SEBI eases exit norms for AIFs, introduces ‘inoperative fund’ framework

the regulator will introduce a new category of “inoperative funds.” These funds will be subject to lighter compliance requirements until they formally surrender their registration, reducing the regulatory burden during the wind-down phase.

The Securities and Exchange Board of India (SEBI) has approved a set of reforms aimed at simplifying the winding-up process for Alternative Investment Funds (AIFs), in a move designed to improve ease of doing business for the industry.

At its board meeting held on March 23, the regulator cleared amendments to the AIF Regulations, 2012, allowing funds greater flexibility in handling residual assets and liabilities after the end of their tenure.

Under the current framework, AIFs are required to distribute all liquidation proceeds to investors and bring their bank balances to zero before surrendering their registration. However, SEBI noted that many funds are unable to meet these conditions due to pending tax disputes, litigation, or residual operational expenses. As a result, such funds are forced to continue holding active registration and comply with ongoing regulatory requirements despite having no active investment operations.

To address this, SEBI has now permitted AIFs to retain liquidation proceeds beyond their fund life in specific cases, such as when there are demonstrable tax or legal contingencies.

Additionally, the regulator will introduce a new category of “inoperative funds.” These funds will be subject to lighter compliance requirements until they formally surrender their registration, reducing the regulatory burden during the wind-down phase.

The move is expected to streamline fund closures, reduce compliance costs, and provide operational clarity for AIF managers dealing with residual issues post-tenure.

(This is a developing story)