In April 2024, the Securities and Exchange Board of India (SEBI) implemented the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, marking a significant moment for the financial sector. These new regulations are designed to enhance the framework for Alternative Investment Funds (AIFs), providing a clearer, more robust structure for trustees, managers, and investors. By focusing on areas such as managerial eligibility, the introduction of new AIF categories, and improved disclosure requirements, SEBI aims to bolster market integrity and protect investor interests. This strategic move demonstrates SEBI's commitment to refining the operational standards of AIFs, ensuring they align with global best practices.

As the article unfolds, readers will be presented with a comprehensive overview of the amendments, a comparative analysis contrasting with previous regulations, and a deep dive into the implications these changes hold for AIFs and their investors. Highlighting enhancements in flexibility, encumbrance provisions, dissolution periods, and regulatory compliance, the discussion aims to offer insight into how these adjustments not only contribute to the dynamic landscape of AIFs in India but also cater to the evolving needs of both domestic and foreign portfolio investors. Through exploring these facets, the article will elucidate the significant role these amendments play in guiding the future of alternative investment funds within India's financial ecosystem.

Overview of the Amendments

The SEBI AIF (Second Amendment) Regulations 2024 have introduced several significant changes aimed at enhancing the regulatory framework and operational standards of Alternative Investment Funds (AIFs). These amendments are designed to ensure greater transparency, improve the management of AIFs, and protect investor interests while aligning with global best practices.

  1. New Categories and Definitions

One of the key features of the amendments is the introduction of new categories and definitions that broaden the scope of AIFs:

  • Specified Alternative Investment Funds: This new category has been added to accommodate specific types of investment strategies and structures, providing more tailored investment opportunities.
  • Definitions of 'Dissolution Period' and 'Encumbrance': These terms have been clearly defined in regulation 2(1), ensuring that all stakeholders have a precise understanding of these critical aspects.
  1. Enhanced Regulatory Requirements

The amendments have significantly enhanced the regulatory requirements for AIFs, focusing on compliance, transparency, and investor protection:

  • Dematerialization of Units: All AIFs are now required to issue units in dematerialized form, enhancing the safety and efficiency of the investment process.
  • Valuation and Compliance Enhancements: There are stricter guidelines for the valuation of investments and the role of compliance officers has been emphasized to ensure adherence to regulatory standards.
  1. Investment and Borrowing Flexibilities

The amendments have also introduced flexibilities in how AIFs can manage investments and borrowing:

  • Encumbrance on Equity: Category I and II AIFs are now permitted to create encumbrances on the equity of investee companies under specified conditions, providing them with greater leverage options.
  • Handling of Unliquidated Investments: AIFs are provided with more flexibility in dealing with unliquidated investments during the liquidation period, including the distribution of these investments to investors or entering into a dissolution period with significant investor approval.
  1. Operational and Compliance Reforms

Operational processes and compliance mechanisms have undergone substantial reforms to streamline operations and enhance oversight:

  • Winding Up Process: The process for winding up AIFs has been standardized, ensuring a clear and efficient procedure for closing funds.
  • Certification Requirements: The key investment team of the Manager of the AIF is now required to meet specific certification requirements, raising the professional standards of fund management.
  1. Investor-Centric Amendments

Several amendments focus directly on protecting and empowering investors:

  • Investor Approval for Transactions: Transactions involving the buy or sell of investments from or to associates now require the approval of 75% of the investors by value, ensuring that investor interests are safeguarded.
  • Corporate Debt Market Development Fund: The introduction of this fund as a backstop facility aims to support the stability of the corporate debt market, indirectly benefiting investors by enhancing market resilience.

These amendments collectively aim to refine the AIF landscape in India, making it more robust, transparent, and investor-friendly.

Comparative Analysis with Previous Regulations

The SEBI (Alternative Investment Funds) Regulations, 2012, laid the foundational framework for AIFs in India, defining operational standards and investor protections. The recent amendments introduced by the SEBI AIF (Second Amendment) Regulations, 2024, have brought significant changes, enhancing the regulatory and operational landscape of AIFs. Here is a comparative analysis highlighting key differences between the previous and current regulations:

  1. Definitions and Operational Flexibility

Previous Regulations:

  • AIFs were strictly prohibited from launching new liquidation schemes, with existing schemes continuing under the old regulations until completion.
  • The terms related to the dissolution period and encumbrance were not clearly defined, leading to potential ambiguities in interpretation and application.

