Securities and Exchange Board of India (Alternative Management Funds) Regulations 2012 [Last Amended May 23, 2025]

What are Alternative Investment Funds [Regulation 2 Clause (b)]:

Funds which are established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate:

Which is a private pooled investment vehicle which collects funds from investors whether Indian or foreign, for investing it in accordance with the defined investment policy for the benefit of its investors; and
Is not covered under the Securities and Exchange Board of India (Mutual Fund) Regulations 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

Provided that following shall not be considered as Alternative Investment Fund for the purpose of these regulations:

Family trust set up for the benefit of relatives as defined under the Companies Act, 2013;
ESOP Trust set up under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 or as permitted under Companies Act, 2013;
Employee welfare trusts or gratuity trusts set up for the benefit of employees;
Holding companies’ as defined under sub section 46 of section 2 of Companies Act, 2013;
Other special purpose vehicles not established by fund managers, including securitization trusts, regulated under a specific regulatory framework;
Funds managed by securitisation company or reconstruction company which is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
Any such pool of funds which is directly regulated by any other regulator in India;

Registration of Alternative Investment Fund [Regulation 3]:

1. An entity or fund shall act as an Alternative Investment Fund once it has obtained certificate of registration from the Board.

Following key points to be noted in respect of registration of Alternative Investment Fund:

An Existing fund falling under the category of Alternative Investment Fund may operate for six months from the commencement of these regulations, if it is not registered or has made application to the Board for getting registered as an Alternative Investment Fund;
In special cases the Board may extend the period up to 12 months to carry on the activities without registration;
Existing schemes shall not raise fresh monies other than commitment already made till the registration is granted by the Board;
Existing funds who do not wish to accept any fresh commitment are not required to obtain certificate of registration from the Board subject to submission of information on their activities by the Board.
If the existing funds fails to obtain comply with the conditions as specified in the regulations, they have the option of applying for exemption to the Securities and Exchange Board of India and the Board may on examination may provide such exemption as it may deem fit.

2. The funds registered as venture capital under the Securities and Exchange Board of India (Venture Capital Funds) Regulations 1996 shall be regulated by the above regulations till it is wound up and such funds has not launched any new scheme after notification of these regulations.

3. Any entity referred to in (1) who has failed to obtain registration from the Board shall cease to carry on any activity as an Alternative Investment Fund

4. AIF shall seek registration in one of the categories mentioned below:

“Category I Alternative Investment Fund” which invests in startup or early stage ventures or social ventures or Small and Medium Enterprises (SMEs) or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social impact funds, infrastructure funds, special situation funds and such other Alternative Investment Funds as may be specified;
“Category II Alternative Investment Fund” which does not fall in Category I and III and which does not undertake leverage or borrowing other than as permitted in these regulations;

For the purpose of this clause, Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or regulators shall be included.

“Category III Alternative Investment Fund” which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.
specified Alternative Investment Fund under Regulation 19 of these regulations.

5. An application for grant of certificate for any of the specified categories mentioned above can be made in Form A as specified in the regulations accompanied by the non-refundable application fees.

6. The Board shall take into account the requirement as specified in these regulations for granting registration.

7. The certificate of registration as granted by the Board shall be valid until the Alternative Investment Fund is wound up.

8. The Board may, in the interest of the investors, issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as an Alternative Investment Fund.

9. The Board may in order to protect the interest of the investors appointment any person to take charge of the records.

Eligibility Criteria [Regulation 4]:

The Board takes into consideration the following eligibility criteria while granting certificate of registration to the Alternative Investment Funds:

the memorandum of association in case of company, Trust deed in case of trust, Partnership deed in case of Limited Liability Partnership permits to carry on the activity of an Alternative Investment Fund.
the memorandum of association or trust deed or partnership deed prohibits the applicant to make an invitation to the public to subscribe to its securities.
in case the applicant is a Trust, the instrument of trust is in the form of a deed and has been duly registered under the provisions of the Registration Act, 1908;
in case the applicant is a limited liability partnership, the partnership is duly incorporated and the partnership deed has been duly filed with the Registrar under the provisions of the Limited Liability Partnership Act, 2008;
in case the applicant is a body corporate, it is set up or established under the laws of the Central or State Legislature and is permitted to carry on the activities of an Alternative Investment Fund;
the applicant, Sponsor and Manager are fit and proper persons based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 ;
The key investment team of the Manager of Alternative Investment Fund has –
- at least one key personnel with relevant certification as may be specified by the Board from time to time; and
- at least one key personnel with professional qualification in finance, accountancy, business management, commerce, economics, capital market or banking from a university or an institution recognized by the Central Government or any State Government or a foreign university, or a CFA charter from the CFA institute or any other qualification as may be specified by the Board.

