Inside the New ‘Accredited Investors Only’ AIF Framework

In a significant development in the alternative investment fund (AIF) space, the Securities and Exchange Board of India (SEBI) has introduced a new category of AIF schemes for only Accredited Investors (AI-only schemes), with a lighter regulatory regime. SEBI has also specified the modalities for migrating existing AIF schemes to AI-only schemes. These changes have been effected through the SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2025, notified on November 18, 2025, and a subsequent circular dated December 8, 2025.

This article provides a concise overview of the changes and their practical implications for AIF managers, sponsors and investors.

‘Accredited Investors Only’ AIFs

The amended SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) formally recognise an Accredited Investors only fund (AI-only fund) as an AIF or scheme of an AIF in which each investor, other than the sponsor, manager and their employees or directors, qualifies as an accredited investor. Large Value Fund for accredited investors (LVF) is also included within this definition of AI-only fund.

This recognition has two important consequences:

  • Lighter Regulatory Regime: Schemes comprising exclusively accredited investors benefit from certain flexibilities that are not available to regular AIF schemes.
  • Conversion of Existing Schemes: SEBI may allow existing AIFs or schemes to convert into an AI-only scheme, subject to compliance with conditions as may be specified. The circular dated December 8, 2025, sets out the procedure for such conversion, including consent, renaming, and reporting requirements.

Regulatory Flexibility for AI-Only Schemes

SEBI has adopted specific regulatory flexibilities in terms of less compliance around investor protection for schemes comprising accredited investors, resulting in the following refinements:

  • Qualification Requirements for Key Investment Team: The professional certification requirement under regulation 4(g)(i) does not apply to AI-only funds.
  • Exemption from Pari-Passu Norms: The exemption from the strict pari-passu requirement under Regulation 20(22) has been extended from only LVFs to all AI-only funds. This allows managers to offer differential rights (via side letters) to investors in any AI-only fund without being restricted by the standard pari-passu mandate, provided they are not detrimental to the interests of other investors.
  • Investor-Count Computation: In a significant relief for the broader market, accredited investors are now excluded when calculating the maximum permissible number of investors (1,000) for any AIF scheme (under Regulation 10(f)), not just those classified as AI-only funds.
  • Tenure Extension: Extension of tenure under Regulation 13(5) may be permitted up to 5 years (instead of the earlier 2-year limit), subject to the approval of two-thirds of the unit holders by value of their investment in the AI-only fund. The circular makes it clear that this 5-year limit is inclusive of any extension approved prior to conversion to AI-only or LVF scheme.
  • Continuity of Accredited Investor Status: An investor who qualifies as an AI at the time of admission to the scheme shall continue to be treated as an AI for the entire tenure of the scheme, notwithstanding any subsequent change in such investor’s financial position or eligibility, thereby ensuring that the scheme does not lose its AI only status on account of any investor ceasing to meet the accreditation criteria during the life of the scheme.
  • Reallocation of Trustee Obligations: In case of AI-only funds, obligations ordinarily assigned to the trustee under the Regulations will, by virtue of the amendment to Regulation 20, be discharged by the manager.

Migration to AI-Only or LVF Schemes

The new circular provides a structured process for transitioning existing AIF schemes into AI-only or LVF schemes. Key features include:

  • Scheme Name: New schemes launched as AI-only or LVF schemes should have the words “AI only fund” or “LVF” in the scheme names. Likewise, existing schemes converting into these categories are required to adopt the same nomenclature (For example, ‘Xyz AI only fund’ and ‘Abc LVF’).
  • Consent of Investors: Conversion of an existing scheme into an AI-only or LVF structure would require the affirmative consent of all investors.
  • Reporting Obligations: Managers must inform SEBI of the conversion and modified name via email within 15 days of conversion. A similar intimation of the change in name must be made to depositories to ensure system-level updates.

LVFs: Revised Investment Threshold and Additional Relaxations

SEBI has substantially revised the minimum investment threshold for LVFs. Under the amended regime, each accredited investor must now commit to a minimum of INR 25 crore, instead of the earlier threshold of INR 70 crore.

