SEBI’s rewriting of AIF norms — creating Accredited Investor (AI) schemes and easing rules for Large Value Funds (LVFs)—has injected fresh optimism into India’s private capital ecosystem. But market watchers caution that the very relaxations meant to spur growth may also dilute critical oversight and put scalability to the test.
Earlier in September, SEBI had notified the AIF (Second Amendment) Regulations, 2025, which created an AI-only scheme, lifted the 1,000-investor cap for such funds, and cut the LVF minimum from Rs 70 crore to Rs 25 crore. Conversion pathways for existing funds were also introduced, subject to investor consent. Proposals such as blanket exemptions from PPM templates, annual audits, and lighter investment committee norms are under consultation (awaiting circulars).
In proposals published earlier in August, SEBI had floated exemptions from standard PPM (Private Placement Memorandum) templates, waivers on annual PPM audits, and fewer investment committee obligations. The board’s final package embraced many of those ideas but also introduced investor-consent and phased conversion safeguards. Accreditation verification is flagged for tightening, though exact KRA (KYC Registration Agency) processes and documentation norms are still awaited.
Limited Accredited Pool, Scaling Doubts
Despite the regulatory enthusiasm, industry participants flag a harsh reality: the pool of accredited investors in India is tiny. According to SEBI and industry data, only 649 individuals had accreditation as of May 29, 2025—raising serious doubts about whether AI-only schemes can scale meaningfully in the near term.
Ranjit Jha, CEO of Rurash Financials, called the reforms a welcome “express lane” for sophisticated investors, enabling high-conviction strategies with lighter compliance. But others warned that lighter compliance doesn’t always mean lower cost. A mid-tier AIF manager (who requested anonymity) observed, “You may offload box-ticking, but you’ll need stronger onboarding processes, bespoke legal contracts, and in-house compliance muscle—costs don’t disappear.”
Legal experts added sharper cautions. One governance lawyer argued that exempting audit and oversight requirements raises serious questions about minority investor protection: “When governance norms like investment committee obligations are pruned, who stands up for late-stage or passive investors if things go wrong?” Another operations head noted the friction in execution: “On paper, boxes are reduced; in reality, we’re rewriting every PPM and educating investors. The real ease is delayed.”
Circulars Add Complexity, Not Clarity
SEBI also followed the regulation changes with two implementation circulars: one for co-investment schemes on Sept. 9, and another on angel-fund norms on Sept. 10. The co-investment rules allow Category I and II AIFs to host dedicated co-investment vehicles for accredited investors, typically aligned with pro-rata contribution unless waived. The angel fund changes tighten parameters, such as requiring at least five accredited investors in the first close and treating AIs as QIBs for placement flexibility, while limiting non-AI investor slots.
But legal analysts warn that several key mechanics—such as the precise accreditation verification process (including KRA roles), the form of investor consent for legacy fund conversion, and KMP certification relaxations—were left unaddressed or left to be fleshed out via FAQs or implementation guidelines.
Hybrid Realities Ahead
The result is a hybrid regulatory regime: many headline reforms are now in the rulebook and circulars, granting fund managers greater design flexibility. Yet the actual burden of compliance and investor onboarding shifts rather than disappears. A manager noted, “We still must build out bespoke processes for each accredited investor—so the smaller AIF houses may not benefit as much as they hoped.”
Governance fatigue may be the true cost. As Kresha Gupta, founder of StepTrade, warned, “If you ease audits and oversight for high-stakes funds, you run the risk of front-running, mismanagement, or weak minority protections downstream—especially for larger pools.” Indeed, large LVFs handling significant capital may require stronger—not weaker—governance to maintain investor trust.
Industry voices feel that SEBI’s reforms mark an evolution toward risk-based, investor-sophisticated markets. But until accreditation mechanics, disclosure standards, and governance guardrails are fully fleshed out, the promise of ease may collide with the realities of execution and oversight.
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