The proposed framework could make it substantially easier for overseas investors to complete KYC and participate in India’s securities market without having to be physically present in India.

For Indian Alternative Investment Funds (AIFs), the proposal could have an important operational impact, particularly when onboarding overseas Limited Partners (LPs).

What Has SEBI Proposed?

SEBI issued a consultation paper on 14 August 2026 titled “Review of Know Your Client process for individual Persons Resident Outside India.”

The consultation paper proposes allowing individual Persons Resident Outside India (PROIs) to complete digital KYC while located outside India, provided they are in a FATF-compliant country.

Currently, digital onboarding of non-resident clients requires the client to be physically present in India. This has created significant friction for overseas investors, who may otherwise have to rely on physical documentation, courier services, notarisation and other offline processes.

SEBI is now proposing to remove this India-presence requirement for eligible PROI clients.

Who Does the Proposal Cover?

For the purpose of the consultation paper, individual PROI clients include:

• Non-Resident Indians (NRIs)

• Overseas Citizens of India (OCIs)

• Foreign nationals located outside India

The proposal is specifically focused on simplifying their KYC and digital onboarding process.

Foreign nationals seeking registration as a Foreign Portfolio Investor (FPI) would continue to be governed by the applicable FPI framework.

What Will Change Under the Proposed Framework?

1. Digital KYC From Outside India

The most significant proposed change is that an eligible PROI investor would no longer need to be physically present in India to complete digital KYC.

The intermediary would be permitted to accept KYC records and related documents digitally from a client located in a FATF-compliant country.

This could remove one of the biggest barriers to fully digital onboarding of overseas investors.

2. Electronic Signing of KYC Documents

The proposal allows the KYC form to be submitted through physical or digital channels.

The intermediary could accept:

• An original physical KYC form

• A scanned copy of a physical form under electronic signature

• A digital KYC form under electronic signature

For specimen signatures, the investor could provide a cropped image of the signature electronically. During Video In-Person Verification (VIPV), the investor would then provide a wet signature, which the intermediary would verify against the submitted specimen signature.

3. Video In-Person Verification From Overseas

SEBI proposes allowing Video In-Person Verification (VIPV) for PROI clients located outside India.

However, this would not simply be a standard video call.

The proposed process includes several safeguards, including:

• Client consent recorded in an auditable and alteration-proof manner

• Random actions to establish that the interaction is live

• Live GPS coordinates and timestamp

• Protection against spoofed IP addresses, VPNs and proxy servers

• Clear capture of the client’s photograph

• Face-liveness and spoof detection

• End-to-end encryption

• Verification by an authorised official of the intermediary

• Concurrent audit of the VIPV process

The client’s IP address would also need to originate from India or a FATF-compliant country and correspond with the country declared in the KYC documentation.

4. Greater Flexibility Around Overseas Addresses

The proposal also addresses the practical difficulty of verifying the current overseas address of a PROI.

Where an officially valid document can be verified through an official or source database, but the investor wants to provide a different current address, the investor may be permitted to provide a self-declaration of the current address.

This could simplify onboarding where the address on a passport or other officially valid document is not the investor’s current residential address.

5. Foreign Mobile Numbers

Verification of foreign mobile numbers can be difficult and costly for intermediaries, particularly where OTP-based verification is involved.

Under the proposed framework, the intermediary would collect the investor’s mobile number and email address. The mobile number would be verified if feasible, while the email address would also be verified through OTP or another verifiable mechanism.

This is particularly relevant for overseas investors who do not maintain an Indian mobile number.

KYC Portability Could Become Much More Important

Another important proposal relates to KYC portability.

SEBI proposes that KYC records for individual PROIs should be treated as portable.

Individual attributes within the KYC record would be tagged as “validated” where they have been verified against official or source databases.

This could reduce the need for an overseas investor to repeatedly submit the same KYC information when approaching different intermediaries.

For investors who interact with multiple financial institutions, brokers, fund managers or other regulated intermediaries, this could significantly reduce repetitive onboarding.

Greater Reliance on Existing KYC

The proposed framework would also allow an intermediary to rely on KYC undertaken by:

• Another SEBI-registered intermediary; or

• An entity regulated by another financial-sector regulator,

based on records obtained through the KRA/CKYCRR framework.

However, the intermediary would continue to have ultimate responsibility for the KYC of its own clients and would be required to undertake enhanced KYC measures where appropriate based on the client’s risk profile.

What Does This Mean for AIFs?

This proposal could be particularly relevant for India’s AIF industry.

Indian AIFs regularly onboard investors who are based outside India, including NRIs, OCIs and other eligible foreign investors.

Historically, overseas investor onboarding can involve multiple steps, including:

KYC documentation → notarisation/certification → courier → document verification → IPV → KRA registration → AML checks → subscription documentation

The proposed framework could allow much of this process to move towards a completely digital workflow.