This revised threshold expands the pool of eligible accredited investors, without altering the institutional nature and substantial capital commitment requirement of investors, which are fundamental to the LVF regime, thereby encouraging participation from a wider set of accredited investors, including family offices and smaller institutional investors who were earlier unable to allocate INR 70 crore under the previous framework. SEBI has clarified that existing schemes may be permitted to convert into an LVF, subject to specified conditions.

LVFs are further exempted from:

  • following the standard private placement memorandum (PPM) template; and
  • undergoing the annual audit of compliance with PPM terms,

without needing to obtain individual investor waivers. The AIF Master Circular has been updated accordingly.

Compliance Test Report Alignment

The Compliance Test Report prepared by the manager in terms of Chapter 15 of the Master Circular for AIFs must now expressly cover adherence to this new circular.

Way Forward for Market Participants

The evolving regulatory landscape represents SEBI’s stance of prioritising operational flexibility, addressing the fact that accredited investors are equipped with higher risk tolerance and instead of following extensive prescribed formats, SEBI has permitted an approach where only key material disclosures can be made enabling such accredited investors to evaluate, thereby removing the burden of exhaustive disclosures as part of the compliance requirements. However, this revised framework offers funds and their managers more flexibility, but it also places a greater burden on the quality of documentation, accuracy of disclosures and extent of investor communication. As SEBI moves towards a more contract-driven approach for accredited investors, protections that previously came from prescribed formats will now rest largely on well-drafted fund documents, inter-party agreements.

With a lower LVF threshold, participation is expected from a wider set of accredited investors, and certain specialised investment strategies may gradually shift into AI-only or LVF structures. This could gradually lead to a dual AIF ecosystem under the SEBI framework: flexible structures for accredited investors and a more standardised regime for smaller investors.

The shift from the standardised and regularised PPM format and required disclosures therein makes drafting of such documents a more nuanced and expert-driven task. Core provisions, including valuation, conflicts, liquidity, fees, and investor rights (including disclosures of executed side letters) inter alia, should be retained unambiguously, since SEBI’s broader principles on fairness and investor protection would continue to apply even in the absence of rigid templates.

Conversions of existing schemes will require transparent communication, written consent and updated fund documents reflecting the new tenure extension limits, continuity of accredited status and the shift of certain trustee responsibilities to the manager, as discussed above. Internal processes should also be updated, including incorporating the new framework into the compliance test report and timely reporting to SEBI and depositories of such conversion.

Overall, while the shift to a more customised structure supports innovation and caters to the subjective needs of individual market stakeholders, it simultaneously increases reliance on precise contracts and sound governance. In the absence of prescribed disclosure checklists, strict compliance with PPM terms, investor waiver mandates and pari-passu rights, it becomes inevitable for parties to exercise extensive due diligence and negotiate contract terms carefully before entering into corresponding agreements to avoid future disputes and maintain trust.

Conclusion

SEBI’s new amendments and circular remain aligned with the underlying promise of promoting ease of doing business while ensuring that the intent still rests on investor protection. The introduction of the AI-only scheme regime and refinement of the LVF framework provide managers with greater structuring flexibility while appropriately balancing investor protection requirements with the corresponding risk appetite and sophistication of such investors. The juxtaposition of the reduced LVF threshold with the accompanying relaxations in the framework signals SEBI’s intent to promote and encourage wider market participation from eligible investors.

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SEBI’s new amendments and circular remain aligned with the underlying promise of promoting ease of doing business while ensuring that the intent still rests on investor protection. The introduction of the AI-only scheme regime and refinement of the LVF framework provide managers with greater structuring flexibility while appropriately balancing investor protection requirements with the corresponding risk appetite and sophistication of such investors. The juxtaposition of the reduced LVF threshold with the accompanying relaxations in the framework signals SEBI’s intent to promote and encourage wider market participation from eligible investors.

