Source: https://www.sebi.gov.in/media-and-notifications/press-releases/may-2026/removal-of-difficulties-for-on-boarding-for-fpis-pan-allotment-related-issues_101471.html

In a recent clarification, SEBI announced operational relaxations from CBDT to resolve PAN allotment challenges faced by Foreign Portfolio Investors (FPIs) under the new Income-tax Rules, 2026.

Key Relief Measures

CBDT has clarified that:

• Authorized Signatory details in the Common Application Form (CAF) are sufficient for PAN applications.

• Supporting documents for Authorized Representatives are no longer required.

• FPI registration number can be used where PAN/Aadhaar/Passport details are unavailable.

• “0000000000” may be used where TIN is not applicable.

• Landline numbers can be provided if mobile numbers are unavailable.

Why This Matters Beyond FPIs

While the circular is specifically for FPIs, the broader signal is important for the Indian AIF ecosystem.

Foreign investors participating in Indian AIFs often face operational bottlenecks around:

• PAN issuance

• KYC completion

• Bank onboarding

• Tax reporting setup

• Cross-border documentation requirements

These clarifications indicate a continued regulatory push toward:

• smoother foreign investor onboarding,

• reduced compliance friction,

• digital-first onboarding workflows,

• and improved ease of doing business for global capital.

Implications for AIF Managers & Service Providers

For AIFs onboarding offshore LPs, this can potentially translate into:

• Faster investor activation timelines

• Reduced onboarding exceptions

• Simplified documentation handling

• Better digital onboarding experiences

• Lower operational dependency on manual verification

The Bigger Trend

India’s investment infrastructure is gradually evolving toward:

• API-driven compliance,

• centralized KYC ecosystems,

• digital onboarding standards,

• and globally compatible investor workflows.

For the alternative investment industry, operational efficiency is becoming just as important as regulatory compliance.

Source: 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 has released a consultation paper proposing a major operational shift for Alternative Investment Funds (AIFs) through the new “GARUDA” (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism.

The objective is simple:
➡️ reduce launch timelines,
➡️ rely more on manager accountability, and
➡️ accelerate capital deployment across the AIF ecosystem.

Key Proposed Changes

1. Faster Launch for Regular AIF Schemes

Currently, AIF schemes are typically launched 30 days after filing the Placement Memorandum (PPM) with SEBI through a Merchant Banker.

SEBI now proposes:

• Launch of new schemes after 10 working days

• First schemes can launch from:

  • date of SEBI registration, OR

  • after 10 working days from filing
    whichever is later.

2. Major Relaxation for Accredited Investor (AI) Only Schemes

For AI-only schemes, SEBI proposes:

• No mandatory Merchant Banker filing

• PPM can be filed directly by the AIF Manager

• Merchant Banker Due Diligence Certificate replaced with:

  • CEO undertaking

  • Compliance Officer undertaking

• Immediate scheme launch upon filing.

This is a significant move toward a lighter-touch regulatory framework for sophisticated investors.

3. Angel Funds Also Get Easier Launch Path

Angel Funds may also receive:

• Direct filing with SEBI

• Removal of Merchant Banker DD certificate requirement

• Immediate circulation of PPM for fundraising after registration.

Why This Matters

India’s AIF industry has scaled rapidly:

• AIF count grew from 732 (2021) to 1849 (2026)

• Commitments reached ₹15.74 lakh crore

• Net investments crossed ₹6.45 lakh crore.

SEBI is effectively acknowledging that:

• the ecosystem has matured,

• Merchant Bankers have built operational expertise,

• and Accredited Investors can evaluate risks independently.

The regulator is shifting from:

“pre-approval heavy scrutiny”
to
“post-facto risk-based supervision.”

Bigger Industry Signal

The consultation paper also hints at a broader long-term direction:

future AIF ecosystems becoming increasingly AI-only (Accredited Investor focused).

That could eventually reshape:

• fundraising structures,

• onboarding workflows,

• compliance architecture,

• and investor qualification processes across the industry.

SEBI has invited public comments on the proposals until June 1, 2026.

Source:https://ifsca.gov.in/CommonDirect/GetFileView?id=91427247c5628a865846d173bc229a3c&fileName=Consumer_Charter_by_Regulated_Entities_in_the_IFSC_20260508_0343.pdf&TitleName=Legal

What the Circular Says

• IFSCA has published an official Consumer Charter framework focused on:

  • consumer protection

  • transparency

  • accountability

  • fair treatment of financial consumers.

• All regulated entities serving retail consumers are encouraged to:

  • publish their own Consumer Charter on their GIFT IFSC website, OR

  • provide a link redirecting users to a group entity’s consumer charter webpage.

What Should Be Included in the Charter

The charter should contain:

• vision & mission

• customer rights & responsibilities

• consumer do’s and don’ts

• grievance/contact mechanisms

• consumer-centric safeguards depending on:

  • business model

  • product complexity

  • operational channels.

Important Context

• The circular references the earlier December 02, 2024 circular on:

  • Complaint Handling and Grievance Redressal by Regulated Entities in IFSC.

• Comes into force immediately.

Why This Matters

This is part of a broader trend where IFSC regulation is moving toward:

• stronger retail investor protection

• standardized disclosures

• clearer grievance frameworks

• conduct-based regulation similar to global financial centers.

For fintechs, brokers, wealth platforms, banks, insurers, and fund platforms operating in GIFT IFSC, this effectively creates an expectation for:

• documented customer rights

• transparent communication

• visible complaint escalation systems.

Source: https://www.sebi.gov.in/legal/circulars/may-2026/advisory-on-emerging-advanced-artificial-intelligence-ai-tools-for-vulnerability-detection_101270.html

Background

The rapid evolution of advanced AI tools—such as Claude Mythos—has introduced a new class of cybersecurity risks for regulated entities across India’s securities ecosystem.

These tools can:

• Identify vulnerabilities at scale and speed

• Potentially enable exploitation

• Raise concerns around:

  • Data confidentiality

  • Application integrity

  • Reliability of outputs

SEBI has issued this advisory to proactively address these emerging risks.