Current Amendments:

  • The phrase "sell such investments to a liquidation scheme" has been replaced with "enter into dissolution period," clarifying the process during the winding down of AIF operations.
  • Clear definitions for 'Dissolution Period' and 'Encumbrance' have been established, ensuring all stakeholders have a precise understanding of these terms.
  1. Investment and Borrowing

Previous Regulations:

  • Category I and II AIFs were not allowed to borrow funds directly or indirectly or engage in any form of leverage.
  • AIFs could only invest in shares and securities as defined under the Securities Contracts (Regulations) Act, 1956.

Current Amendments:

  • Category I and II AIFs are now permitted to create encumbrances on the equity of investee companies under specified conditions, offering greater flexibility in financial maneuvering.
  • The amendments have introduced more flexibility in handling unliquidated investments, allowing AIFs to distribute these investments to investors or enter into a dissolution period with significant investor approval.
  1. Investor Protections and Compliance

Previous Regulations:

  • Transactions involving the buy or sell of investments from or to associates required the approval of 75% of investors by value, which remains unchanged.
  • AIFs were required to submit reports to SEBI on a quarterly and annual basis, ensuring regular oversight.

Current Amendments:

  • Enhanced compliance requirements have been introduced, including the dematerialization of units and stricter valuation guidelines.
  • The role of compliance officers has been emphasized, and certification requirements for the key investment team of the Manager of the AIF have been introduced, raising professional standards.
  1. Tax Considerations

Previous Regulations:

  • Category I and II AIFs enjoyed pass-through status from a tax perspective, which facilitated tax-neutral investments for investors.

Current Amendments:

  • There have been no significant changes reported in the tax treatment of AIFs under the new amendments, maintaining the status quo for tax considerations.

This comparative analysis showcases how the SEBI AIF (Second Amendment) Regulations, 2024, have built upon the existing framework to introduce more precise definitions, enhanced flexibility for fund operations, and stronger investor protections, aligning more closely with global standards and addressing the evolving needs of the market.

Implications for AIFs and Investors

The SEBI AIF (Second Amendment) Regulations 2024 have introduced a range of provisions that significantly impact both Alternative Investment Funds (AIFs) and their investors, particularly concerning the management of unliquidated investments. These changes are designed to provide greater flexibility, enhance legal compliance, and ensure a more structured dissolution process, reflecting a robust approach towards handling the complexities associated with unliquidated assets.

  1. Enhanced Flexibility in Managing Unliquidated Investments
  1. Option to Sell or Distribute Unliquidated Investments: AIFs now have the flexibility to either sell these investments to a new scheme or distribute them in-specie to investors, contingent upon securing approval from 75% of investors by value.
  2. Mandatory In-Specie Distribution: If unliquidated investments are not sold by the end of the dissolution period, AIFs must distribute these investments in-specie to investors, ensuring that investors still receive value from unsold assets.
  3. Extended Liquidation Period: For AIF schemes with liquidation periods expiring on or before July 24, 2024, an additional period until April 24, 2025, is granted, provided there are no unresolved investor complaints as of April 25, 2024. This extension aids in the thorough liquidation or distribution of investments.
  1. Compliance and Due Diligence Obligations
  • Due Diligence by AIF Managers and Key Personnel: It is mandatory for AIFs, their managers, and key management personnel to exercise due diligence to prevent any circumvention of laws. This includes a thorough vetting of all transactions and operational practices to ensure full compliance with regulatory standards.
  • Reporting and Oversight: Post-exercise of the options concerning unliquidated investments, managers are required to submit a comprehensive compliance report on the SEBI Intermediary Portal. Additionally, the trustee or sponsor must ensure that this report includes adherence to all new regulatory provisions.

