SEBI Revisions to Positively Impact LPs, Faster Deals & Lure Global Capital Approved in principle earlier this June, SEBI has cleared a framework to let Cat-I/II AIFs launch a Co-Investment scheme (CIV) inside the AIF structure, instead of using a separate portfolio management service (PMS), available to accredited investors in that AIF. Each co-investment will be a separate CIV scheme with some relaxed requirements.

In a move said to be reshaping the private investments landscape, the markets regulator Securities and Exchange Board of India (SEBI) has given nod to a series of proposals aimed at making Alternative Investment Funds (AIFs) more flexible, transparent, and investor-friendly. Industry stakeholders opine that the reforms could streamline capital deployment, enhance investor participation, and, more importantly, address operational bottlenecks.

Approved in principle earlier this June, SEBI has cleared a framework to let Cat-I/II AIFs launch a Co-Investment scheme (CIV) inside the AIF structure, instead of using a separate portfolio management service (PMS), available to accredited investors in that AIF. Each co-investment will be a separate CIV scheme with some relaxed requirements.

This could enable faster deal execution, more streamlined cap tables, and a cleaner separation between main fund commitments and deal-specific investments, a move particularly beneficial for LPs (Limited Partners) keen on selectively backing high-conviction opportunities.

SEBI's recent regulatory steps are positive, according to Pranav Pai, Founder and CIO, 3ONE4 Capital.

"They expand the toolkit for fund managers and introduce long-needed optionality across structures, flow, and compliance. With these reforms, GPs can now tailor co-investment and accredited-only schemes to create a sharper, more flexible investment experience for their LPs," said Pai.

SEBI's moves have also paved the way for "accredited-investor-only" AIF schemes, which will operate under lighter regulatory requirements. The schemes may allow fund managers greater flexibility in terms of structure, tenure, and commercial arrangements, potentially appealing to sophisticated investors who can assess and accept higher levels of risk.

"Over the next 24-36 months, this increased flexibility should translate into faster deal cycles, cleaner cap table management, and a more frictionless journey for both founders and investors," said Pai.

According to reports, SEBI is also looking to lower the minimum investment commitment for Large Value Funds (LVFs) and expand accreditation criteria, while also allowing provisional admission for investors awaiting final accreditation. This could speed up LP onboarding and widen the pool of eligible participants.

In a bid to ensure fairness, SEBI is tightening rules around side letters and differential investor rights. All such arrangements will have to comply with the Securities Framework Agreement's (SFA) "positive list" of permissible clauses, limiting preferential terms that could disadvantage other LPs.

While the reforms are designed to boost efficiency and investor confidence, they may also require fund managers to overhaul their internal processes.

For LPs, the changes could mean faster access to deals, cleaner governance, and more predictable fund lifecycles. For GPs, however, compliance with the new operational and disclosure requirements will be key to maintaining regulatory alignment.

SEBI's moves come at a time when India's PE/VC ecosystem is expanding both in capital inflows and sectoral diversity. By refining the AIF framework, the regulator appears to be positioning the market for deeper institutional participation and more sophisticated investment structures.

"It's a proactive signal that India's innovation capital markets are maturing to provide more optionality to global investors, and fund managers are now better equipped to curate value and deliver outcomes at scale," added Pai.