Why This Matters for AIFs

Given the interconnected nature of market participants, a vulnerability in one entity can cascade across the ecosystem.

For AIFs, this directly impacts:

• Fund data security

• LP information confidentiality

• Portfolio company integrations

• Third-party vendor risk

SEBI emphasizes a coordinated and continuous approach to vulnerability management and threat intelligence sharing.

Key Regulatory Development: cyber-suraksha.ai Task Force

SEBI has constituted a dedicated task force “cyber-suraksha.ai” with participation from:

• MIIs

• QRTAs

• Regulated entities

• Other ecosystem stakeholders

Mandate:

• Assess cybersecurity risks from AI models

• Develop uniform mitigation strategies

• Enable threat intelligence sharing

• Report cyber incidents in real time

• Evaluate third-party vendor security posture

Key Action Points for AIFs & Regulated Entities

1. Patch Management

• Immediate updates of OS & applications

• Use virtual patching where fixes are unavailable

2. Continuous VAPT

• Regular vulnerability assessments

• Use both traditional + AI-based tools

3. Vendor Risk Management

• Ensure third-party vendors:

  • Conduct AI risk assessments

  • Deploy safeguards (patching, monitoring, hardening)

4. Change Management Discipline

• Full documentation

• Impact analysis

• Secure deployment practices

5. API Security Controls

• Maintain API inventory

• Strong authentication & authorization

• Rate limiting & whitelisting

6. SOC Monitoring & Automation

• Continuous monitoring of alerts

• Adopt SIEM + SOAR frameworks

• Onboard to Market SOC (M-SOC) where applicable

7. Risk Assessment Enhancements

• Include AI-driven threat scenarios

• Perform scenario-based testing

8. System Hardening

• Disable unnecessary services

• Implement:

  • Least privilege

  • Zero Trust (ZTNA)

9. Asset Visibility

• Maintain updated:

  • Asset inventory

  • Software Bill of Materials (SBOM)

10. Strategic AI Readiness

• Build long-term plans for:

  • AI-driven detection

  • Autonomous mitigation

  • AI-augmented SOC

Background

India had introduced restrictions in 2020 (Press Note 3) to curb opportunistic acquisitions from countries sharing land borders with India.

Press Note 2 (2026) now revisits and strengthens this framework — shifting from a jurisdiction-based restriction to a control and beneficial ownership-based regime.

Key Changes

1. Government Route Requirement Continues

Any investment into India:

• By an entity from a country sharing land border with India, OR

• Where the beneficial owner is from such a country

👉 Requires prior Government approval

2. Transfer of Ownership Now Explicitly Covered

Even if initial investment was compliant:

👉 Any subsequent transfer (direct or indirect)
that results in beneficial ownership falling under restricted categories

➡️ Will require Government approval

Implication:
Secondary transactions, exits, and restructuring are now directly captured.

3. Beneficial Ownership — Tightened Definition

The concept of “beneficial owner” is now aligned with:

• Prevention of Money-laundering Act, 2002

• Rule 9 of PML Rules

It includes:

• Direct or indirect ownership

• Rights exceeding prescribed thresholds

• Ability to exercise control

• Ability to exercise ultimate effective control

4. Deemed Beneficial Ownership (Substance Over Form)

Even if the investing entity is based outside restricted jurisdictions:

👉 Investment will still be treated as restricted if entities/persons from land-border countries:

• Hold significant rights, OR

• Exercise control or influence, OR

• Have ultimate effective control

Implication:
Layered/global fund structures will be closely scrutinized.

5. New Reporting Requirement (Important Addition)

Where:

• There is any direct or indirect ownership from such countries

• But approval is not required

👉 Mandatory reporting to DPIIT (as per SOP)

Implication:
Even non-triggering cases are now under regulatory visibility.

6. Pakistan-Specific Position Continues

• Investments allowed only under Government route

• Prohibited in:

  • Defence

  • Space

  • Atomic Energy

Key Implications for AIFs, VCs, and Startups

1. Look-Through Becomes Critical

Fund managers must now:

• Trace ultimate beneficial ownership of LPs

• Assess control rights, not just shareholding

2. Secondary Transactions Under Scrutiny

• Share transfers

• ESOP exits

• Fund exits

👉 May trigger approval if ownership profile changes

3. Offshore Structures Not Automatically Safe

Structures via:

• Singapore

• Mauritius

• UAE

👉 Will be tested based on who ultimately controls capital

📊 4. Compliance is Now Ongoing, Not One-Time

• Ownership monitoring

• Periodic reassessment

• Reporting obligations

👉 Compliance becomes a continuous function

AIFServices Insight

This amendment marks a clear shift:

From “where the investor is located”
to “who actually controls the investment”

For fund managers and founders:

• Structuring decisions need deeper diligence

• LP onboarding requires enhanced checks

• Exit planning must factor regulatory triggers

Effective Date

The above changes will take effect upon corresponding amendments under FEMA (NDI Rules).

🔗 Related Reading

👉 For implementation under FEMA, read:
“FEMA (Non-Debt Instruments) Amendment – What Changes?”
https://www.aifservices.in/p/fema-non-debt-instruments-amendment

The Ministry of Finance has notified the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026, introducing important clarifications around beneficial ownership, government approval requirements, and reporting obligations for foreign investments into India.

These amendments refine the existing framework under the FEMA (Non-Debt Instruments) Rules, 2019, particularly in the context of investments linked to countries sharing land borders with India.

📌 Background

India has maintained a restricted investment framework for entities or individuals connected to countries sharing land borders with India (e.g., China, Pakistan, etc.), requiring investments to be routed through the Government approval route.