Structured Dissolution and Investor Protection

  • Dissolution Period Operations: During the dissolution period, AIFs cannot accept new commitments from investors nor make new investments, focusing solely on the orderly liquidation or distribution of existing assets.
  • Investor Consent and Exit Options: The dissolution process must be backed by investor consent, with specific conditions laid out for handling bids and exit strategies for dissenting and non-dissenting investors. This structured approach ensures transparency and fairness, safeguarding investor interests.
  • Valuation and Management Fee Policies: Valuation of unliquidated investments during the dissolution period is based either on the bid value or a nominal value if no minimum bid is arranged. Importantly, managers are not permitted to charge management fees during this period, aligning their interests with those of the investors.

These implications underscore SEBI’s commitment to enhancing the operational flexibility of AIFs while upholding stringent compliance and investor protection standards. By facilitating a clearer, more structured approach to handling unliquidated investments and dissolution processes, the amendments aim to bolster the confidence of both domestic and foreign portfolio investors in India’s alternative investment funds market.

Enhanced Flexibility for AIFs and Investors

The SEBI AIF (Second Amendment) Regulations 2024 have notably increased the operational flexibility for Alternative Investment Funds (AIFs) and their investors, particularly in handling unliquidated investments. This flexibility is crucial in scenarios where certain investments have not yet been liquidated at the end of the fund’s lifecycle.

  1. Handling of Unliquidated Investments
  1. Flexibility in Decision Making: AIFs now have the option to either sell unliquidated investments to another scheme or distribute them in-specie to investors. This choice must be approved by 75% of the investors by value, which empowers investors by involving them in the decision-making process.
  2. Extended Time Frames: The amendments allow AIFs an extended period to deal with unliquidated investments. This is particularly beneficial in market conditions that are not conducive to immediate liquidation, thereby preventing potential losses that might occur from a rushed sale.
  3. Investor-Centric Approach: By allowing the distribution of unliquidated investments in-specie, investors have the opportunity to directly own the investments or choose an appropriate time for their sale, thus potentially maximizing their returns.
  1. Summary of Flexibility Options for Handling Unliquidated Investments



Investor Involvement Required

Sell to another scheme

AIFs can choose to sell unliquidated investments to another investment scheme.

Yes (75% by value approval)

Distribute in-specie to investors

If not sold, investments can be distributed directly to investors in their existing form.

Yes (75% by value approval)

Extended liquidation period

Additional time granted for dealing with unliquidated investments, enhancing flexibility.


This enhanced flexibility not only aids the AIFs in managing their investments more effectively but also aligns with investor interests, ensuring that their investments are handled in the most beneficial manner during the dissolution period.

Encumbrance and Dissolution Period

The SEBI AIF (Second Amendment) Regulations 2024 introduce specific guidelines concerning the encumbrance and dissolution period for Alternative Investment Funds (AIFs), which are pivotal in ensuring an orderly and transparent winding-up process.

  1. Guidelines for the Dissolution Period

The dissolution period is a crucial phase in the lifecycle of an AIF, marking the end of its active investment period and transitioning to liquidation of assets. The regulations stipulate that:

  1. Duration of Dissolution Period: The dissolution period must not exceed the original tenure of the scheme and cannot be extended under any circumstances once it has expired.
  2. Arranging a Bid for Unliquidated Investments: AIFs are required to arrange a bid for at least 25% of the value of unliquidated investments. This step is essential to facilitate the orderly liquidation of assets.
  3. Disclosure and Valuation: The bid value range must be disclosed, and the valuation of the unliquidated investments should be conducted by two independent valuers. This ensures transparency and fairness in the valuation process.
  4. Exit Options for Dissenting Investors: If the bid is successful, full exit options must be offered to dissenting investors, allowing them to withdraw from the fund under predefined conditions.
  1. Handling of Unliquidated Investments

In instances where the dissolution process begins but specific investments remain unliquidated, the regulations provide clear directives:

  • In-specie Distribution: If investor consent for dissolution or in-specie distribution is not obtained, the AIF is allowed to distribute the unliquidated investments in-specie to investors without the need for 75% investor consent. This provision ensures that all investors are treated equitably and can potentially benefit from any subsequent appreciation in the value of the distributed assets.
  1. Key Provisions for Encumbrance and Dissolution



Duration of Dissolution Period

Must not exceed the original scheme tenure and cannot be extended.

Bid Arrangement

Mandatory arrangement of a bid for at least 25% of unliquidated investments’ value.

