On June 18, 2025, at the 210th meeting of the Board of the Securities and Exchange Board of India (“SEBI”), a new framework through which alternative investment funds (AIFs) can offer co-investment opportunities in unlisted securities was approved. This decision by SEBI’s Board is pursuant to a consultation paper on this topic released by SEBI on May 9, 2025 (“Consultation Paper”).
The following are the salient features of SEBI’s new rules with respect to Co-Investments as set out in paragraph 11.4 of the minutes of SEBI’s Board meeting:
- “Co-investment scheme” shall means a scheme of a Category I or Category II AIFs, which facilitates co-investment to accredited investors of a particular scheme of an AIF, in unlisted securities of an investee company where the scheme of the AIF is making investment or has invested.
- A separate CIV scheme shall be launched for each co-investment in an investee company subject to safeguards to ensure that the scheme is used only for bona fide purposes.
- Certain regulatory requirements applicable to other AIF schemes shall be relaxed for CIV schemes.
The present route for co-investment for AIF investors facilitated through Co-investment Portfolio Managers under PMS Regulations (“PMS route”) will continue to subsist, in addition to the new Co-investment scheme option.
Since only accredited investors can invest in a Co-investment scheme, we have briefly set out below the eligibility criteria for getting accredited, which varies according to the type of entity:
- In case of an individual, a Hindu Undivided Family, a family trust or a sole proprietorship, there should be:
- annual income of at least two crore rupees; or
- net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees should be in the form of financial assets; or
- annual income of at least one crore rupees and minimum net worth of at least five crore rupees, out of which not less than two crore fifty lakh rupees should be in the form of financial assets.
For the calculation of net worth of individuals, the value of the individual’s primary residence will not be considered.
- In case of a body corporate, the net worth should be at least fifty crore rupees;
- In case of a trust other than a family trust, there should be net worth of at least fifty crore rupees;
- In case of a partnership firm set up under the Indian Partnership Act, 1932, each partner should independently meet the eligibility criteria for accreditation.
A prospective investor desirous of availing the status of an accredited investor must make an application to an Accreditation Agency, submitting relevant financial records such as tax returns, audited accounts etc. Accreditation granted on the basis of financial information of one preceding year, shall be valid for a period of one year from the date of accreditation. However, if an applicant meets the eligibility criteria for each of the three preceding years to the one in which application for accreditation is being made and furnishes the necessary documents to the Accreditation Agency in support of the same, then the accreditation shall be valid for two years from the date of accreditation. The Accreditation Agency shall also verify that the investor is ‘fit and proper’ to participate in the securities market, including the investor not being debarred from securities market, at the time of accreditation. Successful applicants shall receive from the Accreditation Agency an accreditation certificate which carries a unique accreditation number and specifies, inter-alia, the name and permanent account number (PAN) of the applicant (or analogous unique identifier for foreign investors), date of accreditation, validity of accreditation.
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- The Consultation Paper had stated that when a Category I or Category II AIF that wishes to enable co-investments is applying for registration, it should annex a shelf PPM of the Co-investment Vehicle (“CIV”) to its PPM of the main AIF. The Consultation Paper had set out detailed rules for shelf PPMs, such as that shelf PPM of the CIV should set out details of the principles and parameters on the basis of which the investors of the main AIF will be offered co-investment rights. The minutes of SEBI’s Board meeting held on June 18, 2025 (“Board Minutes”) are totally silent on shelf PPMs. It is likely that the actual amendments to the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“SEBI AIF Regs”) will provide for shelf PPMs.
- The Consultation Paper had stated that only Accredited Investors will be offered co-investment opportunities through a CIV. The Board Minutes state that “this policy initiative will allow Category I & II AIFs to facilitate co-investment to accredited investors through Co-investment scheme (‘CIV scheme’) within AIF Regulations” implying that only Accredited Investors will be offered co-investment opportunities through a CIV. However, it is likely that the PMS route may be available for non- Accredited Investors. /li>
- The Consultation Paper had stated that the tenure of CIV shall be co-terminus with the main AIF. The Board Minutes are totally silent on this aspect.
- The Consultation Paper had stated that a number of requirements under the AIF Regulations shall not apply to CIVs, such as the requirement to not invest more than 25% of the fund in a single investee company or the requirement regarding sponsor commitment. The Board Minutes cryptically state that certain regulatory requirements applicable to other AIF schemes shall be relaxed for CIV schemes. It remains to be seen what these relaxations would be.
- The Consultation Paper had stated that the investment manager should set up a single CIV for all co-investments in relation to the main AIF. It also said that if SEBI is of the view that this will impede severely the pro rata construct inserted in the SEBI AIF Regs vide the Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2024 which came into effect on November 18, 2024, then SEBI may consider allowing one CIV per co-investment with no restrictions as to the number of CIVs that could co-invest alongside the main AIF. The Board Minutes clearly state that a separate CIV scheme shall be launched for each co-investment in an investee company.
- The Board Minutes make it clear that a separate CIV scheme shall be established for each co-investment in an investee company. It is unclear if, pursuant to investment in a portfolio company, the AIF ends up with securities of another entity/ies pursuant to corporate actions such as demergers or amalgamations, or slump sales, the same CIV scheme can hold the securities of the other entities also. In this context, it is worth noting that the IFSCA, vide its Circular No. IFSCA-AIF/6/2025-Capital Markets dated May 21, 2025 has clarifies that a Special Scheme (the equivalent of a CIV under SEBI Regulations) is permitted to hold securities of more than one entity, provided such securities arise from corporate actions or restructurings at the portfolio company level, including amalgamations, demergers, or slump sales.
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The Board Minutescan be found here
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.comor write to our authors:
Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
Akhil Ganatra, Advocate – Email –akhilganatra@elp-in.com
Zaynali Badami, Advocate – Email –zaynalibadami@elp-in.com
