Obligations of manager, sponsor, investment committee and trustee of AIFs
G. GOVERNANCE NORMS AND OBLIGATIONS
Chapter 17 - Obligations of manager, sponsor, investment committee and trustee of AIFs
17.1. Appointment and designation of personnel of AIF and manager
17.1.1.
The Manager of an AIF must appoint a Compliance Officer.
The Compliance Officer is responsible for monitoring the AIF's compliance with the applicable regulatory requirements issued by SEBI, including:
SEBI Act, 1992.
Rules and Regulations.
Notifications.
Circulars.
Guidelines.
Instructions.
Other directives issued by SEBI.
The Compliance Officer must also meet the eligibility criteria prescribed by SEBI from time to time.
So , the Compliance Officer acts as the person responsible for keeping track of the AIF's regulatory compliance and ensuring that the applicable SEBI requirements are followed.
Example:
An AIF Manager appoints a Compliance Officer.
The Compliance Officer monitors whether the AIF is complying with applicable SEBI regulations, circulars and other regulatory requirements.
If SEBI introduces a new compliance requirement, the Compliance Officer would be responsible for ensuring that the AIF takes the necessary steps to comply with it.
(a).
The Manager of an AIF must designate an employee or director as the Compliance Officer.
The Compliance Officer must be a different person from the Chief Executive Officer (CEO) of the Manager.
If the Manager has a different equivalent role instead of a CEO, the Compliance Officer must also be different from the person holding that equivalent position.
The idea is to keep the compliance function independent from the Manager's chief executive function.
(b).
The Compliance Officer of the AIF Manager must obtain the required NISM certification.
The Compliance Officer must pass the NISM Series-III-C: Securities Intermediaries Compliance (Fund) Certification Examination.
The certification requirement is based on the NISM communique dated 20 November 2025.
Therefore, simply being appointed as the Compliance Officer is not enough. The person must also have the prescribed NISM certification.
(c).
From 1 January 2027, only persons who have obtained the prescribed NISM Series-III-C certification can be appointed as Compliance Officers of AIF Managers.
The requirement also applies to existing Compliance Officers. They can continue in the role after 1 January 2027 only if they have obtained the required certification.
Therefore, by 1 January 2027, the Compliance Officer must have the prescribed NISM certification.
Example:
AIF Manager's Compliance Officer, Mr. A, is currently working without the required NISM certification.
Mr. A must obtain the NISM Series-III-C certification before 1 January 2027.
If he does not obtain it, he cannot continue to act as the Compliance Officer from 1 January 2027.
For the AIF Regulations, “key management personnel” includes persons who play an important role in the management and decision-making of the AIF.
(a). Key investment team
Members of the key investment team of the Manager who are disclosed in the PPM of the fund are treated as key management personnel.
(b). Senior decision-makers
Employees involved in decision-making on behalf of the AIF are also covered.
This includes senior management positions such as:
Managing Director.
Chief Executive Officer (CEO).
Chief Investment Officer (CIO).
Whole-Time Directors.
Any equivalent role or position.
(c). Other persons designated as key management personnel
The AIF may also designate any other person as key management personnel through:
Trustee, where the AIF is a trust.
Board of Directors, where applicable.
Designated Partners, where applicable.
The Manager may also declare a person to be key management personnel.
17.1.3.
The AIF must disclose the names of all Key Management Personnel (KMPs) of The AIF & The Manager in the PPM.
If there is any change in the Key Management Personnel, the AIF must inform the investors; and SEBI.
17.2. Appointment of custodian for AIFs
17.2.1.
The Sponsor or Manager of an AIF must appoint a SEBI-registered Custodian.
The Custodian is responsible for the safekeeping of the securities and investments of the AIF.
The appointment must be made in accordance with the requirements specified by SEBI.
Example:
An AIF holds shares, debentures and other securities as part of its investments.
The Sponsor or Manager appoints a SEBI-registered Custodian to hold and safeguard these securities.
17.2.2.
The Custodian for an AIF scheme must be appointed before the scheme makes its first investment.
Therefore, the AIF cannot make its first investment and appoint the Custodian later.
Example:
An AIF scheme plans to make its first investment on 1 October 2026.
The AIF must appoint the required SEBI-registered Custodian before 1 October 2026.
Only after the Custodian has been appointed can the scheme make its first investment.
17.3. Constitution of Investment Committee
17.3.1.
The Manager of an AIF may set up an Investment Committee (IC) to approve investment decisions of the AIF.
Where an Investment Committee is constituted, its members are subject to certain responsibilities under the AIF Regulations.
Investors may provide a waiver in relation to compliance with the provisions concerning the responsibilities of Investment Committee members.
The prescribed format for this waiver is provided in Annexure 12.
Example:
An AIF Manager forms an Investment Committee to approve investment decisions.
The AIF obtains the required waiver from its investors regarding the responsibilities of the Investment Committee members.