For an AIF manager, the future onboarding journey could look more like:

Investor Registration → PAN/Passport → Digital KYC → Electronic Signature → Address Verification → FATF Country Check → VIPV → Liveness/Anti-Spoofing → AML Screening → KRA/CKYCRR → Subscription Documentation → Investor Onboarded

This could significantly reduce onboarding time and operational friction for overseas LPs.

What AIF Managers Should Prepare For

Although the proposal is not yet a final regulatory requirement, AIF managers and fund administrators should start evaluating whether their investor onboarding infrastructure can support the proposed model.

Key areas include:

1. Digital Overseas KYC

The onboarding platform should be capable of collecting KYC information and supporting documents digitally from investors located outside India.

2. FATF Country Screening

The investor’s country of residence would become an important part of the onboarding decision.

3. Video KYC / VIPV

A robust VIPV workflow will need to support liveness detection, GPS capture, anti-spoofing and appropriate audit trails.

4. KRA and CKYCRR Integration

The proposed portability framework makes integration with KRA and CKYCRR increasingly important for efficient investor onboarding.

5. AML and Risk Assessment

Digital onboarding does not remove the intermediary’s responsibility for KYC, AML or risk-based due diligence.

The proposed framework specifically retains the intermediary’s ultimate responsibility for KYC and allows enhanced KYC measures based on the investor’s risk profile.

6. Cybersecurity and Auditability

SEBI’s draft framework states that the infrastructure used for KYC must comply with the Cyber Security and Cyber Resilience Framework (CSCRF) applicable to SEBI-regulated entities.

Therefore, digital KYC should not be treated simply as a front-end video onboarding feature. The underlying infrastructure, security controls, audit logs and data protection mechanisms will also be important.

Why This Matters for the Indian AIF Ecosystem

The proposed changes come at a time when India’s investment ecosystem is becoming increasingly global.

Indian fund managers increasingly interact with investors who may be based in the US, UK, Singapore, UAE, Europe and other jurisdictions.

For these investors, the ability to complete KYC digitally from their country of residence could remove a significant operational barrier.

For AIF managers, this could mean:

• Faster LP onboarding

• Lower documentation and courier costs

• Less manual intervention

• Better investor experience

• Greater KYC portability

• More efficient fund administration

• A more scalable digital onboarding process

The change could therefore be more than just a KYC simplification. It could contribute to the broader digitisation of India’s private capital ecosystem.

What Happens Next?

This is currently a SEBI consultation paper and proposed framework, not a final regulatory requirement.

SEBI has invited public comments on the proposal, including whether digital onboarding should be permitted for PROI clients located in FATF-compliant countries and whether additional safeguards should be introduced for VIPV.

The deadline for submitting comments is 4 September 2026.

Once the final circular is issued, the proposed framework states that the provisions would come into effect 30 days after the date of issue.

Conclusion

SEBI’s proposal to simplify KYC for NRIs, OCIs and foreign nationals could materially improve the experience of overseas investors participating in India’s securities market.

For AIFs, the potential impact is particularly significant.

If implemented substantially as proposed, fund managers could move towards a more seamless digital LP onboarding experience, combining KYC, document verification, video verification, AML screening, KRA/CKYCRR checks and subscription documentation into a single technology-enabled workflow.

For an industry increasingly dependent on global capital, this is a welcome step towards making India’s private investment ecosystem easier to access from anywhere in the world.

AIF managers, fund administrators and technology providers should closely monitor the final SEBI circular and begin evaluating their existing investor onboarding processes against the proposed framework.

Disclaimer: This article is based on SEBI’s consultation paper dated 14 August 2026 and describes proposals that are subject to the consultation process. It should not be treated as legal or regulatory advice.

Source: Securities and Exchange Board of India (SEBI), Consultation Paper – Review of Know Your Client process for individual Persons Resident Outside India, issued 14 August 2026.

Source: https://www.sebi.gov.in/reports-and-statistics/reports/aug-2026/consultation-paper-on-review-of-accredited-investor-framework_103550.html

SEBI’s latest Consultation Paper on the Review of the Accredited Investor (AI) Framework could significantly change how Accredited Investors are identified and onboarded in India.

And, frankly, the biggest change is not just about thresholds.

It is about who gets to decide whether an investor is an Accredited Investor.

Under the existing framework, an investor generally approaches an independent Accreditation Agency, gets their financial eligibility verified, obtains an Accreditation Certificate, and then approaches the relevant fund manager or intermediary.

SEBI is now proposing a much more streamlined approach.

The Big Change: Fund Managers May Be Able to Accredit Investors

SEBI has proposed allowing the Manager of an investment product to determine and record an investor’s Accredited Investor status as part of the onboarding process.

In other words, the investor may no longer need to separately complete the accreditation journey with an Accreditation Agency before approaching the fund manager.

