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Alerts & Updates 13th Aug 2025

SEBI Proposes Significant Additional Flexibilities for Large Value Funds for Accredited Investors

Authors

Vinod JosephPartner | Mumbai
Akhil GanatraAssociate | GIFT City
Saloni KhaitanAdvocate | GIFT City

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  • The Securities and Exchange Board of India (“SEBI”) has issued a Consultation Paper dated August 8, 2025 (“Consultation Paper”) proposing various changes to the regulations applicable under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) to Large Value Funds for Accredited Investors (“LVFs”).

    The proposals in the Consultation Paper are:

    • Threshold for investors in an LVF: Currently, Regulation 2(1) (pa) of the AIF Regulations defines an LVF as an Alternative Investment Fund (“AIF”) or scheme of an AIF in which each investor (other than the Manager, Sponsor and employees or directors of the AIF or of the Manager) is an accredited investor and invests not less than seventy crore rupees. The Consultation Paper proposes to reduce this threshold from INR 70 crores to INR 25 crores in an attempt to channelize long term and sizeable investments specially in unlisted securities and broaden the investor base while maintaining the level of investor sophistication.
    • NISM Certification for Investment Manager’s key personnel: In terms of Regulation 4(g)(i) of the AIF Regulations, the key investment team of the Manager of AIFs are mandated to have at least one key personnel with relevant certification as may be specified by SEBI. Currently, the specified certification is the NISM XIX-C or NISM XIX-D or NISM XIX-E. The Consultation Paper proposes to provide an exception for LVFs from complying with the certification criteria given in Regulation 4(g)(i) of the AIF Regulations.
    • Cap on investors: Regulation 10(f) of the AIF regulations states that no scheme of an AIF shall have more than one thousand investors. The Consultation Paper proposes to exempt LVFs from this restriction. 
    • Requirement to follow PPM template: SEBI’s circular SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 5, 2020, prescribed templates for PPMs of AIFs as well as annual audits of PPMs. These rules are now incorporated in Paragraph 2.4 of the SEBI’s Master Circular for AIFs. AIFs/ Schemes in which each investor commits to a minimum capital contribution of INR 70 crore and provides a waiver to the fund is, inter alia, are exempted from the requirement of PPM in the SEBI specified template and from annual audit of terms of PPM. The Consultation Paper proposes to exempt LVFs from the requirement to follow template PPM as specified by SEBI and from the requirement for carrying out an annual audit of the terms of the PPM.
    • Liability for members of the IC: Regulation 20(8) of AIF Regulations provides that the members of the investment committee (“IC”) of AIFs/Schemes in which each investor other than the Manager, Sponsor, employees or directors of the AIF or employees or directors of the Manager, commit to a minimum capital contribution of INR 70 crore and also provides a waiver to the fund, the members of the IC of such scheme(s) are not responsible for ensuring that the decisions of the investment committee are in compliance with the laid down policies and procedures. Consequently, in such cases, responsibility for investment decisions are of the AIF, manager of AIF and their KMPs.  The Consultation Paper proposes to exempt members of investment committee of LVFs from the requirement and condition of obtaining a waiver from the investors of the AIF specified in Regulation 20(8) of the AIF Regulations.
    • Conversion of existing schemes into LVFs: The Consultation Paper proposes to allow existing AIF schemes to be given the option to convert themselves as LVF schemes and avail the benefits available to the LVFs, provided all investors of existing schemes meet the minimum threshold amount specified for LVFs, are accredited investors, and provide their consent in this regard. 
  • ELP Comments
    LVFs were introduced by SEBI in 2021 to cater exclusively to accredited investors capable of independent due diligence and with the financial capacity to invest significant amounts, have sufficient financial acumen, and have the ability to hire expert managers/ advisors. LVFs therefore enjoy a number of relaxations provided by SEBI acknowledging that the LVFs’ target investor base does not require the same level of regulatory protection as retail-oriented AIF structures.

    A few of the relaxations, such as the one under Regulation 20(8) of the AIF Regulations, which has been detailed above, are subject to waiver by the Accredited Investor for availing the benefit of such relaxation. Except for SEBI’s proposal vis-à-vis Regulation 20(8) of the AIF Regulations, which modifies an existing relaxation, all other proposals provide for new relaxations. The other existing relaxations available for LVFs are as follows:

    • LVFs are exempt from filing their PPM with SEBI through Merchant Banker.
    • LVF schemes can be launched under intimation to SEBI by filing the PPM with SEBI before the launch of the scheme i.e. without waiting for the comments of SEBI.
    • Portfolio diversification requirements are relaxed for LVFs such that LVFs of Category I and II may invest up to 50% (in place of 25%) of the investable funds in a single investee company and LVFs of Category III may invest up to 20% (in place of 10%) of the investable funds in a single investee company.
    • Regulation 13(5) of AIF Regulations permits close ended AIFs to extend its tenure up to two years with the approval of two-third of its unit holders by value of their investment in the said AIF, while the proviso to the said Regulation permits LVF to extend up to five years.
    • LVFs are exempted from the requirement of maintaining pari-passu rights among investors’ subject to obtaining waiver from the accredited investor in this regard.

    The current INR 70 crore entry barrier has had the effect of limiting participation largely to large global institutions, sidelining sophisticated domestic players. The proposed reduction of the monetary limit for Accredited Investors investing in an LVF and the addition of benefits for LVFs will doubtless increase the number of LVFs in the Indian AIF ecosystem. This will benefit the Indian economy as a whole.

    The Consultation Paper further, very sensibly states that if an existing AIF scheme wishes to convert itself as an LVF scheme and avail the benefits available to the LVFs, all its investors must provide their consent for the conversion. For new LVFs that are set up after these proposals are implemented, it is unclear whether such LVFs would be required to forewarn the Accredited Investors, at the time of investment, of the relaxations provided for LVFs by SEBI and also inform them that they will not have any opportunity to withhold their consent subsequently with respect to the reduced protection under the AIF Regulations. Once the proposals of this Consultation Paper are implemented, the PPM of an LVF would not have to follow the PPM template prescribed by SEBI. Nevertheless, it would be good practice for LVFs to clearly disclose the regulatory exemptions available to LVFs (which translate to reduced regulatory protections for investors) in the PPM.

    SEBI’s Consultation Paper 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 

    Akhil Ganatra, Associate – Email –  akhilganatra@elp-in.com

    Saloni Khaitan, Advocate – Email – salonikhaitan@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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