This amendment builds on that framework by:

• Clarifying beneficial ownership triggers

• Introducing reporting obligations

• Aligning definitions with PMLA regulations

⚖️ Key Amendments

1. Government Approval – Beneficial Ownership Lens Strengthened

Investments into Indian companies will require prior Government approval where:

• The investor is a citizen/entity of a land-bordering country, OR

• The beneficial owner of the investment falls within such jurisdictions

👉 This applies even in cases of indirect ownership structures

2. Pakistan-Specific Investment Rules Retained

• Investments from Pakistan:

  • Allowed only via Government route

  • Continue to be prohibited in sensitive sectors such as:

    • Defence

    • Space

    • Atomic Energy

3. Ownership Transfer = Fresh Approval Trigger

A critical clarification:

• If existing or future FDI undergoes a transfer of ownership

• And such transfer results in beneficial ownership falling within restricted jurisdictions

👉 Fresh Government approval becomes mandatory

This directly impacts:

• Secondary transactions

• Fund restructuring

• Exit scenarios

4. Multilateral Funds – Explicit Exemption

The amendment clarifies that:

• Multilateral banks/funds (where India is a member)
  👉 Will not be treated as country-specific investors

This removes ambiguity for:

• Global institutional capital

• Blended finance structures

• Sovereign-backed multilaterals

5. New RBI Reporting Requirement

Even where Government approval is not triggered, investments will still require RBI reporting if:

• There is direct or indirect ownership from a land-bordering country

👉 This introduces an additional compliance layer for funds and companies

6. Alignment with PMLA – Definition of Beneficial Owner

The definition of “beneficial owner” is now explicitly linked to:

• Prevention of Money Laundering Act (PMLA), 2002

• Rule 9 of PML Rules, 2005

👉 This ensures consistency across:

• FEMA regulations

• AML / KYC frameworks

🧩 Practical Implications for AIFs, VCs & PE Funds

🔍 1. LP Due Diligence Becomes Deeper

• Funds must look through ownership layers

• Increased reliance on UBO declarations and verification

🔁 2. Secondary Transactions Under Scrutiny

• Any change in ownership → potential approval trigger

• Impacts:

  • GP-led restructurings

  • Secondary sales

  • Co-invest exits

🌍 3. Global Fund Structures Need Re-evaluation

• Indirect exposure from restricted jurisdictions may:

  • Trigger approval

  • Or at minimum, reporting obligations

🧾 4. Compliance Stack Must Evolve

Funds need tighter integration across:

• FEMA compliance

• AML / KYC checks

• Investor onboarding workflows

⚠️ Key Takeaway

This amendment does not introduce new restrictions, but significantly:

• Clarifies regulatory intent

• Expands the scope of beneficial ownership checks

• Introduces reporting obligations even without approval triggers

👉 In effect, India is moving toward a more transparent and tightly monitored FDI regime

🧠 AIFServices View

For fund managers, this is a compliance-first update:

• Operational impact > structural impact

• Requires process upgrades, not necessarily strategy changes

• Makes data visibility and ownership tracking critical

🔗 Source: https://www.sebi.gov.in/reports-and-statistics/publications/apr-2026/sebi-bulletin-april-2026_101194.html

🚀 Capital Markets at Record Highs

• FY26 witnessed record capital mobilisation of ₹13.9 lakh crore.

• 366 IPOs raised ~₹1.9 lakh crore, led by strong mainboard activity.

• SME IPOs also surged, indicating broad-based market depth.

• Financial Services dominated fundraising (₹59,822 crore).

👉 Key trend: Markets are deepening across both large and emerging issuers.

📉 Secondary Market Volatility (March 2026)

• Sharp correction:

  • Nifty ↓11.3% | Sensex ↓11.5%

• Trigger: Geopolitical tensions + crude price spike + FPI outflows

• Defensive sectors outperformed; banks & financials worst hit

👉 Insight: Global shocks continue to drive short-term volatility.

💸 FPI vs DII Dynamics

• FPI outflow: ₹1.25 lakh crore (record sell-off)

• DII inflow: ₹1.43 lakh crore (strong counterbalance)

👉 Structural shift: Domestic capital (MF/SIPs) stabilising markets.

📊 Fund Management Trends

• Mutual Fund AUM: ₹73.7 lakh crore (↑12.2% YoY)

• Net inflows FY26: ₹7.4 lakh crore

• Equity schemes saw strong inflows despite volatility

👉 Takeaway: Retail participation remains resilient and growing.

🧾 AIF & Regulatory Developments (Important)

1. Revised AIF Reporting Framework

   • Updated formats aligned with latest regulations

   • Reduced reporting frequency → Ease of doing business

2. Custodian Regulations Strengthened

   • Mandatory segregation of regulated/unregulated activities

   • Enhanced governance, risk management & disclosures

3. Other Key Changes

   • MF debit freeze facility (investor protection)

   • Relaxed certification norms for non-core research roles

   • Intraday borrowing allowed for mutual funds

   • SGF norms tightened for commodity derivatives

👉 AIF Impact:

• Lower compliance friction + stronger governance expectations

📈 Market Structure Trends

• Debt market remains dominant (~₹9.1 lakh crore issuance)

• Preferential allotments surged (+76%), while QIPs declined

• Demat accounts reached 22.5 crore

👉 Signal: Continued financialisation of savings in India.

🌍 Global Context

• India remains 2nd largest IPO market globally (14% share)

• Global markets under pressure due to West Asia conflict

• US seen as safe haven; emerging markets faced outflows

🧠 AIFServices Insight

• Domestic liquidity (SIPs, DIIs) is now the key stabiliser

• IPO market depth expanding → strong exit environment for AIFs

• Regulatory focus = ease of doing business + risk controls

• Global volatility remains the biggest external risk

Circular: https://www.sebi.gov.in/legal/circulars/apr-2026/fast-track-mechanism-for-processing-of-placement-memorandum-of-aifs-filed-with-sebi_101213.html

This marks a shift from a SEBI-led review model to a timeline-based launch framework, with greater reliance on merchant banker diligence and manager accountability.

What SEBI Has Changed

Under the earlier process, SEBI reviewed PPM disclosures and issued comments before schemes could be launched — often resulting in delays.

