The SEBI AIF regulations form the principal regulatory framework that governs Alternative Investment Funds (AIFs) in India. The SEBI (Alternative Investment Funds) Regulations, 2012 continues to provide legal support however, understanding these frameworks require looking beyond the regulations themselves. Amendments, the June 2026 Master Circular and subsequent circulars have introduced or consolidated requirements covering reporting, valuation, placement memorandums, dematerialisation and other aspects of fund operations.   

For fund managers, sponsors and investors, the practical question is therefore not only whether an AIF can obtain registration. It is how the fund must operate after registration and how its investment strategy, governance, disclosures, reporting and cross-border activities fit within the wider regulatory framework. For foreign investors and international fund managers, this also requires the SEBI framework to be considered alongside FEMA and RBI requirements. 

What Are the SEBI AIF Regulations? 

An Alternative Investment Fund is a privately pooled investment vehicle established in India to collect funds from investors for investment according to a defined investment policy. Unlike conventional mutual funds, AIFs operate under a specialised regulatory framework administered by the Securities and Exchange Board of India (SEBI). 

The principal legislation is the SEBI (Alternative Investment Funds) Regulations, 2012. The regulations establish the framework for AIF registration, categories, investment conditions, governance, disclosures, valuation, reporting and other operational requirements. They also prescribe responsibilities for the entities and individuals involved in managing and overseeing an AIF. 

The regulations therefore govern the AIF throughout its lifecycle. Registration is one stage of that lifecycle, but compliance continues as the fund raises capital, makes investments, values its portfolio, reports information to regulators and investors, and ultimately winds up.

How Has the AIF Regulatory Framework Evolved in 2026? 

The AIF guidelines applicable in 2026 should be read as a combination of the underlying regulations, amendments and applicable SEBI circulars. 

SEBI’s Master Circular for Alternative Investment Funds dated 3 June 2026 consolidates applicable instructions and procedural requirements in one reference document. It does not replace the underlying SEBI (Alternative Investment Funds) Regulations, 2012. The regulations establish the legal framework, while the Master Circular brings together relevant directions and circulars issued by SEBI. 

The framework has continued to develop during 2026. Among the areas affected by regulatory changes are: 

• AIF activity reporting 
• Reporting of AIF unit values to depositories 
• Valuation and operational requirements 
• Processing of placement memorandums 
• Amendments to the AIF regulatory framework 
• The July 2026 GARUDA mechanism for eligible placement memorandums 
• This makes it important for AIF managers to monitor amendments and circulars issued after the Master Circular rather than relying solely on the consolidated document. 

The 2026 framework is therefore best understood as an evolving regulatory system rather than a static set of rules. 

What Are The Categories of AIFs Under SEBI 

SEBI classifies AIFs into Category I, Category II and Category III. The classification is significant because each category operates under a different regulatory treatment in areas such as investment mandate, leverage, borrowing and tenure. 

Category I AIF 

Category I covers funds associated with areas considered to have economic or developmental relevance. These include venture capital, infrastructure, SMEs, social impact and other specified areas. 

Category I also includes specified sub-categories such as Venture Capital Funds, Infrastructure Funds, SME Funds, Social Impact Funds and Special Situation Funds. Angel Funds operate within the Category I framework subject to their specific provisions. 

Category I AIFs are generally close-ended and remain subject to category-specific investment conditions. 

Category II AIF 

Category II generally covers funds that do not fall within Category I or Category III and do not receive specific regulatory incentives available to Category I. Private equity and debt-oriented strategies commonly fall within this category. 

Category II AIFs are generally close-ended and are restricted from borrowing or leverage except where specifically permitted under the applicable framework. 

Category III AIF 

Category III covers funds employing more diverse or complex trading strategies. These funds may invest in listed and unlisted securities, derivatives and other permitted instruments. 

Unlike Category I and II, Category III AIFs may be open-ended or close-ended and may use leverage subject to SEBI’s requirements. The broader investment mandate therefore comes with a different set of regulatory and operational considerations. 