Furnishing of Information [Regulation 5]:

The Board may require the applicant to furnish any such further information or clarification regarding the Sponsor or Manager or nature of the fund or fund management activities or any such matter connected thereto to consider the application of a certificate or after registration thereon.

The Board may also ask the sponsor or the manager to appear before the Board personally.

Procedure for grant of certificate [Regulation 6]:

The Board may grant certificate under any specific category of Alternative investment Funds if it is satisfied that all the conditions have been fulfilled under these regulations.
The Board on payment of requisite fees grant the certificate of registration in Form B.
The registration may be granted with such conditions as may be deemed appropriate by the Board.
The Board if satisfied that the applicant complies the provisions of regulation 4, may grant in principle approval.

On compliance with relevant provisions of the regulation 4 by the applicant, the Board may grant certificate of registration within six months from the date of in principle approval.

Conditions of Certificate [Regulation 7]:

The certificate granted under regulation 6 would be subject to compliance of the following conditions:

The Alternative Investment Fund shall comply with the provisions of the Act and the regulations.
The Alternative Investment Fund shall not carry on any other activities than for which it is established.
The Alternative Investment Fund shall inform the Board, if in case, it has submitted any false or misleading information to the Securities and Exchange Board of India.

The Alternative Investment Fund which has been granted registration under any category can change its category only with the prior approval of the Securities and Exchange Board of India.

Procedure where registration is refused [Regulation 8]:

The Board may refuse the certificate of registration after providing a reasonable opportunity to be heard if it is of the opinion that the certificate should not be granted.
The Board’s decision shall be communicated within 30 days of the rejection.
The applicant shall cease to carry on any activity if the registration is rejected by the Securities and Exchange Board of India.

Investment Strategy [Regulation 9]:

All Alternative Investment Funds shall clearly state investment strategy, investment purpose and its investment methodology in its placement memorandum to the investors.
Any material alteration to the fund strategy shall be made with the consent of at least two-thirds of unit holders by value of their investment in the Alternative Investment Fund.

Investment in Alternative Investment Fund [Regulation 10]:

Investment in all the categories of Alternative Investment Funds shall be subject to the following conditions:

an Alternative Investment Fund may raise funds from Indian, non-resident Indian and foreigners by way of issue of units in dematerialised form subject to conditions as specified by the Board from time to time;
each scheme of the Alternative Investment Fund shall have a corpus of at least 25 crore rupees;
the Alternative Investment Fund shall not accept investment of less than one crore from the Investor;
the Manager or sponsor shall have a continuing interest in the Alternative Investment Fund of not less than two and half percent of the corpus or five crore rupees, whichever is lower, in the form of investment in the Alternative Investment Fund and such interest shall not be through the waiver of management fees;
the Manager or Sponsor shall disclose their investment in the Alternative Investment Fund to the investors of the Alternative Investment Fund;
no scheme of the Alternative Investment Fund shall have more than one thousand investors;
the fund shall not solicit or collect funds except by way of private placement.

Placement Memorandum [Regulation 11]:

Alternative Investment Fund shall raise funds through Private Placement by issue of information memorandum or placement memorandum.

Schemes [Regulation 12]:

The Alternative Investment Fund may launch schemes subject to filing of placement memorandum with the Board.
Such placement memorandum shall be filed with the Board through a merchant banker at least thirty days prior to launch of scheme along with the fees as specified

Provided that payment of scheme fees shall not apply in case of launch of first scheme by the Alternative Investment Fund.

The Board may communicate its comments, if any, to the merchant banker prior to launch of the scheme and the merchant banker shall ensure that the comments are incorporated in the placement memorandum prior to launch of the scheme.
The first close of the scheme shall be declared by an Alternative Investment Fund in the manner as may be specified by the Board from time to time.
In spite of the relaxation granted by Securities and Exchange Board of India for payment of fees in case of launch of first scheme, if the Alternative Investment Fund fails to declare the first close of the scheme in the specified manner, it shall be required to file a fresh application for launch of the scheme by paying the requisite scheme fee under the Second Schedule.

Tenure [ Regulation 13]:

Category I Alternative Investment Fund and Category II Alternative Investment Fund shall be close ended and the tenure of fund or scheme shall be determined at the time of application.
Category I and II Alternative Investment Fund or schemes launched by such funds shall have a minimum tenure of three years.
Category III Alternative Investment Fund may be open ended or close ended.