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SWAGAT-FI: India Paves Easy Path for Low-Risk Foreign Investors

On December 1, 2025, the Securities and Exchange Board of India (SEBI) notified amendments to the SEBI (Foreign Portfolio Investors) Regulations, 2019 (FPI Regulations), and the SEBI (Foreign Venture Capital Investors) Regulations, 2000 (FVCI Regulations), introducing a single regulatory framework for a new group of trusted foreign investors under the Single Window Automatic and Generalised Access for Trusted Foreign Investor (SWAGAT-FI) mechanism.[1] The amendments realign India’s market-access legislations by providing for a simplified compliance framework for Government and Government-related investors and public retail funds.

SWAGAT-FI has been defined under new clause (r) of Regulation 2(1) of the FPI Regulations, with the following set to receive automatic SWAGAT-FI status: (i) Government and Government-related investors as provided under Regulation 5(a)(i), and (ii) public retail funds as defined in the Explanation clause under Regulation 22(4). This now forms the basis for all downstream exemptions. The amendment also broadens allowable constituents of an FPI, allowing a mutual fund which is registered by SEBI to form part of the applicant entity, but under the circumstances specified by SEBI. Also, the terminologies and financial threshold requirements relating to applicant suitability under the third proviso to Regulation 4(c) have been amended to align the framework with that of the IFSCA Fund Management Regulations. The words “Sponsor or Manager” are replaced with “fund management entity or its associate,” with the latter having the same meaning as defined under the IFSCA Fund Management Regulations. The term “Retail Scheme” is incorporated along with Alternative Investment Funds (AIFs) under permissible resident Indian (other than individuals), and the contribution floor for such fund management entity or its associates is increased to 10% of corpus for AIFs, and capped at 10% of AUM for retail schemes, instead of dollar limits; thereby ensuring consistency in the framework between the domestic and the IFSC regime. Significantly, SWAGAT-FIs are expressly exempted from the aggregate contribution limits for NRIs, OCIs, and resident Indians under Regulation 4(c)(ii), reflecting SEBI’s intent to facilitate broader participation from these trusted entities. Registration fees of SWAGAT-FIs will now be paid for every block of ten years as provided under Regulation 7(6) and Part A of the Second Schedule.

Simultaneously, the same definition of SWAGAT-FI has been provided under new clause (ka) under Regulation 2(1) of the FVCI Regulations. A corresponding pattern of exemptions as stated above is likewise implemented. SWAGAT-FIs are excluded from the standard application procedure under Regulation 3(2). FVCIs’ renewal charges referred to under Regulation 9(2) and the Second Schedule shall henceforth assume a block arrangement of ten years identical to the FPI framework, which starts from the eleventh year of registration. Most importantly, investment concentration limits of 66.67% and 33.33% under Regulation 11(c) (i) and (ii) will not be applicable to the SWAGAT-FIs, and this will give them more freedom in investing in the Indian structure of venture capital.

The FPI and FVCI Amendment Regulations will come into force w.e.f. May 30, 2026. However, the inclusion of mutual funds registered with SEBI and the alignment of terminologies and thresholds with the IFSCA Fund Management Regulations, under Regulation 4(c) of the FPI Regulations, have an immediate effect. 

Structurally, both notifications suggest a cohesive strategy by SEBI, which is formalising a trusted-capital corridor for governments, sovereign pools, multilaterals, and large regulated retail vehicles. By aligning definitions, exempting these investors from detailed eligibility conditions, and adopting a long-cycle fee and registration model, SEBI creates a risk-based system that separates trusted foreign capital from higher-risk private investments.

The implications are instantaneous for the market players. Present FPIs and FVCIs falling within the SWAGAT-FI categories should review their eligibility and consider transitioning to the new regime to benefit from reduced compliance friction, a longer registration cycle and expanded investment bandwidth. The managers dealing with sovereign or public-retail capital will be required to update onboarding documentation, internal checklists and suitability assessment in order to identify the updated thresholds and more relaxed linkage tests. Fund sponsors and fund managers working both on domestic and IFSC platforms will need to re-evaluate governance decisions, including structuring decisions as they relate to this alignment with the IFSC fund-management framework.

