SEBI AIF Winding-Up Guidelines 2026: Key Compliance Updates

Introduction

Guidelines for winding up of AIFs  SEBI Master Circular for AIFs, June 2026

Securities and Exchange Board of India (SEBI) issued its latest master circular on 3^rd June 2026 which was last updated on 16^th June 2026, providing “guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status”.

SEBI master circular for AIFs updates from time to time for smooth working and regulation of Alternative Investment Funds (AIFs)

This article refers to the latest updates in circulars in April, May and June 2026.

1. Timeline for declaration of First close of schemes of AIFs (Validity of PPM) 30th April 2026

First clause of this topic is updated by SEBI on 30^th April 2026 as given in SEBI Master Circular for AIFs.

Under which it was explained that the first close of a scheme should be declared in 12 months from the date when the AIF become able to launch its schemes.

2. Guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status. (3rd June 2026)

This is a complete and new chapter added by SEBI in the latest SEBI Master Circular for AIFs. These guidelines for winding up of AIFs are particularly created to solve problem which AIFs face during wind up.

Regulation 29

Before this update, Regulation 29 asked the AIFs to liquidate assets, retention of proceeds and surrender registration etc which is practically not easy to produce all these documents.

Some amount of money is necessary to be hold even after end of AIFs because so many AIFs are surrounded with tax disputes, regulatory investigations etc.

Retention of proceeds beyond permissible fund life.

Permissible Fund Life means the time till the scheme is allowed to be in nature with its original life, extended time allowed by investors and liquidation period.

Before the latest update, All the assets of an AIF were sold after permissible fund life and all the investors were paid and the scheme wound up.

But now, the retention of proceeds beyond permissible fund life is allowed if it satisfies minimum one of the three conditions given in the latest SEBI Master circular for AIFs, June 2026.

1. If any litigation notice, reassessment notice, show cause notice received by the AIF or if ED starts investigation or any investor files a legal claim, then that AIF can hold some amount of money “beyond permissible fund life” for upcoming liability if any.
2. If the AIF or its manager expects some kind of tax demand or Investor claims or regulatory claims then also the AIF can hold some amount of money only after the consent of 75% Investor by the value of Investment by telling them the amount AIF needs to hold beyond permissible fund life.
3. AIF also can hold some amount of money “beyond permissible fund life” for the fund expenses like Audit fees, legal fees, Tax expenses or compliance expenses etc. However, the manager or the concerned official needs to show evidence of the expense done by the fund or by any official of the AIF (For ex. Invoices).

After satisfying at least one of these three conditions given by the SEBI Master Circular for AIFs, Fund life can be increased for maximum three more years. After completing these three years, the money held by AIF shall be distributed among investors, After which the scheme wind up.

Application for ‘Inoperative Fund’ status

This is the most important subtopic introduced by the Guidelines for winding up of AIFs.

As the general life of AIF is completed and it is not operational, so SEBI says that the AIF is not completely working beyond permissible fund life, It can only hold money as some tax or investor related issues are pending, that’s why named it as “Inoperative Fund”, a fund which can not be operated under AIF and can only be used for the issues responsible for AIFs’ beyond permissible fund life.

AIFs which hold money due to litigation issue, tax issue or operational liability can apply for Inoperative Fund Status.

Or

AIFs which did not hold any money but held registration because some litigation is pending, they can also apply of Inoperative Fund Status.

The Inoperative Fund can surrender its registration after the settlement of liabilities and distribution of money to the investors.

Regulatory framework applicable to ‘Inoperative funds’

If any AIF becomes “Inoperative Fund”, there will be certain restrictions imposed on it.

1. The money retained by the AIF will not be used or any other considerable investments.
2. Any new scheme cannot be launched by the AIF as it already wound up.
3. Any Management fees will not be charged for any scheme as the AIF wound up.

After becoming Inoperative Funds, Regulatory requirements given in Annexure 22 of SEBI Master Circular for AIFs are not applicable to the concerned AIFs.

Those AIFs which have retained the capital and also became “Inoperative Funds” have to submit the annual status report of money and liabilities on SEBI Intermediary Portal within 30 days from end of March of every financial year.

Applicability to erstwhile Venture Capital Funds (Old Venture Capital Funds)

The latest SEBI Master Circular for AIFs provides way to the Old Venture Capital Funds to retain the money beyond the permissible time and to gain the inoperative fund status just same as given to AIFs by this circular.