For the same manager or group, the proposed accreditation could remain valid for three years.

For products offered by different managers, accreditation would be undertaken when the investor is onboarded by each manager.

This is a fairly fundamental shift.

The existing framework was deliberately built around independent verification, precisely because Accredited Investor status can unlock regulatory flexibilities. SEBI itself acknowledges that allowing the Manager to determine AI status creates potential conflicts of interest and therefore proposes safeguards such as record keeping, audit, accountability and conflict-of-interest policies.

Importantly, SEBI is not proposing to eliminate the Accreditation Agency route.

The existing route would continue alongside the proposed Manager-led route, giving investors a choice between portability and convenience.

But Here Is the More Interesting Question: Who Actually Becomes an Angel Investor?

This is where the conversation gets interesting.

The existing AI framework has relatively high financial eligibility thresholds.

For an individual/HUF/family trust/sole proprietorship, the current criteria include:

• Annual income of at least ₹2 crore, OR

• Net worth of at least ₹7.5 crore, including at least ₹3.75 crore in financial assets, OR

• Annual income of at least ₹1 crore and net worth of at least ₹5 crore, including at least ₹2.5 crore in financial assets.

For many aspiring angel investors, these are substantial thresholds.

So while simplifying the accreditation process is useful, simplification does not automatically mean democratisation.

SEBI appears to recognise this issue.

The consultation paper notes that the Accredited Investor population was only 3,820 as of July 31, 2026, although this had increased sharply from 649 a year earlier.

That is still a tiny pool compared with the potential universe of investors in India.

The Potential Game Changer: Securities Market Assets

SEBI has proposed a new eligibility route based purely on securities market assets.

Under the proposal:

Individual investor: ₹5 crore or more of securities market assets

Body corporate: ₹20 crore or more of securities market assets.

The assets considered include securities such as equity, debt, REITs/InvITs, AIF units, mutual funds, certain futures positions, unlisted securities held in demat form and overseas securities market investments.

The logic is interesting.

Instead of asking an investor to repeatedly produce extensive financial documentation, securities-market holdings can potentially be verified digitally through e-CAS and broker statements.

That could make accreditation substantially more efficient.

SEBI’s Own Data Shows Why This Matters

SEBI estimates that, based on the proposed ₹5 crore securities-market-assets threshold, approximately 3.7 lakh investors could potentially become eligible for accreditation.

That compares with approximately 96,000 existing AIF investors.

That is a potentially enormous expansion of the Accredited Investor universe.

And this is where the proposal becomes much more interesting for the AIF ecosystem.

More eligible investors → more potential AIF investors → potentially more risk capital.

But there is an important caveat:

Eligible does not mean active.

Having ₹5 crore in securities does not automatically mean someone wants to become an angel investor, invest in private companies, or take venture-style risk.

The proposal may therefore solve a regulatory access problem, but it does not by itself solve the investor participation problem.

So Has SEBI “Fixed” Accredited Investor Accreditation?

Not yet.

But SEBI has clearly identified the friction points.

The consultation paper specifically records industry concerns around:

• duplication between Accreditation Agencies and fund managers;

• limited validity;

• limited number of Accreditation Agencies;

• high accreditation costs;

• reliance on financial documentation;

• digital verification of financial information; and

• expanding the universe of eligible investors.

The proposed framework directly attacks several of these issues.

The direction is clear:

Less paperwork.
More digital verification.
Manager-led onboarding.
Longer validity.
A potentially much larger AI universe.

What Could This Mean for AIF Managers?

If the proposal is eventually implemented broadly along these lines, Accredited Investor onboarding could become much closer to a normal digital KYC/onboarding workflow.

Instead of:

Investor → Accreditation Agency → Verification → Accreditation Certificate → Fund Manager → Verification Again → Investment

the proposed Manager-led model could look more like:

Investor → Fund Manager → Eligibility Verification → AI Status → Investment

with appropriate records, controls, audit and accountability.

That is a significant operational change.

And it creates an interesting opportunity for the industry:

Accreditation could increasingly become an embedded part of the investment onboarding infrastructure rather than a separate administrative process.

But There Is Still a Big Question

The central question is not whether the process becomes easier.

It is:

How far should India lower the friction around access to sophisticated investment products without lowering the standard for investor sophistication?

SEBI’s own consultation paper highlights this tension.

The AI framework exists because Accredited Investors receive access to products and regulatory flexibilities that may involve greater complexity, lower liquidity or reduced regulatory oversight.

So the challenge is to make accreditation easy enough to use, but credible enough to mean something.

That balance will determine whether the new framework actually works.

Our View

SEBI’s proposal is directionally positive.

The Manager-led accreditation model could remove a major operational bottleneck.

The ₹5 crore securities-market-assets route could dramatically expand the eligible investor universe.