With this circular, SEBI has streamlined the process by allowing fund launches within a defined timeline, subject to compliance with regulatory requirements.

Key Provisions

1. Fast-Track Launch for Non-LVF Schemes

The new framework applies to:

• Angel Funds

• All AIF schemes except Large Value Funds for Accredited Investors (LVFs)

AIFs can now:

• Launch schemes

• Circulate PPMs to investors

After 30 days of filing with SEBI, unless otherwise advised.

2. Special Rule for First Scheme

For first-time AIF schemes:

• Launch allowed after SEBI registration or

• 30 days from filing

Whichever is later

3. SEBI Comments Still Binding

If SEBI provides comments within the 30-day window:

• These must be incorporated before launch

4. First Close Timeline

AIFs must achieve first close within:

• 12 months from eligibility to launch

This modifies the earlier Master Circular provisions.

5. Filing Requirements

PPMs must be filed via the SEBI intermediary portal along with:

• Merchant Banker Due Diligence Certificate

• Fit & Proper declarations

• Sponsor/Manager commitment declarations

• PAN details of all key entities and personnel

6. Responsibility Framework

SEBI has clearly shifted accountability:

• Merchant Banker + AIF Manager are responsible for

  • Accuracy of disclosures

  • Completeness of information

  • Regulatory compliance

7. Mandatory Disclaimer

PPMs must explicitly state:

• SEBI does not approve the document

• Responsibility lies with the Manager and Merchant Banker

• Disclosures are based on their due diligence

8. Applicability

• Effective immediately

• Applies to pending PPMs as well

Why This Matters

This circular reflects SEBI’s broader regulatory direction:

• Reduce processing bottlenecks

• Enable faster capital deployment

• Shift compliance responsibility to market participants

Similar to recent reporting reforms, SEBI is increasingly focusing on efficiency + accountability over pre-approval

Source: https://www.sebi.gov.in/legal/circulars/apr-2026/framework-for-net-settlement-of-funds-for-transactions-done-by-foreign-portfolio-investors-fpis-in-cash-market_101090.html

1. Background

Under the existing framework, Foreign Portfolio Investors (FPIs) are required to settle transactions on a gross basis at the custodian level. This has led to:

• Higher liquidity requirements

• Increased funding costs (including forex slippage)

• Operational inefficiencies, especially during index rebalancing

2. Key Change Introduced

SEBI has now permitted net settlement of funds for certain FPI transactions in the cash market.

What qualifies for net settlement?

• Transactions that are “outright” in nature:

  • Only buy or only sell in a security within a settlement cycle

• These transactions can now be netted to determine final fund obligation

3. Important Conditions

• ❌ Transactions involving both buy and sell in the same security (within the same settlement cycle) will continue on gross basis

• 💰 If purchases exceed sales → FPI must fund the difference

• ⚠️ Excess sale proceeds cannot be used to offset non-outright purchase obligations

• 📦 Securities settlement remains gross (no change)

• 🧾 STT and stamp duty continue on delivery basis

4. Operational Impact

This move is expected to:

• Reduce capital blocked for FPIs

• Improve liquidity efficiency

• Lower transaction and funding costs

• Simplify settlement workflows

5. Implementation Timeline

• To be implemented on or before December 31, 2026

• Standards to be defined by custodians and industry bodies

6. Illustration (as per SEBI Annexure)

As shown in the example (Pages 4–6):

• Earlier (gross): FPI had higher pay-in obligations (₹2000)

• Now (net): Pay-in reduces to ₹1000, improving capital efficiency

The diagrams on pages 5 and 6 clearly depict how fund flows between FPI → Custodian → Clearing Corporation become more efficient under the new mechanism.

7. Regulatory Basis

Issued under:

• Section 11(1) of SEBI Act, 1992

• Regulation 44 of SEBI (FPI) Regulations, 2019

Source: https://www.sebi.gov.in/legal/circulars/apr-2026/review-of-requirement-relating-to-registration-for-a-not-for-profit-organization-on-social-stock-exchange-and-minimum-subscription-requirement-for-issuance-of-zero-coupon-zero-principal-instruments_100935.html

1. Background

To promote the growth of the Social Stock Exchange (SSE) and facilitate ease of fundraising for Not-for-Profit Organizations (NPOs), SEBI has reviewed certain regulatory requirements under the SSE framework.

2. Key Changes Introduced

2.1 Extension of Registration Validity for NPOs

• NPOs can now remain registered on SSE without raising funds for up to 3 years

• Earlier limit: 2 years

• Additional 1-year extension is subject to SSE approval

2.2 Reduction in Minimum Subscription Requirement (ZCZP Instruments)

• Minimum subscription reduced from 75% → 50%

• Applicable for issuance of Zero Coupon Zero Principal (ZCZP) Instruments

• Condition:

  • SSE must conduct due diligence

  • Funds raised should still be sufficient for meaningful project implementation

2.3 Enhanced Disclosure Requirements for Under-subscription

NPOs must disclose in the fund raising document:

• Plan to raise remaining capital if minimum subscription is partially met

• Impact on project objectives if full funding is not achieved

⚠️ If minimum subscription (50% or 75%) is not achieved → Funds must be refunded

3. Regulatory Modifications

This circular introduces amendments to the SEBI Master Circular dated January 19, 2026, specifically:

• Insertion of provisions under Regulation 292F

• Updates to clauses relating to subscription thresholds and disclosures

4. Objective of the Circular

• Improve accessibility to SSE for NPOs

• Encourage broader participation

• Enable flexible fundraising while maintaining accountability

5. Effective Date

This circular is effective immediately from April 15, 2026

Source: https://www.sebi.gov.in/legal/circulars/apr-2026/relaxation-from-the-applicability-of-sebi-master-circular-for-compliance-with-the-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-on-non-compliance-with-the-_100787.html

1. Background

As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, listed entities are required to maintain minimum public shareholding (MPS). Non-compliance typically attracts penal actions including fines, freezing of promoter shareholding, and other restrictions.