Disclosure and Valuation

Bid value range and independent valuation by two valuers required.

Exit Options for Dissenting Investors

Full exit must be provided to dissenting investors if the bid is successful.

In-specie Distribution

Allowed without 75% investor consent if no consent for dissolution or distribution is obtained.

These regulations underscore SEBI’s commitment to maintaining a structured and investor-friendly approach during the dissolution phase of AIFs, ensuring that the interests of all stakeholders are safeguarded and the process remains compliant with the highest standards of regulatory oversight.

Regulatory Compliance and Oversight

  1. Enhanced Dematerialization of Units

Under the new SEBI AIF regulations, a significant compliance requirement is the mandatory issuance of units in dematerialized form by all Alternative Investment Funds (AIFs). This step is crucial as it:

  1. Enhances Transparency and Monitoring: Dematerialized units are easier to track, reducing the risk of discrepancies in unit holdings.
  2. Mitigates Operational and Fraud Risks: The electronic nature of dematerialized units minimizes the physical handling of documents, thereby reducing the possibility of fraud and operational errors.
  3. Eases Transfer and Transmission: Electronic records facilitate quicker and more efficient transfer and transmission of units between entities.
  4. Improves Administrative Efficiency: Streamlining the administration process, dematerialization reduces the paperwork and expedites transaction processes.
  1. Compliance Officers: Roles and Responsibilities

The amendments explicitly require each AIF to appoint a compliance officer. This role is pivotal in maintaining the integrity of the fund’s operations:

  • Oversight of Compliance: The compliance officer is tasked with overseeing the fund’s adherence to all applicable laws, regulations, and guidelines issued by SEBI.
  • Monitoring and Reporting: They are responsible for monitoring the fund’s compliance and reporting any discrepancies or issues to the appropriate authorities.
  1. Independent Valuation Compliance

To further ensure the accuracy and fairness of fund valuations, the regulations mandate the appointment of an independent valuer by the fund manager:

  • Periodic Valuation: The independent valuer must conduct valuations at specified intervals, ensuring that the valuations are up-to-date and reflect current market conditions.
  • Criteria Satisfaction: The valuer must meet specific criteria set forth by SEBI, which ensures that only qualified and capable professionals handle these evaluations.
  1. Key Compliance and Oversight Mechanisms

Compliance Aspect



Dematerialization of Units

Mandatory issuance of units in dematerialized form to enhance transparency and reduce fraud risks.

AIF Managers

Appointment of Compliance Officer

Monitoring adherence to all regulatory requirements and reporting discrepancies.

Compliance Officer

Independent Valuation

Regular valuation of AIF assets by an SEBI-approved independent valuer.

AIF Manager, with oversight by SEBI

  1. Investor Awareness and Risk Management

Investors in AIFs need to be aware of these regulatory changes as they can significantly influence investment decisions and risk exposure. The enhanced compliance measures are designed to protect investor interests by ensuring that AIFs operate transparently and are held to high standards of accountability.

  1. Ensuring Comprehensive Compliance

The responsibility for ensuring adherence to these regulations is shared across various roles within the AIF management structure:

  • AIF Manager: Primarily responsible for overall compliance and for appointing necessary personnel like independent valuers.
  • Trustee and Key Management Personnel: They share the responsibility for ensuring that the fund operates within the legal framework and adheres to SEBI’s directives.
  • Compliance Officer: Specifically tasked with the day-to-day monitoring of the fund’s adherence to regulations.

This structured approach to compliance and oversight under the SEBI AIF regulations ensures that the interests of all stakeholders, especially investors, are safeguarded, thereby enhancing the integrity and stability of the alternative investment funds market.


Throughout this comprehensive exploration, we have delineated the multifaceted landscape introduced by the SEBI AIF (Second Amendment) Regulations, 2024. From the inception of new categories and definitions that widen the ambit of AIFs to enhanced regulatory requirements aimed at bolstering transparency, managerial accountability, and investor protection, these amendments mark a pivotal evolution in the framework governing Alternative Investment Funds. They underscore a deliberate move toward aligning the operational standards and regulatory compliances of AIFs with global best practices, aiming to refine the investment ecosystem in India for both fund managers and investors.