And digital verification could make the entire process faster, cheaper and more scalable.

But if the objective is to genuinely deepen India’s angel and private-market ecosystem, accreditation reform is only one piece of the puzzle.

The next question is much bigger:

Can India create a framework where a much larger pool of financially sophisticated investors can participate in AIFs, angel investing and private markets — without compromising investor protection?

That is the real test of this consultation.

One Important Caveat

This is currently a SEBI consultation paper, not the final regulatory framework.

SEBI has invited public comments on Proposals 1–10 until September 3, 2026. The final regulations may therefore differ from the proposals discussed above.

On 3 August 2026, the International Financial Services Centres Authority (IFSCA) issued a circular introducing important amendments to the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022. These changes are applicable to all regulated entities operating in IFSCs, including Fund Management Entities (FMEs), banking units, intermediaries, and other regulated financial institutions.

The amendments primarily strengthen FIU reporting requirements and clarify the conditions for digital onboarding of Non-Resident Indian (NRI) customers.

Key Changes

1. Rule 8 Added Alongside Rule 7

The Guidelines have been amended to reference Rule 8 in addition to Rule 7 under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, expanding the regulatory framework applicable to reporting entities.

2. FIU Reporting Must Be Done Through FINgate 2.0

IFSCA has clarified that:

• User manuals and reporting formats are available on the FIU-India website.

• All AML reports must now be filed online through the FINgate 2.0 portal.

This reinforces the move towards standardized electronic regulatory reporting.

3. Cross Border Wire Transfer Reports (CBWTR) Added

One of the most significant changes is the inclusion of Cross Border Wire Transfer Reports (CBWTRs) alongside existing reporting obligations.

The amendments insert CBWTR requirements into the guidance relating to regulatory reporting, meaning regulated entities should review whether their AML systems are capable of generating and submitting these reports where applicable.

4. Updated Countries Allowed for NRI Digital Onboarding

IFSCA has updated the jurisdictions from which NRI customers may complete Video KYC (V-CIP), subject to other regulatory conditions.

The approved jurisdictions are:

• United States

• Japan

• South Korea

• United Kingdom (excluding British Overseas Territories)

• Canada

• UAE

• Singapore

• Australia

• European Union

Additionally, these jurisdictions must not be identified by FATF as High-Risk Jurisdictions or Jurisdictions under Increased Monitoring, nor designated by the Government of India as high-risk for money laundering, terrorist financing, or proliferation financing.

The same list has also been incorporated into the V-CIP onboarding conditions for low-risk NRI customers.

Impact on IFSC Fund Managers

Fund Management Entities and other IFSC regulated entities should consider the following actions:

• Review AML reporting workflows to ensure compatibility with FINgate 2.0.

• Evaluate whether CBWTR reporting needs to be incorporated into internal compliance processes.

• Update digital onboarding policies for NRI investors.

• Verify that V-CIP controls reflect the revised list of permitted jurisdictions.

• Ensure AML and KYC technology platforms are updated to comply with the amended Guidelines.

What’s changed?

• New deadline: 31 October 2026

• Circular: https://www.sebi.gov.in/legal/circulars/jul-2026/extension-of-timelines-with-repect-to-compliance-of-digital-accessibility-circulars-_103277.html

• The extension applies only to:

  • Conducting the accessibility audit, and

  • Remediating findings from the audit.

• All other requirements under SEBI’s Digital Accessibility Circulars continue to remain applicable without any change.

Who does this impact?

All SEBI-regulated entities, including:

• Alternative Investment Funds (AIFs)

• Portfolio Managers

• Investment Advisers

• Mutual Funds

• Stock Brokers

• Depositories

• Other SEBI intermediaries

What should AIFs do now?

Rather than treating this as a postponement, use the additional time to:

• Conduct a comprehensive accessibility audit.

• Fix WCAG compliance issues across investor-facing portals.

• Validate documents, forms, and workflows for accessibility.

• Prepare evidence for regulatory review.

Accessibility compliance is becoming a core governance expectation—not just a technology exercise.

The Securities and Exchange Board of India (SEBI) has introduced the Green-Channel: AIF Rollout Upon Document Acknowledgement (GARUDA) mechanism, marking one of the most significant operational reforms for Alternative Investment Funds (AIFs) in recent years.

The objective is simple: reduce the time taken to launch AIF schemes while maintaining accountability through Merchant Banker due diligence and manager certifications. The mechanism follows SEBI’s consultation process initiated in May 2026 and is now effective through the July 30, 2026 circular.

What is GARUDA?

GARUDA replaces the traditional review-heavy process with a Green Channel model where eligible AIF schemes can proceed with launch after filing the Placement Memorandum (PPM), subject to specified conditions.

