Asset Management and Funds Quarterly Milestones (October-December 2025)

On 18 November 2025, the Securities and Exchange Board of India (SEBI) pursuant to an amendment to the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations), introduced a separate category of alternative investment funds (AIF) for accredited investors¹ (AI), termed as AI-only Funds (AI-only Fund). The existing construct of large-value funds for accredited investors (LVF) has also been subsumed under this category.

• AI-only Funds

  An AI-only Fund refers to an AIF or scheme of an AIF in which all investors are AIs, apart from the manager, sponsor, and employees and directors of the AIF or its manager. The AIF Regulations now recognise LVFs under the broader umbrella of AI-only Funds, catering exclusively to AIs. All new schemes launched as AI-only Funds or LVFs must reflect this classification in the scheme name by adding ‘AI-only Fund’ or ‘LVF’ at the end of such scheme’s name.

  As the category has been created for AIs, certain regulatory relaxations are offered to AI-only Funds, including:

  1. Exemption from the requirement of maintaining pari-passu rights: differential rights may be offered to select investors, in accordance with SEBI guidelines and Standard Setting Forum for AIFs (SFA) without affecting the interest of other investors. This will not be applicable to AI-only Funds;
  2. Extension of tenure: typically, AIFs are permitted to extend the tenure by up to 2 years. However, AI-only Funds have been permitted to extend their tenure up to 5 years;
  3. Exemption from requirement of obtaining the National Institute of Securities Market (NISM) certification by at least one key personnel of the manager that would otherwise be required by AIFs.
  4. Trustee obligations: under the AIF Regulations, certain responsibilities are cast on the trustee from an investor protection standpoint. Subject to the terms of agreement between the manager and the trustee, the manager itself may fulfil some of these obligations of the trustee, in case of AI-only Funds.

• Relaxation granted to only LVFs

  SEBI has reduced the minimum investor commitment from INR 70 Crore to INR 25 Crore for investors in LVFs to make it easier for LVFs to attract capital from Indian and global financial institutions of all sizes.

  Additionally, LVFs are no longer required to obtain a specific waiver from investors in order to avail exemptions from:

  1. compliance with the standard private placement memorandum (PPM) template and the requirement to conduct an annual audit of PPM terms; and
  2. the investment committee’s liability to ensure that its decisions comply with the policies and procedures prescribed under the AIF Regulations. In such cases, the responsibility for investment decisions rests with the AIF, its manager, and their key management personnel.

• Migration to AI-only Fund or LVF

  Existing AIF schemes comprising only accredited investors can now migrate to AI-only Funds or LVFs, with investor consent. For the purpose of such migration, investors who were admitted as accredited investors are not required to re-establish their accredited status, and any subsequent loss of eligibility does not affect the scheme’s eligibility to migrate.

  Post-conversion, the scheme name must be updated and reported to SEBI and depositories within 15 days.

  These reforms modernise the AIF ecosystem, addressing the needs of a growing AI-based investor class. By simplifying operations and easing compliance requirements, the reforms are geared towards improving accessibility and creating a more investor-friendly environment.

SEBI through a circular dated 30 December 2025, has mandated compliance officers of all AIF managers to obtain a certification from the NISM by passing the NISM Series-III-C Securities Intermediaries Compliance (Fund) Certification Examination. The Series-III-C exam focuses on fund-related regulatory compliance in addition to general securities markets-related compliance. Investment managers of AIFs must ensure that, with effect from 1 January 2027, only those persons who have obtained the aforesaid certification are appointed as or continue to act as compliance officers of investment managers of AIFs.

The International Financial Services Centres Authority (IFSCA) released a consultation paper proposing amendments to the IFSCA (Fund Management) Regulations, 2025. Some of the key amendments proposed are:

• Validity of placement memorandums: Allowing greater flexibility in the validity period of the placement memorandum by enabling multiple extensions, which provides managers with greater flexibility in managing fundraising timelines, reduces the need for repeated regulatory filings, and aligns the regime more closely with global private fund practices, thereby improving ease of doing business in Gujarat International Financial Tec-City (GIFT City), International Financial Services Centres (IFSC).
• Revising norms for key management personnel: The eligibility norms for the appointment of a compliance officer is proposed to be revised by reducing the minimum post-qualification experience requirement from five years to at least three years, provided such experience is gained in a financial institution in the IFSC, India, or any foreign jurisdiction, and subject to obtaining a valid certification in such subject and awarded by such institution as may be prescribed by the IFSCA. This proposal has been made in response to feedback from industry participants, who have highlighted practical difficulties in identifying and retaining professionals meeting the existing eligibility criteria and have recommended the introduction of an alternative pathway with a lower experience threshold supplemented by relevant certification.
• Expanding investment options for venture capital schemes to include follow-on investments in companies that have been in existence for more than ten years: Currently, venture capital schemes must invest at least 80% of their corpus in companies or schemes which were incorporated not more than ten years ago. Venture capital schemes can make a follow-on investment in such companies even if ten years have elapsed since its incorporation, provided that the follow-on investment made in such company is in accordance with the investment objectives, investment strategy, provisions of the memorandum and the internal policies of its manager. Further, the post-issue beneficial interest of the venture capital scheme in such company after the subsequent contribution should be the same as the pre-issue beneficial interest (on a fully diluted basis).

• Relaxations in relation to skin-in-the-game requirements for fund managers by standardising minimum contributions for restricted schemes and venture capital schemes: Under the existing framework, in case of close ended restricted schemes and venture capital schemes, fund managers are required to invest at least 2.5% of the target corpus and not more than 10% where the target corpus of the scheme is up to USD 30 million, or at least USD 750,000 where the target corpus exceeds USD 30 million. For open-ended restricted schemes, the minimum investment is 5% and the maximum is again capped at 10% of the target corpus, where the target corpus is less than USD 30 million, or at least USD 15,000,000 where the target corpus exceeds USD 30 million. For both types of schemes, the investment is capped at 10% where the target corpus exceeds USD 30 million.

  The proposed amendment has removed the monetary thresholds and standardised the mandatory contributions by fund managers to at least 2.5% of the corpus in close-ended restricted schemes and venture capital schemes, and to at least 5% of the corpus in open-ended restricted schemes. The maximum contribution is capped at 10% of the corpus in both cases. This move intends to reduce the capital requirement for fund management businesses in IFSC and make it more efficient for fund managers.

• Broadening the definition of ‘associates’ for greater transparency: Currently, the definition of “associates” makes a reference to companies, LLPs, or bodies corporate. The proposed definition replaces this existing reference with the term “person”, thereby bringing individuals and other unincorporated entities within its scope. This would expand oversight of related-party dealings through trusts, individuals or other non-corporate vehicles.
• Differential rights to investors of venture capital schemes and restricted schemes: The proposed amendment aims to permit fund managers of venture capital schemes and restricted schemes to offer differential rights to investors, provided it is disclosed in the memorandum and the rights of other investors are not affected. Additionally, the IFSCA intends to issue a separate consultation paper proposing a regulatory framework for differential distribution in restricted schemes and venture capital schemes to facilitate blended finance and other fund structures, promote innovation, and support investments in socially desirable sectors.

Collectively, the proposals are expected to reduce operational friction for fund managers, enhance governance standards, and align the IFSC regulatory framework more closely with global fund management practices—potentially making IFSC GIFT City a more attractive jurisdiction for launching and managing funds.