Listing [Regulation 14]:

Units of close ended Alternative Investment Fund may be listed on stock exchange subject to a minimum tradable lot of one crore rupees.
Listing of Alternative Investment Fund units shall be permitted only after final close of the fund or scheme.

General Investment Conditions [Regulation 15]:

Investment by all Categories of Alternative Investment Funds shall be subject to the following conditions:

Alternative Investment Fund may invest in companies incorporate outside India subject to the conditions specified by the Reserve Bank of India from time to time.
The terms of co-investment in an investee company by a Manager or sponsor or co-investor, shall not be favourable than the terms of investment of Alternative Investment Fund.
Category I and II of Alternative Investment Funds shall invest not more than twenty-five per cent of the investable funds in an Investee Company directly or through investment in the units of other Alternative Investment Funds.
Category III Alternative Investment Funds shall invest not more than ten per cent of the investable funds in an Investee Company, directly or through investment in units of other Alternative Investment Funds and the large value funds for accredited investors of Category III Alternative Investment Funds may invest up to twenty per cent of the investable funds in an Investee Company, directly or through investment in units of other Alternative Investment Funds. Alternative Investment Funds which are authorised under the fund documents to invest in units of Alternative Investment Funds shall not offer their units for subscription to other Alternative Investment Funds. Sponsor or associates of its Manager or Sponsor;
Alternative Investment Fund shall not invest except with the approval of seventy five percent of investors by value of their investment in the Alternative Investment Fund in –
associates; or
units of Alternative Investment Funds managed or sponsored by its Manager,

Except with the approval of seventy five percent of the investors by value of their investment in the scheme of Alternative Investment Fund and subject to the conditions specified by the Board, a scheme of an Alternative Investment Fund shall not buy or sell investments, from or to –

associates; or
schemes of Alternative Investment Funds managed or sponsored by its Manager, Sponsor or associates of its Manager or Sponsor; or
an investor who has committed to invest at least fifty percent of the corpus of the scheme of Alternative Investment Fund:
Provided that while obtaining approval of the investors, the investor specified under sub-clause (c) who has committed to invest at least fifty percent of the corpus of the scheme of Alternative Investment Fund and is buying or selling the investment, from or to, the Alternative Investment Fund, shall be excluded from the voting process.
Un-invested portion of the investable funds and divestment proceeds pending distribution to investors may be invested in liquid mutual funds or bank deposits or other liquid assets of higher quality such as Treasury bills, Triparty Repo Dealing and Settlement, Commercial Papers, Certificates of Deposits, etc. till the deployment of funds as per the investment objective or the distribution of the funds to investors as per the terms of the fund documents, as applicable.
Alternative Investment Fund may act as Nominated Investor as specified in clause (b) of sub-regulation (1) of regulation 106N of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
Investment by Category I and Category II Alternative Investment Funds in the shares of entities listed on institutional trading platform after the commencement of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2015 shall be deemed to be investment in ‘unlisted securities’ for the purpose of these regulations.
Alternative Investment Funds shall hold their investments in dematerialised form, subject to such conditions as may be specified by the Board from time to time:

Provided that the requirement under clause (i) of sub-regulation (1) shall not apply to:

investments by Alternative Investment Funds in such type of instruments which are not eligible for dematerialisation,
investments held by a liquidation scheme of the Alternative Investment Funds that are not available in the dematerialised form, and
such other investments by Alternative Investment Funds and such other schemes of Alternative Investment Funds as may be specified by the Board from time to time.

2. Notwithstanding the conditions as specified in sub-regulation (1), the Board may specify additional requirements or criteria for Alternative Investment Funds or for a specific category thereof.

Conditions for Category I Alternative Investment Funds [Regulation 16]

Category I Alternative Investment Fund shall invest in investee companies, venture capital undertakings, special purpose vehicles, limited liability partnerships in units of other Category I Alternative Investment Funds of the same sub category or in units of Category II Alternative Investment Funds as specified in this regulation];

Category I Alternative Investment Funds may engage in hedging, including credit default swaps in terms of the conditions as may be specified by the Board from time to time.

Category I Alternative Investment Funds shall not borrow funds directly or indirectly or engage in any leverage for the purpose of making investments or otherwise, except for borrowing funds to meet temporary funding requirements and day-to-day operational requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the investable funds and subject to such conditions as may be specified by the Board from time to time.