Rather than SEBI reviewing every PPM before launch, greater responsibility is placed on:

• SEBI-registered Merchant Bankers

• AIF Managers

• Compliance Officers

The move is expected to significantly reduce fund launch timelines and enable faster capital deployment.

Timeline for Regular AIF Schemes

For Regular AIF Schemes (i.e., schemes other than AI-only Funds, Large Value Funds and Angel Funds):

New launch timeline

A scheme may be launched:

• 10 working days after filing the PPM with SEBI, unless SEBI advises otherwise.

For the first scheme of a newly registered AIF:

• Launch can occur only after:

  • SEBI registration has been granted, or

  • 10 working days from filing,

whichever is later.

This replaces the earlier, longer review process and provides much greater certainty around launch timelines.

Merchant Banker Plays a Central Role

The GARUDA framework significantly enhances the responsibility of the Merchant Banker.

The Merchant Banker must:

• Independently conduct due diligence of the PPM

• Verify the accuracy and adequacy of disclosures

• Submit a Due Diligence Certificate

• Be independent and not associated with the AIF, Sponsor, Manager or Trustee

The Merchant Banker’s details must also be disclosed in the Placement Memorandum.

Documents Required While Filing the PPM

Regular schemes must submit the following along with the PPM:

• Merchant Banker Due Diligence Certificate

• Fit & Proper declarations

• Sponsor/Manager minimum continuing interest declaration

• PAN details of:

  • AIF

  • Scheme (if available)

  • Sponsor

  • Manager

  • Trustee

  • Directors/Partners

  • Key investment team members

Immediate Launch for AI-only Funds, LVFs and Angel Funds

SEBI has introduced even greater relaxations for:

• Accredited Investor Only Funds (AI-only Funds)

• Large Value Funds (LVFs)

• Angel Funds

AI-only Funds and LVFs

These funds:

• Do not require Merchant Banker filing

• Can launch immediately upon filing the PPM with SEBI

• May launch their first scheme immediately after SEBI registration

Angel Funds

Angel Funds also receive similar treatment.

They:

• Are exempt from Merchant Banker filing

• May circulate the PPM immediately after obtaining SEBI registration

CEO and Compliance Officer Undertaking

Instead of a Merchant Banker certificate, AI-only Funds, LVFs and Angel Funds must submit a jointly signed undertaking from:

• Chief Executive Officer (or equivalent)

• Compliance Officer

confirming the accuracy and completeness of disclosures made in the Placement Memorandum.

SEBI Has Not Approved Your PPM

One important clarification under GARUDA is that:

Submission of the PPM should not be interpreted as SEBI approval.

The circular expressly states that SEBI:

• Does not certify the correctness of disclosures

• Does not guarantee the Manager’s capability

• Places responsibility on the Manager and Merchant Banker for disclosure quality

Any incorrect, misleading or incomplete disclosures may result in regulatory action.

New Naming Requirements

SEBI has also prescribed naming conventions.

New schemes must include:

• “AI only Fund” or “AIOF” for Accredited Investor Only Funds

• “LVF” for Large Value Funds

What Does “Launch” Mean?

SEBI has clarified that the launch of an AIF scheme means:

Circulation of the Placement Memorandum (PPM) to investors for soliciting commitments.

Changes to Future PPM Amendments

For AI-only Funds, LVFs and Angel Funds:

• Merchant Banker involvement is no longer required when filing future changes to the PPM.

• Amendments can be filed directly with SEBI along with the CEO and Compliance Officer undertaking.

Impact on AIF Managers

The GARUDA mechanism is expected to:

• Reduce scheme launch timelines

• Improve certainty around fundraising schedules

• Shift accountability toward Managers and Merchant Bankers

• Lower procedural delays for sophisticated investor funds

• Improve ease of doing business for India’s AIF industry

The reforms also align with SEBI’s broader objective of enabling faster deployment of capital while retaining post-facto regulatory oversight.

If implemented, these changes will affect every Alternative Investment Fund manager, particularly fund operations, LP communications, PPM drafting, governance processes, and digital infrastructure.

Why is SEBI proposing these changes?

SEBI observed that AIFs currently follow different approaches for obtaining investor approvals. While the regulations prescribe approval thresholds, they do not specify how consent should be collected.

As a result:

• Different funds use different voting mechanisms.

• Non-responsive investors are treated differently across funds.

• Similar conflict-of-interest transactions are not always treated consistently.

• Existing definitions of “associate” are too narrow and may not capture all material conflicts.

The consultation paper aims to create a more transparent and predictable framework while preserving operational flexibility for AIFs.

1. Standardized Investor Consent Framework

SEBI proposes allowing every AIF to choose one of three voting methodologies.

Option 1 – Deemed Consent

Investors who do not respond within the specified timeline are treated as having approved the proposal.

Example

• 30% vote Yes

• 10% vote No

• 60% do not respond

Result:

• Approval = 90%

This model is already widely used across the AIF industry but has been criticized because important decisions could pass even without explicit investor participation.

