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