2. Key Relaxation Announced

SEBI has granted a one-time relaxation from the applicability of penal provisions under its Master Circular dated July 11, 2023.

• Applicable Period: April 1, 2026 to September 30, 2026

• Relief Provided:

  • No penal action will be taken for non-compliance with MPS during this period

  • Any penal actions already initiated during this period shall be withdrawn

3. Rationale

The relaxation has been introduced in light of:

• Prevailing capital market volatility

• Ongoing geopolitical tensions impacting market conditions

• Practical challenges faced by listed entities in achieving MPS compliance

4. Directions to Stock Exchanges

Stock exchanges are required to:

• Notify all listed entities about this circular

• Disseminate the circular on their websites

• Amend relevant bye-laws, rules, and regulations if necessary

5. Important Note

This is a temporary relief from penalties only.
Listed entities are still expected to take necessary steps to achieve compliance with MPS requirements within a reasonable timeframe.

6. Effective Date

This circular is effective immediately from April 7, 2026.

The Government of India has just approved ₹10,000 crore Startup India Fund of Funds 2.0 (FoF 2.0) — and this is not just another policy update.

This is a structural signal for the future of venture capital in India.

Press release: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2251638&reg=3&lang=1

💡 What’s Actually Changing?

FoF 2.0 is not just a continuation of FoF 1.0 — it’s a more targeted capital deployment strategy via AIFs:

• Capital will flow through SEBI-registered AIFs, not directly to startups

• Focus on equity & equity-linked investments

• Investments happen in tranches over time

• AIFs are expected to mentor + nurture startups pre-exit

🎯 The Real Shift: Segmented Capital Strategy

Instead of a broad approach, FoF 2.0 introduces 4 clear segments:

1. DeepTech AIFs → Long R&D cycles, high capital intensity

2. Micro VCs → Early-stage / first institutional capital

3. Manufacturing + Tech AIFs → “Make in India” aligned innovation

4. Generalist AIFs → Sector-agnostic deployment

👉 This is a move from capital availability → capital precision

🧠 Why This Matters (Especially for AIF Managers)

FoF 2.0 is quietly solving real structural problems:

• 🧱 Long gestation funding gap (DeepTech, manufacturing)

• 🌱 Early-stage capital fragmentation

• 🏗️ Institutionalisation of Micro VCs

• 🔄 Blended capital via co-investment frameworks

Also notable:

• Up to 5% of returns earmarked for ecosystem building

• Multiple implementation agencies (beyond SIDBI)

• Stronger governance via Empowered Committee (DPIIT-led)

⚙️ What This Means for AIF Services

This is where platforms like aifservices.in become critical:

• AIF structuring & compliance will get more complex, not less

• Fund managers need:

  • Faster setup

  • Better reporting infra

  • Investor + regulator readiness

• Expect increase in first-time fund managers (Micro VCs)

👉 The bottleneck is no longer capital.
👉 It’s execution + infrastructure.

🚀 Bottom Line

FoF 2.0 is not just funding startups.

It’s funding the AIF layer itself as India’s capital allocation engine.

1. Applicability

All SEBI-registered Alternative Investment Funds (AIFs) are required to file the Annual Return on Foreign Liabilities and Assets (FLA) where the AIF:

• Has received Foreign Direct Investment (FDI); and/or

• Has made Overseas Direct Investment (ODI)

as on end-March of the reporting year or previous year.

2. Due Date

• The FLA return is required to be filed on or before July 15 of each year.

• Filing may be based on:

  • Audited financial statements; or

  • Unaudited/provisional financials

• Where filed on a provisional basis, a revised return must be submitted upon finalization of audited financials.

3. Filing Mechanism (Specific to AIFs)

AIFs are required to follow the below process:

1. Register on the RBI’s FLAIR portal

2. Request the prescribed FLA return format via email (flareturn@rbi.org.in)

3. Submit the duly filled Excel return via email

4. Key Reporting Parameters

• Reporting is based on foreign liabilities and assets position as at end-March

• Both current year and previous year data are required

• Only foreign exposure is to be reported (domestic items excluded)

• No requirement to submit:

  • Balance Sheet

  • Profit & Loss Account

5. Non-Compliance

Failure to file the FLA return within the prescribed timeline:

• Constitutes a contravention under FEMA, 1999

• May result in:

  • Monetary penalties, and/or

  • Late Submission Fees (LSF)

6. Additional Clarifications

• Filing is required even if:

  • No fresh FDI/ODI in current year, but exists in previous year

• Revised filing is mandatory post audit (irrespective of variance)

• Delayed filings for previous years may be permitted with RBI approval

7. Regulatory Significance

The FLA return forms a critical input for:

• India’s Balance of Payments (BoP)

• International Investment Position (IIP)

• Global investment statistics under IMF frameworks

🔎 AIFServices.in Note

Given the non-standard (email-based) filing workflow for AIFs, fund managers are advised to:

• Maintain structured tracking of foreign investments

• Ensure accurate classification of capital and debt components

• Plan for provisional filing and timely revisions

Circular: https://ifsca.gov.in/CommonDirect/GetFileView?id=d575554ec59b09e7fde503d3a895a672&fileName=Circular_on_Specification_of_Certification_Course_for_KMPs___Employees_20260401_0543.pdf&TitleName=Legal

🔍 What the circular says:
All Key Managerial Personnel (KMPs) and employees involved in core fund management activities must complete the certification:
👉 “Regulatory Framework for Fund Management in IFSC: AIFs and Retail Schemes”
(offered by The Institute of Company Secretaries of India)

⏱ Deadline: September 30, 2026

📌 Key implications for FMEs:

• Mandatory certification for core fund management teams

• Ongoing responsibility to maintain eligibility criteria under FM Regulations, 2025

• Strong push toward regulatory readiness and standardised expertise

📈 Ecosystem impact:
Even trustees, intermediaries, and fund administrators in GIFT IFSC are encouraged to undertake this certification—raising overall governance standards.