Option 2 – Present and Voting

Only investors who actually participate in voting are counted.

Using the same example:

• 30 vote Yes

• 10 vote No

• 60 abstain

Approval:

30 / 40 = 75%

This aligns with voting approaches used in mutual funds, REITs and listed companies.

Option 3 – Express Voting

Only explicit “Yes” votes count against the total fund value.

Using the same example:

30 / 100 = 30%

This provides the highest investor protection but may make obtaining approvals significantly harder, especially for funds with large LP bases.

One Voting Method per Fund

SEBI proposes that every scheme should adopt only one methodology, which must be applied consistently to all investors.

Managers cannot use different voting methods for different LPs within the same scheme.

Mandatory Disclosure in PPM

Managers will also need to disclose:

• chosen voting methodology

• communication process

• voting timelines

• reminder process

• treatment of non-responses

• investor consent procedures

• associated risks

These disclosures would become part of the Private Placement Memorandum (PPM).

Uniform 75% Approval Threshold

Currently some provisions require:

• two-thirds approval

• 75% approval

SEBI proposes replacing the varying thresholds with a uniform approval requirement of 75% (by value) wherever applicable.

This simplifies interpretation and provides greater protection for minority investors.

Broader Conflict of Interest Rules

Perhaps the most important proposal is expanding the scope of transactions requiring investor approval.

Currently, many provisions refer to an “associate.”

SEBI believes this definition is too narrow and allows certain conflicted transactions to avoid investor approval.

Examples include:

• companies controlled by relatives

• common promoters

• indirect ownership structures

• entities connected through control rather than direct shareholding

These may not currently require LP approval.

Introducing “Related Party”

SEBI proposes replacing “associate” with a broader “related party” concept for conflict-related provisions.

The proposed definition is largely based on Section 2(76) of the Companies Act, 2013, covering:

• relatives

• directors

• partners

• key managerial personnel

• holding companies

• subsidiaries

• associate companies

• entities under common control

• other specified related persons

This would substantially increase the number of transactions requiring investor approval.

Existing Funds

SEBI has proposed that existing schemes may continue using their current investor consent methodology.

The new voting framework would apply prospectively, avoiding disruption for existing funds.

Operational Impact for AIF Managers

If these proposals are implemented, fund managers should prepare for:

• Updating Private Placement Memorandums

• Defining formal voting policies

• Standardizing LP communication workflows

• Maintaining complete audit trails

• Recording every investor communication

• Managing digital voting processes

• Monitoring related-party transactions before execution

• Updating compliance manuals and internal governance procedures

Funds relying on email-based approvals or manual spreadsheets may find compliance increasingly difficult.

What This Means for Fund Technology

These proposals reinforce the need for modern digital fund administration platforms capable of managing:

• Investor voting

• Digital consent collection

• Automated reminders

• Voting analytics

• Audit logs

• Related-party approval workflows

• Governance records

• Compliance reporting

As regulatory expectations continue to evolve, fund managers will increasingly benefit from systems that embed compliance directly into operational workflows rather than treating it as a manual process.

Public Consultation

SEBI has invited comments from stakeholders on these proposals.

Last date for submission: 21 July 2026.

Conclusion

This consultation paper represents one of the most significant proposed governance reforms for Indian AIFs in recent years. By standardizing investor consent mechanisms and broadening the scope of conflict-of-interest transactions, SEBI seeks to improve transparency, consistency, and investor protection while preserving flexibility for sophisticated investment funds.

AIF managers should evaluate the proposed changes carefully and begin assessing how their governance processes, PPMs, investor communication practices, and technology platforms may need to evolve if these amendments are adopted.

Source

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

Overview

SEBI has issued a significant circular providing long-awaited operational clarity on the winding-up process for Alternative Investment Funds (AIFs). The circular introduces a formal mechanism allowing AIFs to retain liquidation proceeds beyond the permissible fund life under specified circumstances and creates a new regulatory status called “Inoperative Fund.”

The objective is to enable fund managers to complete fund winding-up efficiently without remaining subject to the full regulatory framework solely because of pending litigation, tax matters, or residual operational expenses.

Key Highlights

1. Retention of Liquidation Proceeds Beyond Permissible Fund Life

SEBI now permits AIFs to retain liquidation proceeds after the end of the liquidation or dissolution period if at least one of the following conditions is met:

• Pending litigation, tax, regulatory or legal proceedings supported by official notices or communications.

• Anticipated litigation or tax liabilities with approval from at least 75% of investors by value.

• Genuine residual winding-up expenses supported by invoices or comparable historical records.

Where retention is sought due to anticipated liabilities, managers must disclose both:

• Amount proposed to be retained

• Estimated duration of retention

to investors while obtaining their consent.

