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Informist, Thursday, Feb. 5, 2026

 

MUMBAI – The Securities and Exchange Board of India Thursday proposed giving greater flexibility to alternative investment funds seeking to wind up their schemes and surrender registration but face practical difficulties in liquidating or closing down due to remaining liabilities.

 

In a consultation paper released Thursday, SEBI said the existing regulatory framework requires alternative investment funds schemes to liquidate all investments and distribute proceeds to investors within the permitted scheme tenure. It is only then an alternative investment fund can apply to surrender its registration. However, in several cases, funds continue to retain small amounts beyond the scheme life to meet any contingent liabilities as tax demands, litigation-related expenses or other residual operational costs.

 

SEBI has now proposed letting AIFs retain limited amount of funds beyond the expiry of scheme tenure for specified reasons. These include issues such as a scheme receiving formal notice from tax or statutory authority, is involved in ongoing litigation, or needs to meet anticipated liabilities, subject to investor approval. In cases of anticipated liabilities, retaining funds would require consent from at least 75% of the investors by value, SEBI said in the paper that seeks public opinion on the entire issue.

 

The regulator also proposes to let alternative investment funds retain funds to meet certain operational expenses as audit fees, legal costs and professional charges, with appropriate disclosures and documentation. Such retention would be subject to a time limit of three years from the end of the scheme tenure, the consultation paper stated.

 

To help reduce compliance burden, SEBI has also proposed the introduction of a new category called "inoperative AIFs". These would include alternative investment funds that have either completed winding up of schemes and are awaiting resolution of contingent matters, or have retained minimal funds solely to meet residual obligations. Inoperative alternative investment funds could not be permitted to launch new schemes or charge management fees, the consultation paper stated.

 

SEBI said inoperative alternative investment funds ould also be exempted from certain ongoing compliance requirements such as quarterly reporting, audit reports and test reports, while continuing to submit an annual status report to the equity market regulator and concerned investors.

 

The proposals aim to provide regulatory clarity and ease the exit process for alternative investment funds that have no active investment activity but remain registered owing to procedural constraints, SEBI said.  End

 

Reported by Sunil Raghu

Edited by Deepshikha Bhardwaj

 

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