SEBI's New AIF Regime: Institutional Capital Recalibrates

India's alternative investment funds added ₹3.45 lakh crore in commitments in the twelve months to March 2026. That single year of growth is more than half of what the industry had committed in total as recently as March 2022, when the figure stood at ₹6.4 lakh crore. The running total is now ₹16.94 lakh crore. Money actually drawn down crossed ₹7 lakh crore for the first time, ending the year at ₹7.03 lakh crore, with ₹6.76 lakh crore deployed. Real estate took the largest slice, at a record ₹1.29 lakh crore.

Somewhere along that curve, the Securities and Exchange Board of India decided the rulebook governing all of it needed to be taken apart and put back together. The register has swollen to 1,849 funds, against 732 five years ago. SEBI has spent eighteen months on the rebuild — not one dramatic overhaul, but a steady sequence of amendments, circulars and consultation papers that only reveal their logic read side by side.

Read that way, they say one thing. How much regulation you receive should depend on how sophisticated you are, and sophistication should be evidenced rather than inferred from the size of your cheque.

The end of the cheque-size proxy

For over a decade, SEBI's shorthand for a sophisticated investor was simply money. A ₹1 crore minimum ticket to enter any AIF. ₹70 crore per investor to qualify for a Large Value Fund. Blunt, but easy to administer.

The Third Amendment Regulations, notified on 18 November 2025, and the circular that followed on 8 December, started dismantling that shorthand. They created a new species of fund: the Accredited Investors only fund, in which every investor other than the manager, sponsor and their employees or directors holds a formal accreditation certificate. In exchange, a long list of protective requirements simply falls away — pari-passu rights among investors, NISM certification for the key investment team, the 1,000-investor cap per scheme, the standard PPM template and the annual PPM audit. In trust-structured funds, the manager can absorb responsibilities that previously sat with the trustee.

The LVF threshold moved in the same package, from ₹70 crore to ₹25 crore, on the recommendation of SEBI's Alternative Investment Policy Advisory Committee. The reasoning was refreshingly practical. Insurance companies and mid-sized family offices are sophisticated by any measure, but they operate under internal exposure caps that made a ₹70 crore commitment to any single fund commercially absurd. The old threshold was screening out exactly the institutional capital the category was designed to attract.

The regulator has stopped asking how large your cheque is. It now asks whether you can read the fund documents — and expects you to prove it.

Ten working days, and a burden that shifted

Then came GARUDA — Green-Channel: AIF Rollout Upon Document Acknowledgement, an acronym that clearly took someone a long afternoon. Following the AIF (Second Amendment) Regulations notified on 14 July 2026, SEBI issued the operational circular on 30 July.

A regular scheme can now launch ten working days after filing its private placement memorandum through a registered merchant banker, unless SEBI advises otherwise. The previous wait was thirty days. AI-only funds, LVFs and angel funds bypass the merchant banker altogether: they file directly with SEBI, accompanied by a signed undertaking from the manager's chief executive and compliance officer, and may begin circulating the PPM straight away. New schemes must now wear their status in their name — "AIOF" or "AI only fund" as a suffix, "LVF" for large value funds.

The backlog explains the hurry. SEBI received 407 AIF registration applications and 266 new scheme applications during FY26. As of 31 March, 183 scheme applications were still sitting in the queue.

What GARUDA actually does is relocate the checkpoint rather than remove it. SEBI has surrendered most of its front-end review and replaced it with accountability at the back end. Merchant bankers must now carry out independent due diligence on the adequacy of disclosures. Filing is explicitly not approval, and the PPM must say so. If material omissions or misleading statements surface afterwards, both the manager and the merchant banker are on the hook. A meaningful trade: speed to market, purchased with liability.

Co-investment finally gets a proper home

Co-investment used to be an awkward workaround. An investor who wanted concentrated exposure to one portfolio company had to route it through the Portfolio Managers regime, a structure never designed for it.

Regulation 17A, inserted in September 2025, gave the arrangement its own architecture. Category I and Category II AIFs can now launch dedicated Co-Investment Vehicle schemes for their accredited investors. Each CIV requires its own bank and demat account, with assets ring-fenced from the main scheme. No borrowing and no leverage are permitted. Expenses are apportioned between the main scheme and the CIV in the ratio of their respective investments in the investee company.

The guardrails are aimed squarely at favouritism, which is the obvious risk in any side-car structure. An investor's total co-investment in a single investee company cannot exceed three times what that investor contributed to the main scheme's investment in the same company — development finance institutions, government entities and sovereign funds excepted. Neither the manager nor the sponsor may negotiate CIV terms more favourable than those the main fund secured.

The unglamorous half that operations teams will feel

Two changes will matter more to middle offices than to anyone's investment thesis.

