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Informist, Tuesday, Jun. 30, 2026

 

NEW DELHI – The Securities and Exchange Board of India has proposed changes to Alternative Investment Fund regulations, including revised investor consent thresholds for various decisions and a shift to defined "related party" norms from the current narrowly defined concept of "associate" under its framework, the markets regulator said Tuesday. "The proposals ... are expected to reduce ambiguity in application of the regulations, and provide AIFs with a clear, predictable and implementable framework for obtaining investor consent and undertaking transactions involving potential conflicts of interest," SEBI said in a consultation paper. It has sought public views on the proposed changes by Jul. 21. 

 

SEBI has proposed introducing a more uniform investor consent framework across alternative investment fund activities and approval thresholds for different decisions, with most material actions requiring the consent of at least 75% of investors by value. "This consistent approach is expected to provide clarity and facilitate ease of operations for AIFs, without compromising on investor protection," it said.

 

According to the regulator, alternative investment funds also lack consistency in the process of obtaining investor consent. It has proposed that they be asked to choose from among prescribed methodologies to obtain investor consent, subject to adherence to minimum safeguards and disclosure requirements. As per the proposed changes, alternative investment funds have to disclose the chosen method along with related policies and guardrails. "The manager of the AIF shall be responsible for ensuring transparency, adherence to the laid-down policy, and fair access to all investors with respect to the process of seeking investor consent," SEBI said. 

 

Under the proposed changes, alternative investment funds would also require investor approval before investing in or transacting with "related parties" of the manager or sponsor, instead of "associates" as currently defined. This would apply to key provisions such as investments in affiliated entities and transactions involving schemes managed or sponsored by related parties. With the change, any such transaction with a related party will require the consent of 75% of the investors by value.

 

"Based on experience from supervision of AIFs, it is observed that the current definition of 'associate' is narrow, thus limiting the ambit of conflicted transactions that would require investor consent to be obtained," SEBI said. These transactions include investment in a company whose director is also a director of the alternative investment fund's manager, investment in a company where the controlling stake is held by an immediate relative of the alternative investment fund manager, or investment in a company whose major shareholder also owns majority stake in the alternative investment fund.

 

"The intent of these provisions is to ensure that transactions involving heightened conflict potential are undertaken with appropriate transparency and investor awareness, without unduly constraining legitimate commercial activity," SEBI said. The changes would also extend to specific fund categories--angel funds and special situation funds would be barred from investing in related parties of their managers or sponsors, replacing the existing restrictions on "associates".  End

 

Reported by Priyasmita Dutta

Edited by Rajeev Pai

 

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