Introduction

The Securities and Exchange Board of India (SEBI), in its board meeting held on 23rd March 2026, introduced a series of regulatory changes aimed at improving ease of doing business, enhancing operational flexibility, and strengthening governance across market participants.

For Alternative Investment Funds (AIFs), this meeting brings one of the most practical and long-awaited reforms—particularly around fund wind-down and compliance burden reduction.

This article breaks down the key decisions and what they mean for AIF managers, investors, and fund administrators.

1. Flexibility in AIF Wind-Up & Introduction of “Inoperative Funds”

One of the most significant changes relates to AIF lifecycle management, especially at the time of fund closure.

What was the issue earlier?

Under existing regulations, AIFs were required to:

• Fully distribute all proceeds to investors

• Maintain zero bank balance

• Only then apply for surrender of registration

Even minor pending items such as:

• Tax liabilities

• Litigation matters

• Residual expenses

…would force the fund to remain active and continue full compliance.

What has changed now?

SEBI has introduced flexibility allowing AIFs to retain funds beyond their tenure, subject to specific conditions:

• Presence of litigation or tax notice

• Approval from 75% of investors (by value)

• Retention for operational expenses (up to 3 years)

Introduction of “Inoperative AIF”

A new category has been introduced:

👉 “Inoperative Fund”

This applies to AIFs that:

• Have completed investment activity

• Are pending final closure due to residual matters

💡 Key Benefits:

• No periodic regulatory filings

• No PPM updates

• No benchmarking requirements

• Significant reduction in compliance burden

Practical Impact

This is a major ease-of-doing-business reform, especially for:

• Mature AIF funds nearing closure

• Funds dealing with tax or litigation holdbacks

• Managers trying to reduce unnecessary compliance costs

2. Net Settlement for FPIs

SEBI has permitted net settlement of funds for Foreign Portfolio Investors (FPIs) in the cash market.

🔍 What does this mean?

Instead of settling buy and sell transactions separately (gross basis), FPIs can now:

👉 Offset transactions within the same settlement cycle

Example:

• Buy ₹100 Cr of Stock A

• Sell ₹100 Cr of Stock B

➡️ Only net obligation applies (no need to fund both legs)

🚀 Impact:

• Reduced funding costs

• Lower FX exposure

• Improved operational efficiency

📅 Implementation expected by December 31, 2026

🌱 3. Boost to Social Impact Funds (SIF)

In a move to promote retail participation:

✅ Minimum investment reduced:

• From ₹2,00,000 → ₹1,000

💡 Why this matters:

• Opens AIF-linked structures to retail investors

• Strengthens the Social Stock Exchange ecosystem

• Aligns with broader financial inclusion goals

4. Ease of Doing Business for InvITs & REITs

SEBI has also introduced several operational relaxations:

Key Highlights:

• Continued holding of SPVs post project completion

• Expanded investment options for liquid funds

• Greenfield investments allowed (up to 10% for private InvITs)

• Increased borrowing flexibility

5. Changes to “Fit & Proper Person” Criteria

SEBI has refined eligibility criteria for intermediaries:

Key Updates:

• FIR or complaint alone will not disqualify a person

• Disqualification now tied more closely to convictions

• Show cause restrictions reduced from 1 year to 6 months

• Mandatory disclosures introduced

6. Strengthening SEBI’s Internal Governance

SEBI has also approved reforms related to its own governance:

• Stricter conflict-of-interest disclosures

• Investment restrictions on officials

• Creation of a digital ethics and compliance system

• Establishment of an Office of Ethics and Compliance (OEC)

Conclusion

The March 2026 SEBI Board Meeting signals a clear regulatory direction:

🔑 Key Themes:

• ✅ Reduced compliance burden for inactive funds

• ✅ Greater operational flexibility

• ✅ Increased retail participation

• ✅ Stronger governance and transparency

Final Takeaway for AIF Managers

The introduction of “Inoperative Funds” and flexibility in fund wind-down is a game-changing reform.

It allows fund managers to:

• Close funds more efficiently

• Avoid unnecessary compliance costs

• Manage residual liabilities without regulatory friction

The amendment aims to address practical challenges faced by regulated entities (REs) while complying with the cybersecurity framework issued in 2025. The authority has now introduced temporary exemptions and compliance relaxations for certain categories of entities operating within the International Financial Services Centre (IFSC).

Background of the Cyber Security Circular

In March 2025, IFSCA introduced a comprehensive Cyber Security and Cyber Resilience framework for regulated entities operating in IFSCs. The framework required entities to implement strong cybersecurity governance, appoint security officers, and conduct regular cybersecurity audits.

Following feedback from industry participants regarding operational challenges, the regulator has now revised specific provisions to ease compliance for smaller or structurally dependent entities.

Three-Year Exemption for Certain Regulated Entities

IFSCA has granted a three-year exemption from certain cybersecurity requirements to the following categories of regulated entities:

• Branches of regulated Indian or foreign entities

• Entities that provide services only to their group entities, such as Global In-House Centres (GICs)

• Regulated entities with fewer than 10 employees

This exemption aims to reduce compliance burdens on entities that already rely on cybersecurity frameworks implemented by their parent organizations.

Compliance Conditions During the Exemption Period

Even though these entities are exempt from the full cybersecurity framework, they must still comply with several minimum safeguards:

1. The regulated entity must adopt the cybersecurity framework and information security policy of its parent entity.

2. The Chief Information Security Officer (CISO) of the parent entity will act as the Designated Officer for the IFSC entity.

3. The parent entity must be regulated by a competent regulator or government authority in its home jurisdiction.

4. The Designated Officer must certify annually that necessary cybersecurity systems and processes are in place.

5. The certification must be submitted to IFSCA within 90 days after the end of each financial year.

6. The regulated entity must submit an annual cybersecurity audit report to IFSCA.

These safeguards ensure that cybersecurity governance remains in place even during the exemption period.