The circular of 4 March 2026 replaced four heavy quarterly filings with a single comprehensive Annual Activity Report, due within thirty days of the financial year end, plus a lighter quarterly report thereafter. The first annual report fell due on 31 May 2026; the trimmed quarterly format applied from the June 2026 quarter. There is no separate March-quarter filing.

The second fixes a long-standing irritation. Funds that had sold everything and distributed nearly everything still could not close, because a pending tax notice or a stray piece of litigation left a residual balance in the account. Under SEBI's circular of 16 June 2026, retention beyond fund life is now permitted — for crystallised liabilities, for anticipated contingencies approved by at least 75% of investors by value, and for winding-up expenses subject to a three-year cap. Funds in this position can be designated "inoperative", drop out of periodic filings, PPM updates and performance benchmarking, and file a single annual retention status report instead.

The number that undercuts all of it

Here is the awkward part. As of 31 July 2026, India had 3,820 accredited investors.

That is a near-sixfold jump from 649 a year earlier, and it remains a rounding error against an AIF investor base of roughly one lakh. An entire regulatory architecture — AI-only funds, CIV schemes, relaxed LVFs, same-day scheme launches — currently rests on a population small enough to fit inside a mid-sized auditorium.

In fairness, the pool is small but heavy. Accredited investors already held AIF units with a par value of nearly ₹1.91 lakh crore as of December 2025, close to 30% of total AIF investments. The constraint is paperwork, not appetite.

SEBI's consultation paper of 13 August 2026 goes after exactly that. It proposes letting fund managers determine and record accreditation status during onboarding, alongside the existing accreditation agency route; adding securities market assets as a third eligibility test at ₹5 crore for individuals and ₹20 crore for body corporates; standardising validity at three years; and treating all persons resident outside India under FEMA as deemed accredited investors. SEBI's own estimate is that the eligible pool could expand to around four lakh. Comments close on 3 September 2026.

Not all of this is loosening

Anyone reading the past eighteen months as pure deregulation should sit with the consultation paper of 30 June 2026. SEBI wants a uniform 75%-by-value approval threshold wherever investor consent is required under the AIF Regulations. Funds would choose one of three voting methodologies — deemed consent, present and voting, or express voting — disclose the choice in the PPM, and apply it identically to every investor in the scheme.

The more consequential proposal is replacing "associate", currently anchored to a 15% shareholding test, with a "related party" definition adapted from Section 2(76) of the Companies Act, 2013. That widens the universe of conflicted transactions needing 75% investor approval considerably. Existing schemes would be grandfathered.

There is also a deadline worth circling in red. Angel funds registered on or before 10 September 2025 must stop accepting fresh commitments from non-accredited investors from 8 September 2026 — a fortnight from now.

What actually recalibrates

What the industry is living through is less a loosening than a re-sorting. Capital that can document its sophistication gets speed, structural flexibility and genuine negotiating room. Everything else stays inside the old perimeter, with the ₹1 crore minimum and the full compliance stack intact. Two regimes, running in parallel, with an accreditation certificate as the door between them. SEBI has said both metrics will coexist for now, to avoid disruption — but the direction of travel is not ambiguous.

For managers, the practical question over the next two quarters is unromantic: how many of your existing investors could actually produce an accreditation certificate this week, and what does your fund structure look like if the honest answer is "not enough"? Fund documentation, consent mechanics and onboarding all need revisiting, and the GARUDA timelines only reward those who already have.

For SEBI, the bet is that light-touch regulation of genuinely sophisticated capital is safer than heavy-touch regulation of everyone. That is a reasonable bet. It also depends entirely on accreditation actually working — which is why the September consultation matters rather more than the headline-grabbing launch timelines.

Sources

Primary — SEBI

●        SEBI Circular: GARUDA Mechanism for Processing of Placement Memorandum of AIFs, 30 July 2026 — https://www.sebi.gov.in/legal/circulars/jul-2026/-green-channel-aif-rollout-upon-document-acknowledgement-garuda-mechanism-for-processing-of-placement-memorandum-of-alternative-investment-funds-aifs-filed-with-sebi_103241.html

●        SEBI Circular: Regulatory Reporting by AIFs, 4 March 2026 (No. HO/19/28/(1)2026-AFD-SEC3/I/6176/2026) — https://www.sebi.gov.in/legal/circulars/mar-2026/regulatory-reporting-by-aifs_100120.html

●        SEBI Circular: Guidelines for Winding Up of AIFs — Retention of Proceeds and 'Inoperative Fund' Status, 16 June 2026 — https://www.sebi.gov.in/legal/circulars/jun-2026/guidelines-for-winding-up-of-aifs-with-respect-to-retention-of-proceeds-and-inoperative-fund-status_102171.html

