SEBI Proposes Changes to Co-Investment Rules for AIFs

The Securities and Exchange Board of India (SEBI) has proposed a set of changes to the co-investment framework within the Alternative Investment Fund (AIF) structure, as per the reports. The consultation paper was released on May 9, and public comments have been invited until May 30, 2025.

Co-Investment Through Separate Vehicles

SEBI has proposed allowing AIF managers to offer co-investment opportunities through a Co-Investment Vehicle (CIV), which would operate as a separate scheme under the AIF. Each CIV scheme would be created specifically for an individual investee company and would need to be reported to SEBI. The shelf Private Placement Memorandum (PPM) for such CIV schemes must be filed either during AIF registration or later by existing AIFs.

Each CIV scheme must have its own PAN, demat account, and bank account. These schemes would only be open to accredited investors. The proposed model would exempt CIV schemes from certain requirements, including diversification norms, sponsor commitment, and minimum tenure.

Changes to Advisory Service Restrictions

Currently, AIF managers are restricted from offering advisory services related to securities in which their AIFs are invested. SEBI has proposed removing this restriction, allowing managers to advise on listed securities regardless of whether the AIF has made investments in them. The working group advising SEBI suggested this change to remove ambiguity in the current language of the regulations.

Background

Under the current framework, co-investments are typically made outside the AIF structure, often using the Portfolio Management Services (PMS) route. The proposed changes is to bring co-investment activity within the AIF ecosystem, aligning with earlier requests from private equity and venture capital funds.

Previous Updates to AIF Rules

In February 2025, SEBI mandated that AIF investments be held in dematerialised form starting in July. In September 2023, it also updated rules related to the valuation of investment portfolios, bringing them closer to mutual fund norms for listed securities.

Read more: SEBI Plans Major Changes in F&O Rules to Ease Trading and Improve Risk Monitoring

Conclusion

The proposed changes are with plans to streamline how co-investments are made within the AIF framework and clarify the role of investment managers, subject to feedback from market participants.

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