2. Cap on Retention for Operational Expenses

Where monies are retained solely for residual winding-up expenses:

• Retention cannot exceed three years from the end of the permissible fund life.

• Standard operating expense categories will be prescribed through implementation standards developed by the Standard Setting Forum for AIFs (SFA) in consultation with SEBI.

3. Introduction of ‘Inoperative Fund’ Status

AIFs that have substantially completed their winding-up process but need to retain limited amounts for pending liabilities may apply to SEBI for Inoperative Fund status.

This facility is available where:

• One or more schemes retain monies under the prescribed conditions, or

• The AIF wishes to continue registration solely because of an ongoing litigation where a favourable outcome is expected.

Applications must be submitted in the prescribed format provided in Annexure A of the circular.

4. Restrictions Applicable to Inoperative Funds

Once an AIF is granted Inoperative Fund status:

• No new schemes can be launched.

• No management fees can be charged.

• Retained monies must only be invested in instruments permitted under Regulation 15(1)(f).

• Registration continues only until all liabilities are settled and retained monies are distributed.

5. Major Compliance Relief

SEBI has granted substantial compliance exemptions for Inoperative Funds.

The following requirements will no longer apply after obtaining the status:

• Limited Quarterly Activity Report

• Annual Activity Report

• Compliance Test Report (CTR)

• PPM Audit

• Intimation of changes in PPM

• Benchmarking Agency reporting

• NISM certification requirement for key investment team

• Custodian requirement

• Periodic investor disclosures

• Regular valuation requirements (subject to annual retention reporting)

These exemptions significantly reduce the compliance burden and operating costs for funds that have effectively completed their investment lifecycle.

6. Annual Retention Status Report

Instead of routine regulatory filings, Inoperative Funds and schemes retaining monies must submit an Annual Retention Status Report.

The report must include:

• Scheme details

• Reason for retaining proceeds

• Amount retained

• Amount distributed

• Balance outstanding

• Status of litigation or liabilities

• Expected resolution timeline

• Details of investments made using retained monies

The report must be filed:

• With SEBI

• With investors

• Within 30 calendar days from the end of March every financial year.

7. Applicability to Venture Capital Funds

The framework has also been extended to Venture Capital Funds registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996.

Such VCFs can also avail:

• Retention of proceeds

• Inoperative Fund status

• Compliance exemptions under the circular.

Practical Impact

The circular addresses a long-standing operational challenge faced by AIF managers.

Previously, even after liquidating all investments, funds often had to continue maintaining full regulatory compliance because small amounts remained pending for:

• Tax assessments

• Litigation

• Regulatory proceedings

• Final operational expenses

The new framework enables managers to:

• Complete liquidation of investments

• Distribute proceeds to investors

• Retain only necessary amounts for genuine liabilities

• Obtain Inoperative Fund status

• Benefit from reduced regulatory obligations until final closure

This is expected to lower compliance costs while ensuring continued investor protection.

Key Takeaways

• Retention of liquidation proceeds beyond permissible fund life is now formally permitted under defined conditions.

• A new Inoperative Fund status enables efficient post-liquidation administration.

• Significant regulatory exemptions reduce ongoing compliance obligations.

• Annual reporting on retained monies ensures transparency for both SEBI and investors.

• The framework applies to both AIFs and erstwhile Venture Capital Funds.

At first glance, the circular appears to be a consolidation exercise. However, a deeper review reveals something more significant.

The 2026 Master Circular reflects SEBI’s continued push toward making India’s alternative investment ecosystem more transparent, more institutional, and more aligned with global private capital markets.

For fund managers, sponsors, trustees, compliance officers, family offices, and service providers, this is not merely a regulatory update—it is a glimpse into the future direction of the Indian AIF industry.

Key Highlights from the Circular

Merchant Bankers Continue to Play a Critical Role

SEBI has reaffirmed that non-LVF schemes must file their Private Placement Memorandum (PPM) through a SEBI-registered Merchant Banker.

The Merchant Banker is expected to independently verify disclosures, provide due diligence certification, and ensure the adequacy and accuracy of information provided to investors. The Merchant Banker must also remain independent and cannot be an associate of the AIF, sponsor, manager, or trustee.

For fund managers launching new schemes, merchant banker engagement remains a critical part of the launch process.

Enhanced Certification Requirements for Investment Teams

SEBI has further strengthened professional competency requirements by mandating relevant NISM certifications for key personnel within the investment team.

At least one member of the key investment team must hold the prescribed certification applicable to the relevant AIF category. This requirement now forms part of both the registration process and scheme launch process.

The message is clear: fund management is increasingly being treated as a specialized regulated profession requiring demonstrable expertise.

Greater Recognition of Accredited Investor Structures

The circular provides additional operational clarity around:

• Accredited Investor (AI) Only Funds

• Large Value Funds (LVFs)

• Scheme conversions into AI-only structures

Specific naming conventions have also been introduced, requiring schemes to clearly identify themselves as AI-only funds or LVFs.