Additional Entities Eligible for Exemption

The circular also introduces a new category of entities eligible for the three-year exemption:

• Foreign universities established in IFSC

• Newly incorporated standalone entities in IFSC without a parent organisation

• Credit Rating Agencies

However, these entities must still implement adequate cybersecurity measures proportionate to their risk exposure and submit an annual certification confirming the same to IFSCA.

Regulatory Authority and Effective Date

The circular has been issued under Sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, which empower IFSCA to regulate financial services in IFSCs.

The amendments come into effect immediately.

Implications for IFSC Regulated Entities

The amendment provides regulatory flexibility while maintaining cybersecurity oversight. It recognizes that smaller entities, branches, and group service providers often rely on the cybersecurity infrastructure of their parent organizations.

By allowing temporary exemptions with conditional safeguards, IFSCA aims to:

• Reduce compliance burdens for smaller entities

• Align cybersecurity responsibilities with parent organizations

• Ensure continued cybersecurity governance within IFSCs

Source

IFSCA Circular dated March 10, 2026 – Amendment to the Guidelines on Cyber Security and Cyber Resilience for Regulated Entities in IFSCs.

The Securities and Exchange Board of India (SEBI) has issued a consultation paper titled “Ease of investing – Simplification of documentation requirement for transmission of securities and revision in threshold limits for simplified documentation.” The consultation paper proposes amendments to streamline and standardize the process of transmission of securities in the event of the death of an investor.

The objective of the proposal is to reduce documentation complexities, improve ease of settlement for investors’ families, and bring uniformity in procedures followed by listed companies, registrars and transfer agents (RTAs), depositories, depository participants (DPs), and asset management companies (AMCs).

Background

Under the existing framework, procedural requirements for transmission of securities are governed by:

• Schedule VII of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations)

• SEBI Master Circular for Registrars to an Issue and Share Transfer Agents (RTAs)

However, SEBI has received feedback highlighting several challenges in the current system, including:

• Complex documentation requirements

• Legal hurdles such as obtaining probate or succession certificates

• Lack of uniformity in practices across intermediaries

• Low monetary thresholds for simplified documentation

• Difficulties in obtaining certified death certificates in case of overseas deaths

To address these issues and enhance ease of investing, SEBI has proposed revisions to the existing framework.

Key Proposals

1. Removal of Mandatory Probate Requirement

A significant development influencing the proposal is the removal of mandatory probate under Section 213 of the Indian Succession Act, 1925, effective December 20, 2025.

Earlier, probate of wills was mandatory for certain communities in the erstwhile presidency towns of Mumbai, Chennai, and Kolkata. With the removal of this requirement, probate has now become optional, thereby reducing legal delays and costs associated with transmission claims.

2. Revision of Threshold Limits for Simplified Documentation

SEBI has proposed to revise the current thresholds for simplified documentation as follows:

This measure is intended to reduce cases where the cost of documentation exceeds the value of securities being transmitted.

4. Standardisation of Documentation Requirements

The consultation paper proposes standardized documentation requirements depending on the nature and value of the claim.

Cases where nomination exists

Required documents:

• Transmission request form

• Latest Client Master List (CML) of the demat account (not older than two months)

• Verifiable death certificate

• Officially valid identity proof of nominee

Cases with no nomination or will

For simplified cases within threshold limits, the claimant must submit:

• Transmission request form

• Client Master List (CML)

• Death certificate

• Identity proof

• Notarized indemnity bond

• No Objection Certificate (NOC) from legal heirs or family settlement deed

Cases above threshold

Where claims exceed the simplified threshold, documentation may include:

• Transmission request form

• Client Master List

• Death certificate

• Identity proof

• Notarized affidavit of legal heirs

Along with one of the following:

• Succession certificate

• Letter of administration

• Copy of will along with indemnity bond

• Legal heirship certificate with indemnity bond and NOCs

5. Processing Timeline

SEBI has proposed that transmission requests should be processed within 21 calendar days from the date of receipt of all required documents.

In case of delays or rejection, the entity must communicate the reasons to the claimant in writing.

6. Online Submission and Tracking of Claims

Entities may provide an online facility for submission of transmission claims, allowing claimants to:

• Upload required documents

• Receive acknowledgment

• Track claim status online

7. Additional Modes for Verification of Overseas Death Certificates

For investors who pass away outside India, SEBI proposes to accept certification of death documents by:

• Authorized officials of overseas branches of scheduled commercial banks registered in India

• Authorized officials of foreign banks

This addition aims to simplify cross-border documentation.

Proposed Regulatory Changes

To implement the revised framework, SEBI proposes to:

• Delete Para C of Schedule VII of the LODR Regulations

• Issue operational provisions through a circular

• Amend Regulation 40(7) and Regulation 61(4) of the LODR Regulations

Public Comments

SEBI has invited comments from stakeholders on the consultation paper.

Last date to submit comments: April 2, 2026

Comments may be submitted through the SEBI public comments portal.

Source: SEBI Consultation Paper – “Ease of investing: Simplification of documentation requirement for transmission of securities and revision in threshold limits for simplified documentation”, dated March 12, 2026.

PIB Announcement: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806&utm_source=chatgpt.com&reg=3&lang=2

These revisions modify the framework originally introduced under Press Note 3 (2020), which required government approval for investments where the investor or beneficial owner was based in a land-bordering country.

Key Policy Changes

1. Definition of Beneficial Ownership Introduced

The amended policy formally defines Beneficial Ownership (BO) using the widely accepted criteria under the Prevention of Money Laundering Rules, 2005.

• The BO test will now be applied at the investor entity level.

• Investments where land-bordering country investors hold non-controlling beneficial ownership up to 10% will be allowed under the automatic route, subject to sectoral caps and conditions.

• Investee companies must report relevant ownership information to DPIIT.

This clarification addresses concerns raised by global private equity and venture capital funds that minority exposure through multi-LP structures was being unnecessarily captured under the approval route.

2. Fast-Track Approval for Strategic Manufacturing Sectors

The policy introduces an expedited approval timeline of 60 days for investments from land-bordering countries in select manufacturing sectors.