Together, these amendments constitute a strategic rewrite of the Indian foreign-investment rule book: centralising SWAGAT-FI as one interoperable regulatory category and providing a less complex, predictable and compliance-light way of entry into the country with trusted international capital.

References:

[1] The Amendment Regulations can be accessed here and here.

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Together, these amendments constitute a strategic rewrite of the Indian foreign-investment rule book: centralising SWAGAT-FI as one interoperable regulatory category and providing a less complex, predictable and compliance-light way of entry into the country with trusted international capital.

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SEBI’s Fifth LODR Amendment, 2025 - Materiality Recast, Compliance Tightened

The Securities and Exchange Board of India has notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2025, which amend select provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR).

The amendments principally:

  • recalibrate the materiality test for related party transactions (RPTs) through a new Schedule XII;
  • tighten the approval framework for subsidiary-level RPTs and the validity of shareholder approvals; and
  • refine the treatment of employee and key managerial personnel (KMP) benefit schemes and update the annual report and debtholder communication requirements.

The amendments relating to the definition clause, Regulation 23 and Schedule XII come into effect on the thirtieth day from publication in the Official Gazette. The remaining changes are effective from the date of such publication.

  1. Materiality Of Related Party Transactions: New Schedule XII

Regulation 23(1) has been amended so that materiality is no longer restricted to the lower of ten percent of consolidated turnover or ₹1,000 crore. Instead, it now cross-refers to a new Schedule XII, which prescribes a graded, turnover-linked framework based on the listed entity’s consolidated turnover in the immediately preceding financial year:

  • Up to ₹20,000 crore: 10 percent of consolidated turnover.
  • Above ₹20,000 crore and up to ₹40,000 crore: ₹2,000 crore plus 5 percent of the turnover in excess of ₹20,000 crore.
  • Above ₹40,000 crore: ₹3,000 crore plus 2.5 percent of the turnover in excess of ₹40,000 crore, subject to an overall cap of ₹5,000 crore.

Consequently, while the impact on smaller listed entities remains broadly similar to the earlier framework, larger listed entities will now benefit from an increased numerical materiality threshold, capped at ₹5,000 crore. Listed entities should update their RPT policies, matrices and annual materiality computations to reflect Schedule XII.

  1. Subsidiary-Level RPTs And Audit Committee Jurisdiction

The second proviso to Regulation 23(2) has been amended to expand the jurisdiction of the listed entity’s Audit Committee over RPTs undertaken at the subsidiary level. Previously, the listed entity’s audit committee needed to approve a related party transaction by a subsidiary (where the listed entity was not a party) only if its value exceeded 10% of the listed entity’s consolidated or standalone turnover, as specified under sub-clauses (b) and (c) of the second proviso to Regulation 23(2) of SEBI LODR. This gap has now been addressed, leading to enhanced governance.

Subsidiaries with at least one year of audited standalone financials:

Where a subsidiary has at least one year of audited standalone financial statements, any transaction:

  • with a related party of the listed entity or of such subsidiary;
  • to which only the subsidiary is a party; and
  • whose value exceeds ₹1 crore,

requires prior approval of the listed entity’s Audit Committee if the value exceeds the lower of:

  • 10 percent of the annual standalone turnover of the subsidiary (as per its last audited standalone financial statements); and
  • the materiality threshold prescribed for the listed entity in Schedule XII.

Subsidiaries with less than one year of audited standalone financials:

Where a subsidiary does not yet have one year of audited standalone financials, a parallel test applies. An RPT above ₹1 crore requires prior Audit Committee approval if it exceeds the lower of:

  • 10 percent of the aggregate of the paid-up share capital and securities premium account of the subsidiary; and
  • the listed entity’s Schedule XII materiality threshold.

The capital and premium base must be taken as of a date not older than three months prior to seeking approval.

These changes are intended to ensure that meaningful RPT oversight operates at the level of the listed parent, including in respect of early-stage subsidiaries. In practice, listed entities will need group-wide RPT registers and centralised monitoring so that subsidiary transactions are screened against both subsidiary-specific metrics and Schedule XII before execution.