As India’s family office and ultra-high-net-worth investor ecosystem matures, these structures are likely to gain wider adoption.

Stronger Investor Onboarding and AML Expectations

SEBI has significantly reinforced investor eligibility, FATF screening, sanctions checks, and beneficial ownership verification requirements.

Managers are now expected to conduct more rigorous due diligence on investors, particularly foreign investors, and ensure continued compliance throughout the life of the fund.

This reflects a broader global trend where private capital funds are expected to maintain AML and onboarding standards closer to those followed by regulated financial institutions.

Expanded Disclosure Expectations

The circular reiterates the importance of comprehensive disclosures through the PPM.

Fund managers are expected to provide detailed disclosures relating to:

• Distribution waterfalls

• Fee structures

• Investor grievance mechanisms

• Investor complaint statistics

• Investor Charter

• Litigation and disciplinary history

The objective is straightforward: enable investors to make better-informed investment decisions through greater transparency.

What Every AIF Manager Should Do Next

Many managers will read the circular, forward it internally, and move on.

That would be a mistake.

The better approach is to treat the circular as a practical operational checklist.

1. Review Your PPM Before the Next Fundraise

A surprising number of AIFs continue to use disclosure frameworks that were drafted years ago and subsequently amended multiple times.

Before your next fundraising cycle, review whether your PPM adequately covers:

• Waterfall disclosures

• Investor grievance disclosures

• Disciplinary history

• Co-investment disclosures

• Investor Charter requirements

A proactive review today is significantly cheaper than a regulatory issue tomorrow.

2. Reassess Your Investor Onboarding Process

Traditional KYC collection alone is no longer sufficient.

Fund managers should evaluate whether their onboarding workflows adequately cover:

• Beneficial ownership verification

• FATF screening

• Sanctions screening

• Foreign investor eligibility checks

• Ongoing monitoring requirements

Investor onboarding is rapidly becoming one of the most important operational functions within an AIF.

3. Verify Team Certifications

Certification gaps often surface at the worst possible time—during registrations, scheme launches, or investor due diligence exercises.

Managers should maintain a certification tracker covering:

• Relevant NISM certifications

• Expiry dates

• Key personnel changes

• Training requirements

This is a simple exercise that can prevent unnecessary delays.

4. Upgrade Compliance Management

The Compliance Test Report (CTR) now assumes greater significance because it must demonstrate compliance across the provisions of the Master Circular.

Managers should move beyond annual compliance exercises and establish continuous compliance monitoring processes covering:

• Fundraising activities

• Investment restrictions

• Governance requirements

• Reporting obligations

• Investor communications

Compliance is increasingly becoming a year-round activity rather than a year-end exercise.

5. Evaluate Operational Technology

The regulatory expectations placed on AIFs today are substantially higher than they were five years ago.

Fund managers must now manage:

• Investor onboarding

• AML checks

• Capital calls

• Portfolio monitoring

• Compliance reporting

• Investor communications

• CTR preparation

• PPM management

Managing these functions through spreadsheets, email chains, and disconnected systems becomes increasingly difficult as funds scale.

Technology is no longer a convenience—it is becoming a compliance necessity.

What This Means for Investors and Family Offices

While much of the discussion around the circular focuses on fund managers, investors stand to benefit significantly.

The framework promotes:

• Greater transparency

• Better disclosure standards

• Improved governance

• Enhanced investor protection

• Stronger accountability from managers

For family offices and institutional LPs, these developments should increase confidence in India’s growing private capital ecosystem.

The Bigger Picture: Where Is SEBI Taking the Industry?

The most important insight from the 2026 Master Circular is not any individual rule.

It is the regulatory direction.

Over the last several years, SEBI has steadily increased expectations around:

• Governance

• Transparency

• Reporting

• Risk management

• Investor protection

• Professional standards

Taken together, these changes suggest that India is moving toward a more institutional alternative investment ecosystem that resembles mature global markets.

In the early years of the AIF industry, obtaining registration was often the primary challenge.

Today, the larger challenge is building a fund management business that can operate efficiently, remain compliant, withstand investor scrutiny, and scale sustainably over multiple fund vintages.

The fund managers who invest early in governance, processes, compliance infrastructure, and technology will likely be best positioned to attract institutional capital in the years ahead.

Final Thoughts

The 2026 SEBI Master Circular should not be viewed as just another compliance document.

It is a blueprint for how SEBI expects AIFs to operate in the future.

For fund managers, the question is no longer:

“How do I get my AIF registered?”

The more important question is:

“How do I build an institutional-grade fund platform that remains compliant, auditable, and LP-ready over the next decade?”

The answer to that question will increasingly define the next generation of successful fund managers in India.

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.