Category selection consequently has continuing regulatory implications. It affects not only the fund’s investment strategy but also borrowing, leverage, tenure and other compliance requirements.

What Are the Regulatory Roles Within an AIF? 

The SEBI framework places responsibilities on several parties involved in an AIF. Understanding these roles is important because regulatory responsibility extends beyond the fund as a standalone legal vehicle. 

The sponsor is responsible for sponsoring the AIF and meeting the applicable regulatory responsibilities. The investment manager manages the fund’s investments and investment decisions. Where the AIF is established as a trust, the trustee or trustee company provides the relevant oversight and fiduciary structure. 

The regulatory framework also places importance on the investment team, governance arrangements, financial capacity, manpower and infrastructure supporting the AIF. 

The significance of these roles does not end once registration is obtained. The fund’s governance and operating arrangements must continue to support compliance with its stated investment strategy, disclosure obligations and other applicable SEBI requirements. 

What Are the Investment, Borrowings and Leverage Restrictions for AIFs? 

AIFs must operate within the investment restrictions applicable to their category and the investment strategy disclosed to investors. 

Category I and Category II AIFs are generally subject to restrictions on borrowing and leverage. Limited borrowing may be permitted for specified temporary funding requirements, subject to the prescribed conditions. 

Category III AIFs have a wider investment mandate and may employ leverage or borrowings within the applicable regulatory limits and disclosure requirements. 

Other investment-related compliance areas include: 

• concentration and diversification of investments 
• investment in listed and unlisted securities 
• permitted securities and instruments 
• conflicts of interest 
• related-party transactions 
• adherence to the investment strategy disclosed to investors 

These requirements make the investment strategy an ongoing compliance reference point. The fund’s actual activities should remain consistent with the mandate and disclosures contained in its governing documents and placement memorandum. 

What Are The Valuation, NAV and Dematerialisation Requirements for AIFs? 

Valuation is a continuing regulatory responsibility for AIFs. Category I and Category II AIF investments are generally required to be valued at least once every six months by an independent valuer. The framework permits valuation at annual intervals where the prescribed investor approval is obtained. 

The regulatory framework also developed further in 2026 through requirements concerning the reporting of AIF unit values to depositories. The investment manager is responsible for ensuring that the relevant NAV information is uploaded accurately and within the applicable requirements. 

Dematerialisation is another operational area that AIF managers need to monitor. The 2026 framework therefore extends beyond investment decisions to the administration and reporting of units and investment information. 

For an AIF manager, valuation should consequently be considered alongside investor reporting, accounting, disclosures and regulatory reporting rather than as an isolated back-office function.

AIF Reporting Requirements in 2026 

One of the more significant changes in the Alternative Investment Fund regulations framework during 2026 concerns regulatory activity reporting. 

SEBI’s 4 March 2026 circular revised the activity-reporting framework under Regulation 28. A comprehensive Annual Activity Report is required at the end of each financial year and must be submitted online through the SEBI Intermediary Portal within 30 calendar days from the end of March. 

A limited Quarterly Activity Report is also required for the June, September and December quarters. These reports must be submitted within 15 calendar days from the end of the relevant quarter. A separate quarterly report is not required for the March quarter because the relevant information is covered through the Annual Activity Report.

Report	Frequency	Filing timeline
Annual Activity Report	Once each financial year	Within 30 calendar days from financial year-end
Limited Quarterly Activity Report	June, September and December quarters	Within 15 calendar days from quarter-end
March quarterly report	Not separately required	Covered by the Annual Activity Report

The reporting change does not replace the wider compliance obligations applicable to AIFs. Managers must continue to address investor disclosures, valuation, governance, investment restrictions, fund documentation and other information that SEBI may require. 

For AIF managers, reporting responsibility should therefore be built into the fund’s compliance controls rather than treated as an isolated filing exercise.

Placement Memorandum and the GARUDA Mechanism

A key 2026 development is the distinction between AIF registration and scheme-level launch. 

An AIF receiving its Certificate of Registration does not automatically mean that every proposed scheme can immediately be launched. Scheme-level requirements, including the applicable placement memorandum process, remain relevant before fundraising for that scheme begins. 

