
- The reforms approved by SEBI’s Board are the result of a recognition that the current reliance on a minimum commitment threshold as a proxy for investor sophistication is inadequate. Accreditation, based on independently validated criteria and explicit investor acknowledgement, provides a more robust and reliable measure of an investor’s ability to understand and bear investment risks. These AI-only Schemes shall enjoy reduced compliance obligations, particularly around investor protection norms, based on the rationale that accredited investors are already sophisticated and risk aware. SEBI recognizes that an immediate shift to accreditation-based eligibility could disrupt the existing AIF ecosystem and therefore AIF schemes are being permitted to continue onboarding investors based on the existing minimum commitment threshold.
- SEBI’s reduction of the minimum investment threshold for LVFs from INR 70 crore to INR 25 crore is expected to broaden participation by enabling a wider pool of accredited investors to access LVFs, thereby deepening the flow of risk capital under a lighter regulatory framework.
- Once the decisions taken by SEBI’s Board are implemented, there will be three types of AIFs, in terms of compliance obligations. LVFs will have maximum leeway under the AIF Regulations. The new category of AIFs, which will be introduced pursuant to the September Board Meeting, will also have greater freedoms than AIFs which have non-AI investors, but lesser than LVFs. The non-AI AIFs will be the most heavily regulated of the three types of AIFs.
- Would the AI-only Scheme approved by the September Board Meeting be called Category IV AIFs? It is more likely that the AI-only Scheme will be a distinct sub-category within each of the existing categories of AIFs. For example, just as a Category I VCF or a Category II AIF or a Category III AIF can be an LVF, any of these can also be an AI-only Scheme.
- SEBI’s Consultation Paper of 8th August 2025 had proposed a few additional exemptions for AI-only schemes, which were not explicitly mentioned in the September Board Meeting. These proposals included:
- Exemption for AI-only schemes from the requirement of having at least one key managerial personnel holding SEBI-specified certifications.
- Permitting the manager itself to discharge trustee responsibilities, subject to agreement between the trustee and the manager and the fund documents.
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The minutes of the September Board Meeting can be found here.
SEBI’s Consultation Paper dated 8th August 2025 can be found here.
We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:
Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
Paridhi Jain, Associate – Email – paridhijain@elp-in.com
