From investor onboarding to overseas investments: SEBI updates AIF rulebook

The Securities and Exchange Board of India (SEBI) has released a revised master circular for Alternative Investment Funds (AIFs), bringing together a series of regulatory changes introduced over the past two years into a single consolidated framework for the industry.

The updated circular, issued on June 3, incorporates all directions issued under the SEBI (Alternative Investment Funds) Regulations, 2012 up to May 31, 2026, replacing the previous master circular issued in May 2024.

The consolidated framework captures a broad set of changes rolled out by the regulator in recent years, including norms for accredited investor-only funds, overseas investments by AIFs, co-investment structures, dematerialisation of units, valuation standards, investor onboarding requirements and compliance reporting.

Among the key provisions included in the updated rulebook are operational guidelines for co-investment vehicles within the AIF structure, which allow Category I and Category II AIFs to offer co-investment opportunities to accredited investors through dedicated schemes. The framework also prescribes limits on co-investments and ring-fencing of assets across co-investment vehicles.

The circular also incorporates overseas investment guidelines, under which AIFs can invest in offshore venture capital undertakings subject to an overall industry-wide limit of $1.5 billion and prescribed eligibility conditions.

Further, the consolidated framework includes norms governing investor onboarding, requiring AIF managers to undertake checks related to anti-money laundering standards, FATF compliance and international regulatory cooperation arrangements before accepting investments from foreign investors.

The master circular also covers operational and prudential requirements for Category III AIFs, including leverage limits, risk-management standards, redemption norms and disclosure requirements.

SEBI said the revised circular is intended to provide AIFs, custodians, depositories and other stakeholders with a single reference document containing all applicable regulatory instructions. The regulator has rescinded earlier circulars incorporated in the master circular, while preserving the validity of actions already taken and obligations arising under those directions.

The alternative investment fund industry has grown rapidly in recent years, with private equity, venture capital, private credit and other alternative asset managers increasingly using the AIF route to raise capital from domestic and global investors.