SEBI introduced a fast-track mechanism for processing AIF placement memorandums in April 2026 and subsequently introduced the GARUDA mechanism in July 2026. The mechanism concerns eligible scheme-level placement memorandums and should not be confused with the underlying AIF registration process. 

Under the July 2026 GARUDA mechanism, the scheme launch timeline for qualifying regular schemes has been reduced to 10 working days. This applies to regular schemes, meaning non-accredited-investor schemes excluding LVFs, AI-only schemes and Angel Funds, subject to the conditions of the mechanism. If SEBI does not communicate deficiencies within the applicable period, the AIF may proceed with launch subject to the prescribed requirements. 

 Does GARUDA Mean That AIF Registration Can be Obtained in 10 Working Days? 

The short answer is No. The 10-working-day mechanism applies to the subsequent scheme-level placement memorandum and launch process. It does not create a 10-working-day approval route for obtaining the underlying AIF Certificate of Registration. 

This distinction is particularly important when interpreting the 2026 framework. AIF registration, scheme-level filing and scheme launch remain separate regulatory stages.

What Are Accredited Investors and Large Value Funds (LVFs) Under SEBI? 

SEBI’s accredited investor framework provides specified sophisticated investors with access to structures that receive certain regulatory flexibility. 

An accredited investor must satisfy the applicable eligibility requirements and be accredited through an eligible accreditation agency. The framework provides specified financial thresholds for individuals and other eligible persons. 

A Large Value Fund for Accredited Investors (LVF) is an accredited-investor-only AIF scheme in which each investor commits at least INR 25 crore. 

LVFs receive procedural flexibility under the regulatory framework. For example, they are exempt from the standard requirement to file their PPM through a merchant banker and incorporate SEBI comments before launch. 

The relevance of accredited-investor and LVF structures is therefore primarily regulatory. The investor classification can affect the procedural requirements that apply to the scheme and should be considered when assessing the appropriate compliance framework.

What Are the Ongoing Governance, Disclosure and Compliance Requirements for AIFs? 

AIF compliance does not end once the fund has been registered or a scheme has been launched. 

The ongoing framework covers several interconnected areas, including: 

• Investor disclosures 
• Governance and internal controls 
• Conflicts of interest 
• Related-party transactions 
• Custody where applicable 
• Regulatory reporting 
• Dematerialisation 
• Maintenance of appropriate records 
• Compliance with the stated investment strategy 

The Private Placement Memorandum (PPM) remains central to this framework. It sets out the fund’s investment strategy, risks, fees, governance arrangements and other material terms. The fund’s actual operations should remain consistent with the disclosures and strategy presented to investors. 

A material change in the fund’s structure or disclosures may also create additional regulatory or investor-consent requirements, depending on the nature of the change. 

For this reason, AIF compliance is better viewed as an ongoing control framework covering investments, disclosures, governance, reporting and investor communication. 

For a more detailed understanding of India’s AIF regulatory framework, download Alternative Investment Fund (AIF) Whitepaper, covering key SEBI requirements, regulatory thresholds, governance and compliance obligations, taxation, reporting requirements and the consequences of non-compliance. 

Can Foreign Investors Invest in Indian AIFs and What FEMA Rules Apply? 

For foreign investors and international fund managers, the SEBI framework operates alongside India’s foreign exchange regulations. 

Under the FEMA framework, an AIF is recognised as an Investment Vehicle. RBI’s foreign investment framework permits persons resident outside India and eligible overseas entities to invest in units of Investment Vehicles, subject to the applicable FEMA, NDI Rules, RBI directions and SEBI requirements. 

The regulatory analysis can extend beyond the foreign investor’s subscription. The ownership and control of the sponsor or investment manager can influence whether downstream investment by the Investment Vehicle is treated as foreign investment. 

Category III AIFs with foreign investment also face specific restrictions concerning the securities and instruments in which portfolio investment may be made. 

