SEBI Amends the SEBI (AIF) Regulations to Introduce AI-Only AIFs and Schemes

In a move to enhance the ease of doing business for accredited investors, the Securities and Exchange Board of India (SEBI) has introduced the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2025 (Amendment Regulations) on November 18, 2025. Alternative investment funds (AIFs) and AIF schemes limited exclusively to accredited investors (AI-only Funds) will be entitled to a lighter-touch regulatory framework compared to regular AIFs while also extending certain operational flexibilities to large value funds for accredited investors (LVFs).

The Amendment Regulations were followed up with a detailed circular dated December 8, 2025 (Circular) whereby SEBI set forth the operational guidelines for migration of existing AIFs and schemes to AI-only Funds or LVF schemes.

Key highlights of the Amendment Regulations and the Circular are outlined below:

1. Creation of a separate category of an AIF or scheme of an AIF termed as ‘Accredited Investors only fund’ which means an AIF or scheme of an AIF in which investor (other than the manager, sponsor and employees or directors of the AIF and that of the manager) is an accredited investor. An LVF falls within the ambit of an AI-only Fund. 

2. The minimum investment threshold for LVFs has been reduced from INR 70,00,00,000 to INR 25,00,00,000. Additionally, LVFs have also been exempted from: (i) complying with the standard template of private placement memorandum (PPM); and (ii) conducting annual PPM audits, without the requirement of obtaining specific waivers from investors.

3. AI-only Funds are exempt from: (i) ensuring pari-passu treatment amongst investors; (ii) cap on the number of investors in a scheme (extant limit of 1,000 investors per scheme of an AIF not applicable for AI-only Funds); and (iii) the requirement for the manager’s key investment team to obtain qualification and certification from the National Institute of Securities Markets (NISM). 

4. An AIF or a scheme of an AIF launched prior to the notification of the Amendment Regulations is permitted to convert to an AI-only Fund or an LVF, in compliance with conditions laid down by SEBI in its Circular, after obtaining approval from all investors. 

5. Upon conversion, the manager of the AIF is required to ensure that:

1. 1. the name of the converted scheme is changed to incorporate ‘AI only Fund’ or ‘LVF’, as the case may be;

1. 2. such conversion and change in name of the scheme is reported to SEBI within 15 days of the conversion; and

1. 3. such change in name of the scheme is reported to depositories for carrying out necessary changes in their system within 15 days of the conversion. 

6. Any new scheme proposed to be launched as an AI-only scheme or and LVF shall have the words ‘AI only Fund’ or ‘LVF’ added to the scheme name at the end, respectively (for example, ‘Xyz AI only Fund’ and ‘Abc LVF’).

7. The manager of an AI-only Fund shall discharge the responsibilities and obligations of the trustee of such fund.

8. If an investor is an accredited investor at the time of on-boarding into an AIF scheme, he/she shall be reckoned as an accredited investor through the life of the scheme, even if he/she were to lose such status in the interim.

9. Extension of tenure for close-ended AIF schemes has been fixed at maximum of five years for AI-only Funds and LVFs, inclusive of tenure extended, prior to the conversion to AI-only Fund or LVFs.

Conclusion:

The Amendment Regulations mark a significant step towards enhancing ease of doing business by broadening access for accredited investors to more sophisticated investment structures, while maintaining robust protection standards for regular investors. They underscore SEBI’s commitment to developing a competitive and efficient alternative investment ecosystem in India, with safeguards calibrated to the level of investor sophistication.