The fast-track mechanism applies to investments in:

• Capital goods manufacturing

• Electronic capital goods

• Electronic components

• Polysilicon manufacturing

• Ingot-wafer manufacturing

However, a key condition remains:

• Majority ownership and control must remain with resident Indian citizens or Indian-controlled entities.

3. Flexibility to Expand Eligible Sectors

The Committee of Secretaries under the Cabinet Secretary will have the authority to revise or expand the list of sectors eligible for expedited processing.

Why This Matters

The changes address several operational challenges created after Press Note 3 (2020), which was introduced during the COVID-19 pandemic to prevent opportunistic takeovers of Indian companies.

The revised framework is expected to:

• Improve clarity for PE and VC investors

• Facilitate greater foreign capital inflows

• Enable faster technology partnerships and joint ventures

• Strengthen India’s position in global manufacturing supply chains

The government expects the reforms to support domestic value addition, manufacturing growth, and integration with global supply chains, while maintaining strategic safeguards.

Implications for Venture Capital and Private Equity Funds

For global VC and PE funds with diversified LP bases, the introduction of the 10% non-controlling beneficial ownership threshold is particularly significant. It reduces regulatory friction where investors from land-bordering countries participate indirectly through global fund structures.

This change could also positively impact startup financing and deep-tech investment, areas where international capital pools are critical.

Circular: https://ifsca.gov.in/CommonDirect/GetFileView?id=d575554ec59b09e7fde503d3a810d93a&fileName=02_03_2026_IFSCA_Fee_Circular_FY_2026_27_20260302_0641.pdf&TitleName=Legal

The circular consolidates multiple earlier notifications and defines application fees, registration fees, recurring fees, and activity-based charges for all regulated entities including Fund Management Entities (FMEs) and Alternative Investment Funds (AIFs).

For fund managers and AIF sponsors planning to establish funds in GIFT IFSC, this circular clarifies the cost structure for fund setup, scheme filings, and ongoing regulatory fees.

Fee Structure for Fund Management Entities (FMEs)

Fund Management Entities registered in IFSC are required to pay the following fees.

Application & Registration Fees

All FMEs are also required to pay an annual recurring fee of USD 3,000 after registration. This fee becomes payable every financial year and must be paid between 1 April and 30 April.

Processing Fees Applicable to Fund Managers

IFSCA has also specified processing fees for certain regulatory actions.

For Fund Management Entities modifying scheme documents, a processing fee of USD 500 will apply.

Penalties and Late Fees

The circular introduces clear penalties for delays.

Late Payment of Fees

If fees are not paid within the prescribed timeline, a simple interest of 0.75% per month will apply.

Delay in Regulatory Reporting

If a regulated entity fails to submit periodic reports or returns on time, a penalty of USD 100 per month per report may be imposed.

Informal Regulatory Guidance

Entities seeking informal regulatory clarification from IFSCA may apply under the Informal Guidance Scheme.

Fee for such requests:

USD 1,000 per application

If the request is not maintainable, 75% of the fee is refunded.

Payment of Fees

Fees must generally be paid in USD to the IFSCA designated bank account.

However, Indian applicants may pay application and registration fees in INR, converted using the FBIL reference USD-INR rate on the date of remittance.

Effective Date

The revised fee structure will apply from Financial Year 2026-27 onwards.

The circular also supersedes earlier fee circulars issued in 2025.

What This Means for AIF Managers

The new circular provides greater clarity on the cost of operating funds in IFSC.

For venture capital and private equity managers considering GIFT IFSC as a fund domicile, the framework now clearly defines:

• Cost of establishing a Fund Management Entity

• Scheme filing costs for AIFs

• Ongoing annual regulatory fees

• Penalties for delayed compliance

This allows fund managers to plan regulatory and operational costs more accurately when launching funds in the IFSC ecosystem.

Circular: https://www.sebi.gov.in/legal/circulars/mar-2026/regulatory-reporting-by-aifs_100120.html

Key Changes Introduced by SEBI

1. Annual Activity Report Introduced

SEBI has introduced a Comprehensive Annual Activity Report for all AIFs.

• The report must be submitted within 30 calendar days from the end of March each financial year.

• The first Annual Activity Report will be due for FY ending March 2026, with a submission deadline of May 31, 2026.

This annual report will provide SEBI with a consolidated overview of AIF operations and activities during the financial year.

2. Limited Quarterly Activity Report

While the earlier framework required detailed quarterly reporting, SEBI has now simplified the process.

AIFs will submit a Limited Quarterly Activity Report:

• Filed within 15 calendar days from the end of each quarter

• Submitted online via the SEBI Intermediary Portal (SI Portal)

• First limited quarterly report: for the quarter ending June 2026.

Importantly:

• No quarterly report is required for the March quarter, since the Annual Activity Report will already include that data.

3. Revised Reporting Formats

The reporting formats have been updated to reflect recent amendments to the AIF Regulations and related SEBI circulars.

These revised formats will be made available on the Indian Venture and Alternate Capital Association (IVCA) website within three days of the circular’s issuance.

IVCA will also assist AIFs in understanding and implementing the revised reporting requirements.

Objective Behind the Changes

SEBI stated that the revised framework was developed after consultations with the AIF Standards Forum and recommendations from a Working Group on Ease of Doing Business and Reducing Cost of Compliance.

The primary goals are:

• Reduce regulatory burden on AIF managers

• Improve reporting efficiency

• Align reporting with the evolving AIF ecosystem

• Enhance regulatory supervision with structured annual reporting

Immediate Applicability

The circular comes into effect immediately and supersedes the earlier reporting provisions under Clause 15.1 of the SEBI Master Circular for AIFs dated May 7, 2024.

What AIF Managers Should Do Now

AIF managers should prepare for the transition by:

• Reviewing the revised reporting formats

• Ensuring systems are ready for submission on the SEBI Intermediary Portal

• Preparing annual reporting workflows for FY2025–26

Given the changes, many funds may also need to update their internal compliance and reporting processes.