On September 9, 2025, SEBI issued an important circular, introducing a new Co-Investment framework for Alternative Investment Funds (AIFs). This reform brought a major change in how co-investments are structured, governed, and implemented in India’s AIF system. It makes the investment process more transparent, regulated, and safe for investors. <\/p>\n\n\n\n
The concept of Co-Investment framework for AIFs is not new in India, implying it was already in practice. But without a clear regulatory framework, it led to uncertainty and operational issues. Many investors wanted to participate directly in certain deals, but there was a lack of specific and clear rules for it. <\/p>\n\n\n\n
So, SEBI’s intervention filled gaps with the introduction of the Co-investment Framework for AIFs. It has also increased confidence and transparency in the market<\/a> by aligning it with SEBI AIF regulations. An Alternative Investment Fund (AIF) is an investment scheme collecting funds from investors (Indian or Foreign) to invest in assets other than shares or mutual funds. These include private equity, startups, real estate, or infrastructure projects. <\/p>\n\n\n\n SEBI has divided AIFs into the following three categories- <\/p>\n\n\n\n These funds are managed as per SEBI rules for Alternative Investment Funds. Co-investment allows a large investor to directly participate in a specific company. This increases the potential for returns. <\/p>\n\n\n\n Co-investment in AIFs permits investors to invest directly in the specific portfolio alongside the AIF. In this case, the investment is not made in the entire fund but in a specific deal. <\/p>\n\n\n\n Traditional Method:<\/strong> An investor invests in an AIF, and the fund manager invests that money in different companies. <\/p>\n\n\n\n With Co-investment: <\/strong>An investor can invest separately and specifically in a particular company, along with the AIF. The investment runs parallel to the AIFs’ investment in the same company. <\/p>\n\n\n\n In this method, investors and fund managers can choose specific opportunities. It gives exposure to investors for specific deals, management fees, and potential returns. Also, the fund managers have access to more capital and large deals. <\/p>\n\n\n\n However, earlier, there were no clear rules for this arrangement. Therefore, SEBI has created a specific SEBI co-investment framework for AIFs so that the risks are reduced, and the rules are clear for all parties. <\/p>\n\n\n\n Co-investment in India was done through the PMS (Portfolio Management Services) route. This route was not convenient in all cases, especially when investing in unlisted companies, as there were various limitations. <\/p>\n\n\n\n In addition, investor protection and transparency were also important. If there was a risk of conflict of interest when there was investment in the same deal on different terms. <\/p>\n\n\n\n So, SEBI has brought a new and clear Co-Investment framework for AIFs. It has laid down clear rules on investment conditions, exit timing, and cost sharing to promote ease of doing business. <\/p>\n\n\n\n It has brought the Indian investment environment closer to international standards. So, the trust relationship between fund management and investors has been strengthened. <\/p>\n\n\n\n SEBI has given a legal basis<\/a> to this new system by adding Regulation 17A. This is an important addition to the SEBI AIF Regulations, 2012. Under Regulation 17A, the AIF manager remains fully responsible for execution, governance, and regulatory compliance of CIV investments. <\/p>\n\n\n\n As per this regulation, investors of Category I and Category II AIFs can co-invest under certain conditions. The framework clearly outlines the co-investment structure and process. It has been designed in coordination with the SEBI AIF guidelines. Most importantly, this regulation has come into effect from the date of issuance of the circular. So, AIF managers must now create structures and ensure AIF compliance<\/strong><\/a> with these rules. <\/p>\n\n\n\n The new Co-investment Framework for AIFs introduced by SEBI is a clear and regulated structure. In this section, we will understand the key rules, conditions, and practical aspects of this framework. <\/p>\n\n\n\n Co-investment in India was primarily done through the PMS (Portfolio Management Services) route. In this method, investors would open a separate PMS account and invest in specific companies. However, this route had some