A cross-border AIF structure may therefore need to be assessed across several regulatory layers: 

• SEBI AIF requirements 
• FEMA and RBI rules 
• Ownership and control 
• Downstream investment treatment 
• Foreign exchange and remittance requirements 
• Applicable reporting 
• Indian tax and withholding considerations 

Compliance under one framework does not automatically establish compliance under the others. 

Conclusion 

The SEBI AIF Regulations 2026 should be understood as an integrated regulatory framework governing an AIF throughout its operating lifecycle. The SEBI (Alternative Investment Funds) Regulations, 2012 remain the principal legal foundation, while the June 2026 Master Circular and subsequent amendments and circulars provide the procedural and operational context for areas such as reporting, valuation, unit-value reporting and placement memorandums. 

For AIF managers, sponsors and investors, the key consideration is therefore ongoing regulatory alignment. Category-specific investment restrictions, leverage, valuation, reporting, disclosures, governance, dematerialisation and scheme-level requirements all form part of the compliance framework. For structures involving non-residents, FEMA and RBI requirements must be considered alongside SEBI. A well-managed AIF is consequently one that treats regulatory compliance as a continuing function rather than a requirement satisfied at the point of registration. 

Frequently Asked Questions

What are the SEBI AIF Regulations?

The SEBI (Alternative Investment Funds) Regulations, 2012 are the principal regulations governing AIFs in India. They establish requirements covering categories, investment conditions, governance, disclosures, valuation, reporting and other aspects of AIF operations. The regulations have been amended over time and remain the underlying legal framework in 2026.

What changed for AIFs in 2026?

The 2026 framework includes developments concerning regulatory reporting, reporting of AIF unit values to depositories, placement memorandum processing and other operational requirements. SEBI’s June 2026 Master Circular consolidated applicable instructions, while subsequent amendments and circulars continued to update the framework.

What are the three categories of AIFs in India?

SEBI recognises Category I, Category II and Category III AIFs. Their investment mandates, leverage conditions, tenure and operational requirements differ. Category I covers specified economically or developmentally relevant areas, Category II commonly includes private equity and debt strategies, while Category III covers more diverse or complex trading strategies.

What are the major AIF compliance requirements in 2026?

Key areas include regulatory reporting, valuation, investor disclosures, investment restrictions, governance, dematerialisation, custody where applicable and compliance with the fund’s stated investment strategy. The March 2026 reporting circular introduced a comprehensive annual report and limited quarterly reporting through the SEBI Intermediary Portal.

What is the GARUDA mechanism for AIFs?

GARUDA is a July 2026 mechanism concerning eligible scheme-level placement memorandums. For qualifying regular schemes, the mechanism provides a 10-working-day route for scheme launch subject to the applicable conditions. It does not replace the underlying AIF regulatory framework.

Does GARUDA apply to AIF registration?

No. GARUDA concerns the scheme-level placement memorandum and launch process. It does not provide a 10-working-day approval route for the underlying AIF registration or Certificate of Registration.

What are the AIF reporting requirements in 2026?

A comprehensive Annual Activity Report is required within 30 calendar days from the end of March. A limited Quarterly Activity Report is required for the June, September and December quarters within 15 calendar days from the relevant quarter-end. A separate March quarterly report is not required because the March information is covered by the Annual Activity Report.

Can foreign investors invest in Indian AIFs?

Yes. AIFs are recognised as Investment Vehicles under India’s FEMA framework, and foreign investment in their units is permitted subject to the applicable FEMA, NDI Rules, RBI directions and SEBI requirements. Ownership and control, downstream investments and Category III investment restrictions may also require consideration.

What is the difference between an accredited investor and a Large Value Fund?

An accredited investor is an investor meeting the applicable eligibility and accreditation requirements. A Large Value Fund for Accredited Investors is an accredited-investor-only AIF scheme in which each investor commits at least INR 25 crore. LVFs receive specified regulatory and procedural flexibility under the SEBI framework.

What ongoing obligations apply after AIF registration?

AIFs continue to be subject to requirements covering investment restrictions, valuation, investor disclosures, governance, reporting, dematerialisation, records and controls, audit and custody where applicable. The PPM and stated investment strategy also remain important references for ongoing compliance.