These VCFs should be registered under Old SEBI (Venture Capital Funds) Regulations, 1996.

Conclusion

This latest SEBI Master circular for AIFs provided the conditions for an AIF to gain the “Inoperative Funds Status” and the conditions & Restrictions provided to the Inoperative Funds. Under this master circular, Concept of retention beyond permissible life also been given to the AIFs.

SEBI Master Circular for AIFs also provided the chance to gain Inoperative funds status to the Venture Capital Funds registered under Old SEBI (Venture Capital Funds) Regulations, 1996.

FAQ - CorpZo
Q1: What are the Guidelines for Winding Up of AIFs under the SEBI Master Circular June 2026?

Answer:-The Guidelines for Winding Up of AIFs under the SEBI Master Circular June 2026 outline the process, compliance requirements, and investor protection measures that Alternative Investment Funds must follow before closure. Corpzo helps fund managers across Delhi NCR, Mumbai, Bengaluru, and PAN India understand and implement these requirements.

1. Investor approval and communication requirements
2. Asset liquidation procedures
3. Distribution of proceeds to investors
4. Regulatory reporting obligations

Q2: Who is required to comply with the AIF winding-up guidelines in India?

Answer:- All SEBI-registered Alternative Investment Funds planning to discontinue operations or complete their fund tenure must comply with the applicable winding-up guidelines. Compliance applies to fund sponsors, managers, trustees, and associated stakeholders across India.

1. Category I AIFs
2. Category II AIFs
3. Category III AIFs
4. Fund managers and trustees

Q3: How can an Alternative Investment Fund be wound up under SEBI regulations?

Answer:- An Alternative Investment Fund can be wound up after fulfilling regulatory conditions, obtaining necessary approvals, and completing investor-related obligations. The exact process depends on the fund structure and governing documents.

1. Review fund agreements
2. Obtain required approvals
3. Liquidate assets
4. Distribute proceeds and file reports

Q4: Why is investor approval important during the winding-up process of an AIF?

Answer:-  Investor approval helps ensure transparency and protects stakeholder interests during the winding-up process. SEBI regulations emphasize proper communication and informed decision-making before significant fund actions are taken.

1. Enhances governance standards
2. Reduces dispute risks
3. Supports regulatory compliance
4. Protects investor interests

Q5: What documents are generally required for winding up an AIF in India?

Answer:-  The required documents may vary based on the fund structure, but they generally include fund agreements, investor resolutions, financial records, and regulatory filings. Corpzo assists clients across PAN India in preparing and reviewing these documents.

1. Trust deed or fund documents
2. Investor approvals
3. Financial statements
4. Compliance and regulatory records

Q6: Can a fund manager in Delhi NCR or Mumbai seek professional assistance for AIF winding up?

Answer:-  Yes, professional assistance can simplify the winding-up process and reduce compliance risks. Corpzo supports fund managers in Delhi NCR, Mumbai, Hyderabad, Chennai, and other major business hubs with structured compliance guidance.

1. Regulatory interpretation
2. Documentation support
3. Compliance review
4. Stakeholder coordination

Q7: What happens to the assets of an AIF during the winding-up process?

Answer:- Assets are generally liquidated or distributed according to applicable regulations and fund documents. The objective is to ensure fair treatment of investors and proper closure of fund obligations.

1. Asset valuation
2. Sale or transfer of assets
3. Settlement of liabilities
4. Distribution of remaining proceeds

Q8: How long does the AIF winding-up process usually take?

Answer:- The timeline depends on factors such as asset complexity, investor approvals, pending liabilities, and regulatory requirements. Some cases may conclude relatively quickly, while others require extended coordination and compliance review.

1. Asset liquidation status
2. Number of investors
3. Outstanding obligations
4. Regulatory procedures

Q9: What are the key compliance risks during the winding up of an AIF?

Answer:- Common risks include incomplete documentation, delayed investor communication, inaccurate reporting, and non-compliance with SEBI requirements. Proper planning helps reduce these risks significantly.

1. Delayed disclosures
2. Record-keeping issues
3. Regulatory filing errors
4. Investor-related disputes

Q10: How can Corpzo help with AIF winding-up compliance across India?

Answer:- Corpzo provides professional support for understanding the Guidelines for Winding Up of AIFs June 2026, preparing documentation, and managing compliance activities. Businesses, fund managers, and investment entities across India can seek structured assistance throughout the closure process.

1. Compliance guidance
2. Documentation review
3. Regulatory support
4. End-to-end process assistance