limitations, especially in the case of investments in unlisted companies. <\/p>\n\n\n\n The new SEBI co-investment framework for AIFs has brought about a major change in this system. Now, AIF managers can choose to use the Co-Investment Vehicle (CIV) scheme. This operates as a separate scheme within the AIF. <\/p>\n\n\n\n This gives managers more flexibility. They can decide which route is suitable for PMS or CIV depending on the situation. <\/p>\n\n\n\n The AIF manager must submit a Shelf Placement Memorandum (PPM) to SEBI before offering co-investment through the CIV scheme. This document serves as the foundation of the entire co-investment structure. <\/p>\n\n\n\n The Shelf PPM must clearly specify the terms, structure, governance, risks, and investment process of the co-investment. This allows investors to understand the rules under which they are investing beforehand. <\/p>\n\n\n\n This requirement ensures transparency and accountability with SEBI AIF guidelines. It also plays a crucial role in avoiding any future confusion or disputes. <\/p>\n\n\n\n SEBI has clearly stated that each CIV scheme must have a separate legal and accounting structure. The assets of the CIV scheme cannot be mixed with the main AIF or any other scheme. <\/p>\n\n\n\n Therefore, each CIV scheme must have its own bank account and demat account. This process is called “ring-fencing”. <\/p>\n\n\n\n This protects the investors. The arrangement ensures that problems in one scheme do not affect other schemes or the main AIF. This system helps mitigate risks in accordance with SEBI AIF regulations. <\/p>\n\n\n\n A crucial aspect of the Co-investment Framework for AIFs is the limit placed on investments. According to the rules, an investor can co-invest through the CIV scheme up to a maximum of three times the amount they have invested in a company through the AIF. <\/p>\n\n\n\n However, some institutions are exempt from this cap. These include sovereign wealth funds, government agencies, and bilateral and multilateral development financial institutions. <\/p>\n\n\n\n This helps to maintain balance, ensuring that co-investors do not gain disproportionately high influence or control, and the transparency of the AIF structure is preserved. <\/p>\n\n\n\n SEBI has added an important condition here. If an investor is identified as excused, excluded, or defaulting in their participation in the AIF’s investment, they will not be allowed to co-invest in that company. <\/p>\n\n\n\n If someone fails to fulfill their commitment in the main AIF investment, they will also be excluded from the co-investment facility. <\/p>\n\n\n\n This rule helps maintain investment discipline. It also ensures that responsible and committed investors benefit from the Co-investment Framework for AIFs. <\/p>\n\n\n\n SEBI has clearly stated that no CIV scheme can directly or indirectly borrow or use leverage. This rule is extremely important for risk control. <\/p>\n\n\n\n While leverage can increase returns, it also significantly increases risk. Therefore, the CIV scheme is kept completely unleveraged according to SEBI AIF regulations. <\/p>\n\n\n\n This makes the co-investment structure more stable and protects investors from unnecessary risks. <\/p>\n\n\n\n Another important aspect of this framework is that co-investors cannot receive better terms than the main AIF. The entry price, rights, and other terms must be the same. <\/p>\n\n\n\n Furthermore, the exit from the co-investment must be co-terminus with the exit from the AIF scheme. Co-investors cannot exit separately. <\/p>\n\n\n\n This rule helps maintain fairness and alignment of interests among all investors. <\/p>\n\n\n\n All expenses will be shared between the CIV scheme and the main AIF scheme on a proportionate basis. Each scheme will bear expenses according to its respective investment. <\/p>\n\n\n\n The same principle applies to the distribution of returns or profits. Investors will receive profits in proportion to their contributions. <\/p>\n\n\n\n In some cases, the sponsor or manager may receive additional returns or carried interest, but this must be according to predetermined and disclosed terms. This maintains transparency within the SEBI co-investment framework for AIFs. <\/p>\n\n\n\n The key benefits of SEBI’s Co-investment framework for AIFs range from enhanced clarity, better structure, and are as follows: <\/p>\n\n\n\n The Co-Investment framework allows experienced and qualified investors to participate