  1. Tenure Of Shareholder Approvals and Clarification On “Holding Company”

Regulation 23(4) has been supplemented to fix the tenure of omnibus shareholder approvals for material RPTs:

  • where approval is obtained at an annual general meeting (AGM), it is valid only until the next AGM held within the timelines prescribed under the Companies Act, 2013;
  • where approval is obtained in any other general meeting, its validity cannot exceed one year from the date of that meeting.

Listed entities can therefore no longer rely on long-running omnibus approvals and must build renewal items into AGM and EGM agendas for continuing arrangements.

In addition, an Explanation has been inserted after clause (e) of Regulation 23(5), clarifying that the term “holding company” in that provision refers to a listed holding company and is deemed always to have done so. This settles interpretational questions around the scope of the relevant exemption for transactions between a listed subsidiary and its listed parent.

  1. Employee And KMP Benefit Arrangements: Refinement of Carve-Out

The first proviso to clause (e) of Regulation 2(1)(zc), which deals with benefit schemes that are not treated as RPTs, has been expanded upon.

The reference to benefits in respect of “its directors or its employees” is replaced with a broader meaning that expressly covers:

  • directors or key managerial personnel of the listed entity or its subsidiary; and
  • relatives of such directors or key managerial personnel.

The rule that the scheme must apply on a ‘uniform basis’ now covers the broader group, including employees, directors, key managerial personnel (KMP), and their relatives.

While this language better reflects common market practice, it makes it harder to qualify for the carve-out. Schemes that selectively favour certain related parties (for example, promoters or specific family members) without genuine uniformity of terms are less likely to qualify and may need to be brought within the full RPT approval and disclosure framework. Issuers should review benefit plans currently positioned under this carve-out and test their design against the revised wording.

  1. Annual Reports and Communication with Holders of Non-Convertible Securities

Regulation 53(1) now recognises that some listed entities are constituted under special statutes. It provides that an annual report must contain information specified in:

  • the Companies Act, 2013, or
  • the statute under which the listed entity is constituted,

together with the disclosures required under Regulation 53.

Regulation 53(2) has been substituted to require that the annual report be:

  • submitted to the stock exchange(s) and debenture trustee(s); and
  • hosted on the listed entity’s website,

on or before the date on which it is dispatched to shareholders or submitted to the Central or State Government, as applicable. Where any change is made to the annual report after such dispatch or submission, a revised copy must be filed with the stock exchange(s) along with details and an explanation of the changes, within specified timelines linked to the AGM or revised dispatch.

Regulation 58 has been amended in respect of holders of non-convertible securities who do not have registered email addresses. In such cases, the listed entity must send a letter that sets out:

  • the web link, including the exact navigation path, to the annual report on its website; and
  • optionally, a static QR code linking to the report.

A new Regulation 58(1A) aligns dispatch timelines for such communications with Section 136 of the Companies Act, 2013, the associated rules or, in the case of statutory entities, the relevant constitutive statute. In the absence of a specific statutory timeline, dispatch must at least coincide with the date of dispatch to shareholders or submission to Government authorities.

These changes facilitate greater use of electronic and web-based dissemination while preserving a minimum physical intimation for investors who are not on email and ensuring consistency of timing across investor classes.

Way Forward:

In light of the above, listed entities should:

  • include Schedule XII into their RPT policies;
  • extend RPT tracking and Audit Committee workflows to all subsidiaries, including new entities;
  • identify omnibus shareholder approvals that will expire under the revised Regulation 23(4) and plan renewals accordingly;
  • review employee and KMP benefit schemes for compliance with the revised carve-out; and
  • update the annual report and debtholder communication protocols to align with the amended Regulations 53 and 58.

SEBI’s Fifth Amendment is another step in its broader project of strengthening group-level governance and enhancing transparency in related party dealings and disclosures.

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SEBI’s Fifth Amendment is another step in its broader project of strengthening group-level governance and enhancing transparency in related party dealings and disclosures.

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