Consultation Paper: SEBI Proposes Major Changes to Investor Consent and Related Party Transactions for AIFs
On 30 June 2026, SEBI released a consultation paper proposing significant amendments to the SEBI (Alternative Investment Funds) Regulations, 2012. The proposals aim to standardize how AIFs obtain investor consent and broaden the scope of transactions requiring investor approval.
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.