●        SEBI Consultation Paper on Review of the Accredited Investor Framework, 13 August 2026 — https://www.sebi.gov.in/reports-and-statistics/reports/aug-2026/consultation-paper-on-review-of-accredited-investor-framework_103550.html

●        SEBI Consultation Paper on the GARUDA Mechanism, May 2026 — https://www.sebi.gov.in/reports-and-statistics/reports/may-2026/consultation-on-green-channel-aif-rollout-upon-document-acknowledgement-garuda-mechanism-for-processing-of-placement-memorandum-of-alternative-investment-funds-aifs-filed-with-sebi-_101340.html

●        SEBI Board Memorandum: Proposals for Accredited Investors and Large Value Funds, September 2025 — https://www.sebi.gov.in/sebi_data/meetingfiles/sep-2025/1758513313676_1.pdf

Legal and professional analysis

●        AZB & Partners — SEBI Co-Investment Scheme Framework — https://www.azbpartners.com/bank/sebi-co-investment-scheme-framework/

●        S&R Associates — Introduction of a New Co-Investment Scheme for AIFs by SEBI — https://www.snrlaw.in/regulatory-update-introduction-of-a-new-co-investment-scheme-for-aifs-by-sebi/

●        Economic Laws Practice — SEBI AIF Regulations Amended to Create 'Accredited Investors Only' AIFs — https://elplaw.in/leadership/sebi-aif-regulations-amended-to-create-accredited-investors-only-aifs/

●        Cyril Amarchand Mangaldas — Procuring Investor Consent by AIFs: SEBI's New Playbook — https://corporate.cyrilamarchandblogs.com/2026/07/procuring-investor-consent-by-aifs-sebis-new-playbook-for-voting-and-conflict-management/

●        Cyril Amarchand Mangaldas — SEBI Consultation Paper on AIF Winding-Up and Surrender — https://corporate.cyrilamarchandblogs.com/2026/02/sebi-consultation-paper-proposed-amendments-to-aif-winding-up-and-surrender-framework/

●        Saraf and Partners — SEBI Frameworks for Angel Funds and Co-Investment Vehicles — https://sarafpartners.com/sebi-issues-frameworks-for-angel-funds-and-co-investment-vehicles-under-the-sebi-aif-regulations/

●        Vinod Kothari Consultants — Light-Touch Regulations for AIFs with Accredited Investors — https://vinodkothari.com/2025/08/light-touch-regulations-for-aifs-with-accredited-investors/

●        Vinod Kothari Consultants — Standardising Investors' Consent and Conflicted Transactions — https://vinodkothari.com/2026/07/standardising-investors-consent-and-broadening-scope-of-conflicted-transactions-sebi-rolls-out-consultation-for-aifs/

●        Argus Partners — SEBI's Revision to the Reporting Framework for AIFs — https://www.argus-p.com/updates/updates/sebis-revision-to-the-reporting-framework-for-alternative-investment-funds/

Industry data and reporting

●        Business Standard — AIF commitments near ₹17 trn, fund raises top ₹7 trn for the first time — https://www.business-standard.com/finance/investment/aif-commitments-near-17-trn-fund-raises-top-7-trn-for-the-first-time-126062500882_1.html

●        Business Standard — Sebi proposes 'GARUDA' mechanism to speed up AIF scheme launches — https://www.business-standard.com/markets/news/sebi-proposes-garuda-mechanism-to-speed-up-aif-scheme-launches-126051100763_1.html

●        Business Standard — SEBI seeks public comments on review of Accredited Investor framework — https://www.business-standard.com/markets/capital-market-news/sebi-seeks-public-comments-on-review-of-accredited-investor-framework-126081500223_1.html

●        Cafemutual — SEBI operationalizes GARUDA mechanism, notifies detailed norms — https://cafemutual.com/news/cafe-alt/38383-sebi-operationalizes-garuda-mechanism-notifies-detailed-norms-for-fast-track-aif-launches

●        Cafemutual — AIF commitments near ₹17 lakh crore mark — https://cafemutual.com/news/cafe-alt/38141-aif-commitments-near-rs-17-lakh-crore-mark-category-ii-drives-over-90-of-quarterly-growth-of-investments-made-by-aifs

●        Cafemutual — SEBI proposes allowing fund managers to grant accredited investor status — https://cafemutual.com/news/cafe-alt/38523-sebi-proposes-allowing-fund-managers-to-grant-accredited-investor-status

●        Business Today — Launching an AIF just got faster: What SEBI's new GARUDA framework means — https://www.businesstoday.in/personal-finance/investment/story/launching-an-aif-just-got-faster-what-sebis-new-garuda-framework-means-546374-2026-07-30