Asset Management and Funds Quarterly Milestones (April-June 2026)

To streamline fund launches, the Securities and Exchange Board of India (SEBI) has introduced a fast-track mechanism for processing the private placement memorandum (PPM) of Alternative Investment Funds (AIF) filed with SEBI. The framework distinguishes between (i) Regular Schemes of AIFs, which are subject to the merchant banker due diligence and filing process described below; and (ii) Accredited Investor-only Funds (AI-only Funds), Large Value Funds for Accredited Investors (LVF) and Angel Funds, which are exempt from the merchant banker route and may follow a simplified launch process.

• Launch timelines for Regular Schemes

An AIF may launch a new scheme and circulate its PPM to investors ten working days after filing the application with SEBI, unless SEBI advises otherwise. An AIF’s first scheme may be launched from the date of grant of SEBI registration or ten working days after filing the application with SEBI, whichever is later. Any comments received from SEBI during this period must be addressed by the merchant banker or AIF before the scheme is launched or the PPM is circulated.

• Filing requirements for Regular Schemes

The PPM of a Regular Scheme must be filed on the SEBI intermediary portal, at the time of registration or prior to launch, along with (i) a duly signed merchant banker due diligence certificate in the prescribed format;¹ (ii) a fit and proper declaration for the AIF, sponsor, and investment manager in the specified format;² (iii) sponsor/investment manager declarations regarding minimum continuing interest in the AIF/scheme; and (iv) PAN copies of the AIF, its scheme (if available), sponsor, investment manager, trustee, their directors/partners, and key investment team members.

• AI-only Funds, LVFs and Angel Funds

AI-only Funds, LVFs and Angel Funds are exempt from filing their PPM through a merchant banker and from incorporating SEBI’s comments prior to launch. AI-only Funds and LVFs may launch a scheme immediately upon filing the PPM with SEBI. However, their first scheme may be launched from the date of grant of SEBI registration. In the case of an Angel Fund, the PPM may be circulated to investors from the date of grant of SEBI registration.

By providing a more predictable regulatory timeline, the fast-track mechanism is expected to enable AIFs to bring schemes to market more efficiently, while continuing to place responsibility for disclosures and compliance on AIFs and merchant bankers, where applicable.

SEBI has recently revised the nomination framework for demat accounts and mutual fund folios, with the revisions taking effect from 1 September 2026. The revised framework seeks to make investor onboarding and the nomination process more seamless by introducing a simplified approach to capturing, maintaining, and updating nomination details.

• Nomination by default for single-holder accounts

Single holders of demat accounts and mutual fund folios opened on or after 1 September 2026 must mandatorily nominate one or more persons (but not more than three nominees) or expressly opt out by submitting a declaration. Nomination remains optional for jointly held demat accounts and folios, and any change to a nominee requires consent of all joint holders. Investors may update or cancel nominations at any time, and regulated entities must acknowledge each such change in the prescribed format.

• Reduced mandatory disclosure requirements

The nomination form must capture the nominee’s name and their relationship with the investor. The nominee’s date of birth must be mandatorily disclosed if the nominee is a minor. Optional details include the nominee’s contact information (mobile number and email), percentage share, KYC/identifier, and guardian details (if the nominee is a minor). If no percentage share is specified, assets will be divided equally among nominees, with any odd lot transferred to the first nominee listed.

• Simplified execution requirements

For physical or offline nominations, a witness is required only when the investor executes the form using a thumb impression, not when the investor signs the nomination form.

• Obligations of the regulated entities

Periodic statements to investors must include either the nominee name(s) or nomination status, as chosen by the investor in the nomination form. For accounts/folios without nomination (including opt-outs), Depository Participants/Mutual Fund Registrar and Transfer Agents are required to send bi-annual emails and SMS nudging investors to provide nomination and to display a pop-up on nomination benefits at the time of the first daily log-in on web/mobile platforms. This shall not apply to investors who have provided the nomination.

To address practical challenges faced by AIFs during fund wind-up, SEBI has prescribed a framework governing: (i) retention of proceeds beyond the permissible fund life; (ii) designation of ‘Inoperative Funds’; and (iii) surrender of registration. The framework provides a clearer pathway for funds with pending liabilities or unresolved matters to complete the winding-down process.

• Grounds for retaining proceeds

AIFs may retain dissolution or liquidation proceeds beyond the permissible fund life on any one of the following three grounds:

1. A pending or anticipated tax, regulatory or legal liability, evidenced by notices, demands, summons or similar communications.

2. At least 75% of the investors by value consent to the retention in anticipation of a possible or probable litigation or tax exposure.

3. Monies are required to meet residual operational expenses (substantiated through records and documents), for a period up to three years from the end of the fund’s permissible life.

• Regulatory framework applicable to ‘Inoperative Funds’

AIFs that are unable to surrender their registration due to retained monies, or that wish to maintain their registration pending a litigation outcome, may apply for ‘Inoperative Fund’ status.

Upon approval, the AIF will be designated as an ‘Inoperative Fund,’ and (i) cannot launch new schemes or charge management fees, (ii) must comply with prescribed investment restrictions and reporting requirements, and (iii) may surrender its registration only after all liabilities are discharged and retained monies are distributed to investors.

AIFs designated as ‘Inoperative Funds’ must submit an annual status report on retained monies and outstanding liabilities to SEBI and investors, in the prescribed format, on the SEBI Intermediary portal within 30 days from the financial year-end.

SEBI issued a consultation paper dated 30 June 2026, proposing significant reforms to the AIF Regulations, targeting two key areas: (i) the process of obtaining investor consent and (ii) broadening the scope of conflicted transactions requiring such consent. Public comments were invited until 21 July 2026.

The proposals seek to reduce friction in investor consent processes while strengthening the governance framework for conflicted transactions. This will help modernise the investor consent framework and enhance transparency around conflicted transactions.

• Standardising investor consent mechanisms

AIFs must adopt one of three consent methodologies, applied uniformly across all investors:

1. ‘Deemed Consent’ treats non-responses as approval, offering operational efficiency but limited investor protection.

2. ‘Present and Voting’ counts only active votes, aligning with mutual fund, REIT, and InvIT practices.

3. ‘Express Voting’ requires explicit affirmative votes against total fund value, providing the strongest protection but potentially delaying decisions in large funds.

The chosen methodology, including procedures, risks, and timelines, must be disclosed in the PPM, with equal voting opportunity for all investors.

• Manager’s responsibility

The manager must ensure transparency and fairness in the consent process, respond to investor queries within a reasonable timeframe, and maintain complete records of all notices, reminders, meetings, and votes.

• Uniform threshold

Existing schemes will be grandfathered under current methodologies, with the new framework applying prospectively. AIF Regulations and circulars will be amended to prescribe a uniform 75% unitholder consent threshold (by value), replacing the existing 2/3rd threshold.

• Rationalising conflicted transactions

SEBI has observed that the current definition of “associate” is narrow, as it is largely based on ownership thresholds and does not capture all relationships that can give rise to conflicts of interest (such as board-level connections or controlling stakes held by relatives of key managerial persons).

To address this, SEBI has proposed replacing the concept of “associate” with the broader concept of “related party” for provisions relating to conflicts of interest or conflicted transactions, aligning with the Companies Act, 2013. The expanded definition would cover a wider range of persons and entities, including relatives, directors, partners, key managerial personnel, group companies and entities acting under the direction of key persons, bringing a larger set of potentially conflicted transactions within the investor oversight framework.