Moreover, the strategic enhancements in flexibility regarding the management of unliquidated investments, alongside the meticulous attention to the dissolution process, signal SEBI’s commitment to fostering a robust, transparent, and efficient market. These adjustments not only safeguard investor interests but also equip AIFs with the tools necessary to navigate the complexities of the financial landscape more effectively. In essence, the amendments encapsulate a forward-thinking approach that is expected to catalyze the growth and dynamism of India’s alternative investment funds market, reinforcing its appeal to a broader spectrum of domestic and international stakeholders.


  1. What are the new AIF regulations introduced by SEBI for the year 2024?

The Securities and Exchange Board of India (SEBI) has introduced the Alternative Investment Funds (AIF) Regulations Amendment 2024 on April 25, 2024. These amendments are designed to enhance the flexibility for AIFs and their investors, particularly concerning the handling of unliquidated investments in their schemes.

  1. Can you explain the SEBI Regulations 2024?

The SEBI Regulations 2024 refer to a set of guidelines issued by SEBI, which were highlighted in a consultation paper on January 19, 2024. These regulations address the potential for regulatory arbitrage that arises from the classification of downstream investments by AIFs. This classification is based on the location of ownership and control of the investment manager or sponsor of the AIF.

  1. What defines a Category 2 AIF according to SEBI?

According to Regulation 3(1)(b) of the AIF Regulations, a Category II AIF is an Alternative Investment Fund that does not qualify as a Category I or III AIF and is characterized by not engaging in leverage or borrowing, except for short-term operational needs and within the limits allowed by AIF regulations.

  1. What does the SEBI circular say about changes in the private placement memorandum for AIFs?

SEBI has issued a circular that simplifies the process for alternative investment funds (AIFs) to make certain amendments to their private placement memorandum. As per the circular, AIFs are now permitted to submit these changes directly to SEBI rather than going through a merchant banker. This change is intended to facilitate ease of doing business and to reduce the cost of compliance for AIFs.# Insights into SEBI AIF (Second Amendment) Regulations, 2024: What's New?
The Securities and Exchange Board of India (SEBI) has unveiled the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024, marking a significant update aimed at refining the regulatory framework for Alternative Investment Funds (AIFs). This amendment, introduced on April 25, 2024, seeks to enhance transparency, tighten eligibility criteria for managers, and introduce new categories of AIFs, targeting a more robust governance structure that ensures investor protection and maintains market integrity. With changes including strengthened roles for AIF trustees and managers, as well as enhanced disclosure requirements, the landscape of alternative investments in India is poised for a transformation.

The amendments span across important aspects of Alternative Investment Funds including, but not limited to, modifications to Regulations concerning investment norms, the introduction of categories, and detailed guidelines for AIFs, aiming to foster a transparent and efficient investment environment. This article will offer a comparative analysis with previous regulations, deliberate on the implications for AIFs and investors, and explore the new opportunities these amendments introduce. Emphasis will be placed on explaining key terms such as what is AIF, the intricate guidelines of SEBI for InvITs, and how these changes impact foreign portfolio investors, setting a precedent for alternative investment funds regulations in India.

Additional Resources: Extending Knowledge

To further explore Category III AIFs, here are some useful links from, providing comprehensive information, regulatory guidelines, and investment strategies:

  1. Alternative Investment Fund Taxation (AIF) in India
  3. AIF’s & Foreign Investment
  4. AIF’s Regulatory Changes
  5. Alternative Investment Fund -Operations and Legal Regime
  6. Legal Provisions for Alternative Investment Fund Registration
  7. A Comprehensive Guide to Understanding and Registering Alternative Investment Funds (AIFs) in India
  8. Categories of AIF: Aligning Investor Needs with the Right Fund Categories
  10. Classification of AIF Units As Securities & its effects
  11. Guide of Investment AIF in GIFT City
  12. Incentive for Establishing AIF in GIFT City
  13. Comparative Analysis: AIF Category 3 vs. PMS
  14. Category II AIFs in Indian Debt Investments
  15. Alternative Investment Fund -Operations and Legal Regime
  16. Category III AIF TAXATION
  17. AIF & Its Legal Structures: What you need to know.