The waiver must be provided in the format prescribed in Annexure 12.
17.3.2.
Investor consent is generally required for changes relating to the Investment Committee under the applicable AIF framework.
However, investor consent is not required when there is a change in ex-officio external members of the Investment Committee.
This applies where the member represents, in their official capacity:
The Sponsor.
Sponsor group.
Manager group.
Investors.
So, if an external Investment Committee member changes because the person representing one of these groups changes in their official capacity then:
The AIF does not need to obtain fresh consent from all investors.
17.3.3.
An Investment Committee formed to approve the AIF's investment decisions may include:
Internal members, such as employees, directors or partners of the Manager; and/or
External members.
SEBI has sought clarification from the Government and RBI regarding whether Clause (4) of Schedule VIII of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 applies to an AIF where:
The Investment Committee approves the AIF's investment decisions; and
The Investment Committee includes external members who are not resident Indian citizens.
In simple terms, the issue is whether having non-resident external members on the Investment Committee affects the foreign investment rules applicable to the AIF.
Example:
An AIF has an Investment Committee consisting of:
3 internal members; and
2 external members who are not resident Indian citizens.
Since these external members participate in approving investment decisions, the applicability of the relevant foreign exchange rules becomes an important consideration.
17.3.4.
Until the clarification mentioned in Para 17.3.3 is received, SEBI will handle AIF registration and new scheme applications differently depending on the composition of the Investment Committee.
(a) External members are resident Indian citizens
If the proposed Investment Committee includes external members who are resident Indian citizens, the application can be processed normally.
Example:
An AIF proposes an Investment Committee with 2 external members.
Both external members are resident Indian citizens.
The AIF's registration application can be processed without waiting for the Government/RBI clarification.
(b) External members are not resident Indian citizens
If the proposed Investment Committee includes external members who are not resident Indian citizens, the application will be kept pending.
It will be considered only after the clarification referred to in Para 17.3.3 is received.
Example:
An AIF proposes an Investment Committee with 2 external members.
One or both of them are not resident Indian citizens.
The application will be considered only after the Government/RBI clarification on the relevant FEMA requirement is received.
17.4. Code of conduct
17.4.1.
(a) Act in the interest of unitholders
The AIF, Manager, Trustee and Sponsor must always act in the best interests of the unitholders.
They must not take any action that is prejudicial to the interests of the unitholders.
They must also ensure that their own interests, or the interests of their associates, do not take priority over the interests of the AIF/unitholders.
Example:
If the Manager has to choose between a transaction that benefits the Manager and one that is in the best interests of the unitholders, it must prioritise the unitholders' interests.
(b) Maintain high standards
The AIF, Manager, Trustee and Sponsor must maintain high standards of integrity and fairness in their dealings.
They must:
Provide high standards of service;
Exercise due diligence;
Use independent professional judgment; and
Conduct their business fairly and with integrity.
17.5. Stewardship Code
All categories of AIFs must follow the Stewardship Code prescribed by SEBI.
The Stewardship Code is provided in Annexure 13.
This requirement applies when AIFs invest in listed equity shares.
Therefore, whether the AIF is Category I, Category II or Category III, it must follow the Stewardship Code for its investments in listed equities.
17.6. Other obligations
17.6.1.
The Sponsor or Manager's continuing interest in the AIF must be maintained proportionately to the net funds raised from the other investors.
In simple terms, as the amount raised from other investors increases or decreases, the Sponsor/Manager's continuing interest should be maintained in the same proportion.
Example:
Other investors contribute a total of ₹100 crore to the AIF.
The Sponsor/Manager is required to maintain a continuing interest of 2.5%.
Therefore, the Sponsor/Manager must maintain ₹2.5 crore as continuing interest.
If the net amount raised from other investors later becomes ₹80 crore, the continuing interest would be calculated proportionately based on the applicable requirement.
17.6.2.
Before an AIF makes an investment in:
An associate; or
Units of another AIF managed or sponsored by the Manager, Sponsor, or their associates,
the AIF must obtain the required approval from its investors.
Therefore, the AIF cannot make such related-party investments without obtaining the specified investor approval before the investment is made.
Example:
AIF A is managed by Manager X.
Manager X also manages AIF B.
AIF A wants to invest in units of AIF B.
Since AIF B is managed by the same Manager, AIF A must obtain the required investor approval before making the investment.
17.6.3.
AIFs must comply with all SEBI circulars and guidelines relating to:
KYC requirements;
Anti-Money Laundering (AML); and
Outsourcing of activities.
The Manager of the AIF is responsible for ensuring that the AIF complies with these requirements.
Example:
SEBI issues a new KYC requirement applicable to AIFs.
The Manager must ensure that the AIF updates its KYC processes and complies with the new requirement.
Similarly, if SEBI issues requirements relating to AML or outsourcing of activities, the Manager must ensure compliance.