The following investment conditions shall apply to venture capital funds in addition to conditions laid down in sub- regulation (1):

at least seventy- five percent of the investable funds shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange:

Provided that the investment conditions specified in clause (a) shall be achieved by the fund by the end of its life cycle.

such funds may enter into an agreement with merchant banker to subscribe to the unsubscribed portion of the issue or to receive or deliver securities in the process of market making under Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the provisions of clause (a) of sub- regulation (2)] shall not apply in case of acquisition or sale of securities pursuant to such subscription or market making.

such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

the fund shall disclose any trading in securities pursuant to such due-diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;
such investment shall be locked in for a period of one year from the date of investment.]
The following conditions shall apply to social 93[impact] funds in addition to the conditions laid down in sub-regulation (1):
at least seventy-five percent of the investable funds shall be invested in unlisted securities or partnership interest of social ventures or in units of social ventures or in securities of social enterprises:

Provided that an existing social impact fund may invest the remaining investable funds in securities of not for profit organizations registered or listed on a social stock exchange with the prior consent of at least 75% of the investors by value of their investment;

such funds may accept grants, provided that such utilization of such grants shall be restricted to clause (a) 95[:]

Provided that the amount of grant that may be accepted by the fund from any person shall not be less than [ten lakh rupees].

Provided further that the minimum amount of grant shall not apply to accredited investors.

Provided further that no profits or gains shall accrue to the provider of such grants.

Notwithstanding the provisions of clauses (a) and (b), a social impact fund or schemes of a social impact fund launched exclusively for a not for profit organization registered or listed on a social stock exchange, shall be permitted to deploy or invest hundred percent of the investable funds in the securities of not for profit organizations registered or listed on a social stock exchange.]

such funds may give grants to social ventures 100[or social enterprises], provided that appropriate disclosure is made in the placement memorandum.

Conditions for Category II Alternative Investment Funds [Regulation 17]:

The following investment conditions shall apply to Category II Alternative Investment Funds

Category II Alternative Investment Fund shall invest primarily in unlisted securities and/or listed debt securities (including securitised debt instruments) which are rated ‘A’ or below by a credit rating agency registered with the Board, directly or through investment in units of other Alternative Investment Funds, in the manner as may be specified by the Board

Category II Alternative Investment Funds shall not borrow funds directly or indirectly or engage in any leverage for the purpose of making investments or otherwise, except for borrowing funds to meet temporary funding requirements and day to day operational requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the investable funds and subject to such conditions as may be specified by the Board from time to time

Category II Alternative Investment Funds may engage in hedging, subject to guidelines as specified by the Board from time to time.

Category II Alternative Investment Funds may buy or sell credit default swaps in terms of the conditions as may be specified by the Board from time to time.

Category II Alternative Investment Funds may enter into an agreement with merchant banker to subscribe to the unsubscribed portion of the issue or to receive or deliver securities in the process of market making under 108[Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018]

Category II Alternative Investment Funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such due-diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.

Conditions for Category III Alternative Investment Funds [Regulation 18]:

The following investment conditions shall apply to Category III Alternative Investment Funds

Category III AIFs may invest in securities of listed or unlisted investee companies, derivatives, units of other Alternative Investment Funds or complex or structured products;

Category III Alternative Investment Funds may deal in goods received in delivery against physical settlement of commodity derivatives

Category III Alternative Investment Funds may buy or sell credit default swaps in terms of the conditions as may be specified by the Board from time to time

Category III Alternative Investment Funds may engage in leverage or borrow subject to consent from the investors in the fund and subject to a maximum limit, as may be specified by the Board

Category III Alternative Investment Funds shall be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, restrictions on redemption and conflict of interest as may be specified by the Board.

NDM Note: Alternative Investment Funds (“AIF”) can invest in a wide array of asset classes such as private equity, venture capital, real estate, and infrastructure projects. This flexibility allows fund managers to explore and capitalize on unique investment opportunities that may not be available through traditional investment vehicles.
The Securities and Exchange Board of India (SEBI) has also played a pivotal role in shaping the AIF sector by establishing a clear regulatory framework that balances investor protection with market innovation.

In conclusion, the future of AIFs as an asset class appears promising. SEBI’s proactive regulatory approach has created a balanced environment that offers flexibility to fund managers while safeguarding investor interests, thereby enhancing the attractiveness of AIFs in India’s financial landscape.

In case of queries, drop us a line on communications@ndm.net.in

Tags :