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Operational Aspect of Amendment to SEBI AIF Regulations

Operational Aspect

The Securities and Exchange Board of India (SEBI) introduced an amendment to SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) vide SEBI Circular no. SEBI/HO/AFD-1/PoD/P/CIR/2022 dated 17th November 2022 (the Circular) pertaining to the operational aspect of AIF. This amendment was an outcome of the Board Meeting of SEBI held on 30th September 2022. This blog aims to discuss the circular in detail and understand its implications on AIF.

  1. Ring Fencing of assets and liabilities of the scheme of AIF

The circular introduced Regulation 20(15) to the AIF Regulations. The regulation requires the investment manager and the trustee of an AIF to ensure that the assets and liabilities of each scheme of an AIF are ring-fenced and segregated from other schemes under the same AIF. This amendment was brought to grant relief to the investors and brings clarity regarding segregation which was lacking in the erstwhile regulation. The previous regulation gave the impression that the assets of the scheme were unprotected from potential litigation or against liquidation of other schemes of the AIF. The operational aspect of this amendment is that each scheme under an AIF is required to obtain a separate PAN as the Private Placement Memorandum (PPM) of each scheme is placed separately with SEBI. It will ensure the strengthening of the segregation of assets and liabilities from a regulatory standpoint.

2. First Close

The circular introduced a timeline for the first close of a scheme of AIF. If an existing scheme of AIF has not declared its first close then it shall do so within 12 months from the date of issue of this circular. From the existing scheme of AIF, whose PPMs were taken on record 12 months prior to the date of issue of this circular but have not declared their first scheme, will have to submit an updated PPM with SEBI and the same shall also be submitted to the investors. A time frame of 12 months from the date of communication to SEBI for taking on record the scheme of PPM of the scheme, is given to all schemes of AIFs to declare their first close. For open-ended schemes of Category III AIFs, the first close shall be declared within 12 months from the date of issue of the circular. For large values of funds, the first close declared should be within 12 months from the date of grant of registration or from the date of filing of PPM with SEBI, whichever is earlier. In case of failure on the part of the scheme to stick to the timeline, the AIF will have to file a fresh application for the launch of the scheme by paying an amount equivalent to the registration fee. The operational aspect of this amendment is to curb the discretion that investment managers enjoyed while declaring the first close.

3. Corpus

The amendment by way of the circular relates to the minimum corpus requirement at the time of declaring the first close. The corpus should not be less than the minimum corpus prescribed in the AIF Regulations. The minimum corpus for various AIFs is as follows:

Type of AIFMinimum Corpus
Social Impact Funds & Angel Fund registered as Category I AIFINR 5 crore
Special situation fundsINR 100 crore
Other categories and sub-categories of AIFsINR 20 crore

In addition to the above, no reduction or withdrawal in the commitment made by the sponsor or investment manager at the time of declaration of the first close regarding the minimum corpus requirement of the AIF can be made after the first close. The option to reduce or withdraw the capital commitment of the Scheme can be made only before the declaration of the first close. The operational aspect of this amendment is that it will curb the instances where the investment managers were making commitments only to meet the minimum corpus requirement and later withdraw or reduce the commitment to suit themselves.

4. Tenure of AIF

The circular issued by SEBI provides that the tenure of close-ended Schemes of AIFs shall be calculated from the date of the declaration of the first close and the AIF may be modified only before the declaration of the first close. The existing schemes which declare their first close will continue to calculate their tenure from the date of the final close. The schemes which are yet to disclose the final close will declare their tenure as per the timeline provided in its PPM and its investment manager will have no discretion to extend the timeline. The operational aspect of this amendment is that it gives the investment manager the flexibility to make drawdowns and investment decisions. It also adds clarity to the timeline of the investments. A fixed time frame for investments fructifies the investments and avoids any unwarranted revisions to the tenure of the scheme.

5. Change in control or change of investment manager or sponsor

After the amendment brought by the circular, the AIF Regulations require the investment manager or sponsor of an AIF to obtain approval from SEBI in case there is a change in the investment manager or sponsor of the AIF for a fee. Earlier, only intimation to SEBI was sufficient for such change. A fee equivalent to the registration fee applies to the respective category or sub-category of AIF in case of change in control of the investment manager or sponsor as well as in the case of change in investment manager or sponsor. The SEBI[1] has rationalized the approach towards change in sponsor or investment manager by mandating approval instead of mere intimation to SEBI. Now the SEBI will treat every application for change in investment manager or sponsor as a new application for AIF and will conduct a thorough KYC on the incoming investment manager or sponsor. The fee levied for change in control of the investment manager or sponsor may be excessive for investment managers or sponsors, considering that the registration for Category I, II and III AIF is INR 5 lakh, INR 10 Lakh and INR 15 lakh, respectively. When it comes to the operational aspect, this amendment might create chaos where the investment managers are unable to perform, and the investors are looking for a change in an investment manager.


In summation, it can be said that the circular regulates the operation of investment managers. From an operational aspect, it provides a time frame for the declaration of the first close of schemes of AIF, provides for the calculation of tenure of AIFs, segregation of assets and liabilities of the scheme of AIFs and regulates provisions regarding change in control of manager or sponsor and also change in manager or sponsor of AIFs. It’s too early to say whether it will have a positive impact on the investment manager or not. But this circular is expected to safeguard the interest of the investor.

Read our Article: SEBI introduces Special Situations Funds as a sub category under AIFs

Ankita Tiwari

Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.

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