directly in specific deals. This allows them to invest not only in the fund but also in companies of their choice. <\/p>\n\n\n\n Separate CIV schemes, segregated accounts, and clear rules make the investment process more transparent. This reduces misunderstandings and conflicts of interest. <\/p>\n\n\n\n Compared to the complexities of PMS, co-investment through CIV schemes is much more organized and controlled. <\/p>\n\n\n\n The risks and rewards of the main AIF and co-investors are shared with entry on the same terms and exit at the same time. <\/p>\n\n\n\n Co-investment arrangements involve certain regulatory, operational, and structural considerations that fund managers should assess carefully during planning and implementation. See below. <\/p>\n\n\n\n Managing CIV schemes requires separate accounting, reporting, and monitoring. This creates additional responsibilities for managers. <\/p>\n\n\n\n Co-investors cannot exit separately or prematurely. They have to wait until the AIF’s exit. <\/p>\n\n\n\n Ambiguities in Shelf PPMs or internal documents can lead to regulatory or investment-related problems in the future.<\/p>\n\n\n\n Co-investment is not suitable for all deals. Therefore, each investment needs careful consideration before utilizing Co-investment in AIFs. <\/p>\n\n\n\n This Co-investment framework for AIFs has brought about some operational changes for fund managers, sponsors, and investors. <\/p>\n\n\n\n This framework strengthens India’s alternative investment ecosystem and increases market confidence in the SEBI co-investment framework. <\/p>\n\n\n\n This SEBI circular has come into effect immediately from the date of its issuance, i.e., 9 September, 2025. No separate transition period has been provided. AIF managers must now align their structures, documentation, and internal processes with the new regulations. Adherence to this framework is mandatory for all ongoing and future co-investment offerings. <\/p>\n\n\n\n SEBI’s new Co-investment Framework for AIFs represents a significant change in India’s alternative investment landscape. It expands opportunities for investors while simultaneously strengthening transparency and regulation. <\/p>\n\n\n\n However, to fully leverage these benefits, proper structuring, clear documentation, and compliance are crucial. There can be challenges in drafting the Shelf PPM, setting up the CIV scheme, and maintaining ongoing compliance, which can create significant risks. <\/p>\n\n\n\n Enterslice<\/strong><\/a> can assist you throughout this entire process, from AIF structuring, AIF audit<\/a> <\/strong>and Shelf PPM preparation to CIV compliance and ongoing SEBI regulatory advisory. This framework can become a powerful tool for your investment strategy with the right guidance. So, contact Enterslice today for hassle-free compliance. <\/p>\n\n\n\n SEBI's Co-investment Framework for AIFs is a set of rules that enable investors in AIFs to invest directly in a specific company through AIFs. Earlier, there was no clear framework for such investments. The new rules have clarified the investment conditions, structure, and safeguards so that the investment process is more transparent and regulated. <\/p><\/li> As per this framework, only accredited investors of Category I and Category II AIFs can co-invest. This facility is not available for general investors. SEBI has kept this opportunity for experienced and financially capable investors so they can make decisions with a better understanding of the risks and maintain discipline in their investments. <\/p><\/li> SEBI has stipulated that an investor can co-invest up to three times the amount invested in a company through an AIF. This limit applies to the same company. This ensures that the co-investment does not become unreasonably higher than the original AIF investment. <\/p><\/li> No, this limit does not apply to all investors. Some large institutions, such as government agencies, sovereign wealth funds, and developmental financial institutions, have been kept out of this limit. SEBI believes that such institutions generally make long-term and stable investments, so it is reasonable to provide a separate exemption in their case. <\/p><\/li> Yes, the AIF manager can charge a separate fee for managing a CIV scheme. However, the fee must be disclosed in advance. This must be clearly mentioned in the Shelf PPM. No hidden or undisclosed charges can be charged to the investors. This maintains transparency. <\/p><\/li> This framework is mainly designed for co-investment in unlisted companies. Co-investment can be done only where the AIF is investing itself. There may be different rules in the case of listed companies. Therefore, it is important to carefully check the investment policy of the AIF and the status of the company before co-investing. <\/p><\/li> As per SEBI rules, the exit of co-investment must be simultaneous with the exit of the AIF. If the AIF exits a company earlier, then the investment under the CIV scheme will also end at the same time. Co-investors cannot hold their investments separately, even if they want to. <\/p><\/li> Yes, foreign investors can co-invest if they are accredited investors of the respective AIF. They have to comply with FDI, FEMA, and other applicable Indian regulations. KYC and other verification processes also have to be completed. Therefore, it is very important to create the right framework for foreign investments. <\/p><\/li> The taxation of co-investment depends on the type of investment, duration, and location of the investor. In many cases, the same tax structure may apply as for AIF. However, different interpretations are required in some situations. Therefore, it is safe to consult a tax expert or professional before investing. <\/p><\/li><\/ol><\/div>\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" On September 9, 2025, SEBI issued an important circular, introducing a new Co-Investment framework for Alternative Investment Funds (AIFs). This reform brought a major change in how co-investments are structured, governed, and implemented in India’s AIF system. It makes the investment process more transparent, regulated, and safe for investors. The concept of Co-Investment framework for AIFs is […]<\/p>\n","protected":false},"author":61,"featured_media":89851,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2828,1599],"tags":[1882,377,12350],"acf":{"service_id":"996"},"yoast_head":"\n
Read this article to know more about the AIFs, how they work in India, what is co-investment, key changes in co-investment in AIFs, their rules, benefits, and more. <\/p>\n\n\n\nHow do Alternative Investment Funds (AIFs) work in India? <\/h2>\n\n\n\n
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What is Co-Investment in AIF? <\/h2>\n\n\n\n
Why has SEBI Launched the new Co-Investment Framework for AIFs? <\/h2>\n\n\n\n
Regulation 17A in SEBI AIF Regulations, 2012 <\/h2>\n\n\n\n
Key Features and Conditions of the Co-Investment Framework for AIFs <\/h2>\n\n\n\n
1. Approved Routes for Co-Investment: PMS vs. CIV Scheme <\/h3>\n\n\n\n
2. Mandatory Submission of Shelf Placement Memorandum (PPM) <\/h3>\n\n\n\n
3. Separate Legal and Accounting<\/a> Structure for CIV Schemes <\/h3>\n\n\n\n
4. Investment Limit and 3x Cap Explanation <\/h3>\n\n\n\n
5. Restrictions on Eligible Co-Investors <\/h3>\n\n\n\n
6. Prohibition on Leverage or Borrowing <\/h3>\n\n\n\n
7. Alignment of Investment Terms and Exit Timelines <\/h3>\n\n\n\n
8. Expense Sharing, Return, and Profit Distribution <\/h3>\n\n\n\n
Key Benefits of SEBI’s Co-Investment Framework for AIFs <\/h2>\n\n\n\n
Greater Flexibility for Accredited Investors <\/h3>\n\n\n\n
Increased Transparency and Control <\/h3>\n\n\n\n
Simplified and Organized Structure <\/h3>\n\n\n\n
Better Alignment of Interests <\/h3>\n\n\n\n
Risks, Challenges, and Practical Considerations <\/h2>\n\n\n\n
Increased Compliance Burden<\/h3>\n\n\n\n
Reduced Exit Flexibility<\/h3>\n\n\n\n
Drafting and Implementation Risks<\/h3>\n\n\n\n
Need for Strategic Decisions <\/h3>\n\n\n\n
Impact of Co-Investment Framework for AIFs on Fund Managers, Sponsors, and Investors <\/h2>\n\n\n\n
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When is this SEBI Circular Effective? <\/h2>\n\n\n\n
Conclusion <\/h2>\n\n\n\n
All You Need To About SEBI Co-Investment Framework for AIFs<\/h2>\n\n\n
What is the SEBI-introduced Co-investment Framework for AIFs? <\/h3>
Who is eligible to co-invest in AIFs? <\/h3>
How does the 3X investment cap work in the new framework? <\/h3>
Is this co-investment limit applicable to all investors? <\/h3>
Can the AIF manager charge a separate fee for managing a CIV scheme? <\/h3>
Can co-investment be done in listed and unlisted companies under the new framework? <\/h3>
What happens to the co-investment if the AIF exits a company earlier? <\/h3>
Can foreign investors co-invest through the CIV scheme? <\/h3>
What do you need to know about taxes if you co-invest through CIV schemes? <\/h3>