Definitions
Chapter I. Preliminary
Regulation 1. Short title and commencement
1(1).
These are regulations issued by the Securities and Exchange Board of India (SEBI).
The official name of the regulations is: Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
The regulations deal with:
Alternate Investment Funds
The regulations came into force in the year 2012.
They are commonly referred to as the SEBI (AIF Regulations), 2012.
1(2).
These regulations shall come into force on the date of their notification in the Official Gazette.
The regulations become legally effective from the date of notification.
The date of notification in the Official Gazette shall be treated as the date of commencement.
Regulation 2. Definitions
2(1).
Certain words and phrases are specially defined in these regulations.
Whenever those words are used anywhere in the regulations, they should be understood in the same defined sense.
However, if the surrounding text clearly shows that a different meaning is intended, then the defined meaning need not be applied.
The above rules applies to:
Cognate expressions (Words related to the defined term).
Variations of the term (Singular, plural, tense).
So, all such terms are construed consistently with the definitions.
(a). Act
Act means the Securities and Exchange Board of India Act, 1992.
(aa). Accreditation Agency
Accreditation Agency is essentially a subsidiary of a recognized stock exchange.
It can also be subsidiary of a depository.
It may include any other entity as may be specified by the Securities and Exchange Board of India from time to time.
Such entity shall act as an accreditation agency for the purposes of these regulations.
Sometimes:
A stock exchange may create a separate company (subsidiary) for specific functions.
Such functions may include verification, compliance, or certification-related activities.
That subsidiary may be authorised to function as an accreditation agency under the regulations.
Similarly:
A company owned by a depository can also act as an accreditation agency.
A depository is an institution that holds securities in electronic form.
Securities held by a depository may include shares, debentures, bonds, and similar instruments.
Instead of holding physical share certificates, investors hold securities electronically through a depository system.
A depository may create a subsidiary company for specific functions such as verification or compliance activities.
Such subsidiary may function as an accreditation agency under the regulations.
So , accreditation agency is not restricted only to subsidiaries of stock exchanges or depositories.
The Securities and Exchange Board of India may specify any other entity from time to time to act as an accreditation agency.
Explanation:
For the purpose of this clause, the Securities and Exchange Board of India may recognise an accreditation agency:
Such recognition shall be for the purposes of this clause.
Recognition may be granted subject to conditions specified by SEBI.
SEBI may prescribe eligibility requirements, compliance standards, procedures, or other conditions for recognition.
An entity cannot act as a recognised accreditation agency unless it satisfies the conditions specified by SEBI.
(ab). Accredited Investor
Accredited Investor is a person who is granted a certificate of accreditation by an accreditation agency.
Grant of accreditation by an authorised accreditation agency is mandator in order to be recognised as an accredited investor.
Satisfaction of financial criteria alone is not sufficient & certification is mandatory.
(i). In case of an Individual, Hindu Undivided Family (HUF), Family Trust, or Sole Proprietorship:
Any one of the following conditions must be satisfied:
(A). Annual Income Criteria
The Annual income shall be at least ₹2 crore.
The Net worth requirement under (b) is not mandatory under this clause.
The Satisfaction of the income threshold alone is sufficient under clause (A).
(B). Net Worth Criteria
The Net worth shall be at least ₹7.5 crore.
Out of such net worth, not less than ₹3.75 crore shall be in the form of financial assets.
Financial assets may include shares, debentures, bonds, mutual funds, securities, deposits, and similar investments.
Assets such as land, buildings, jewellery, or other non-financial property shall not be considered financial assets.
So , in order to satisfy the Net Worth Criteria:
Both conditions must be satisfied together:
Minimum net worth of ₹7.5 crore.
Minimum financial assets of ₹3.75 crore.
(C). Combined Income and Net Worth Criteria
The Annual income shall be at least ₹1 crore.
The Net worth shall be at least ₹5 crore.
Out of such net worth, not less than ₹2.5 crore shall be in the form of financial assets.
Financial assets may include shares, debentures, bonds, mutual funds, securities, deposits, and similar investments.
In order to satisfy (C) , all conditions must be satisfied together:
Minimum annual income of ₹1 crore.
Minimum net worth of ₹5 crore.
Minimum financial assets of ₹2.5 crore.
Under clause (i), satisfaction of any one of clauses (A), (B), or (C) shall be sufficient for eligibility, subject to accreditation by an authorised agency.
(ii). In case of a Body Corporate:
The body corporate shall have net worth of at least ₹50 crore.
So , the minimum threshold of net worth required is ₹50 crore.
(iii). In case of a Trust (other than a Family Trust):
The trust shall have net worth of at least ₹50 crore.
So , the minimum threshold of net worth required is ₹50 crore.
(iv). In case of a Partnership Firm set up under the Indian Partnership Act, 1932:
Each partner should independently satisfy the eligibility criteria for accreditation.
Eligibility shall be assessed partner-wise and not firm-wise
Satisfaction of eligibility by only some partners shall not be sufficient.
Every partner must separately qualify under the prescribed accreditation requirements.
The partnership firm shall not become eligible merely because the firm collectively possesses sufficient income or net worth.
Deemed Accredited Investors
The following entities shall be deemed to be accredited investors:
The Central Government of India shall be deemed to be an accredited investor.
State Governments shall be deemed to be accredited investors.
Developmental agencies established under the aegis of the Central Government or State Governments shall be deemed to be accredited investors.
Such agencies need not separately satisfy financial eligibility criteria.
Funds established by the Central Government or State Governments shall be deemed to be accredited investors.
Qualified Institutional Buyers (QIBs), as defined under the SEBI (ICDR) Regulations, 2018, shall be deemed to be accredited investors.
Category I Foreign Portfolio Investors (FPIs) shall be deemed to be accredited investors.
Sovereign wealth funds shall be deemed to be accredited investors.
These are investment funds owned or controlled by governments.
Multilateral agencies shall be deemed to be accredited investors.
These are institutions established by multiple countries for financial, economic, or developmental purposes.
Any other entity as may be specified by the Securities and Exchange Board of India from time to time shall also be deemed to be an accredited investor.
(ac). Accredited Investors only Fund
An Accredited Investors Only Fund means an Alternative Investment Fund or a scheme of an Alternative Investment Fund.
The fund or scheme shall consist only of Accredited Investors as investors.
The following persons are exceptions to this requirement and need not necessarily be Accredited Investors:
The Manager of the Alternative Investment Fund.
The Sponsor of the Alternative Investment Fund.
Employees or directors of the Alternative Investment Fund.
Employees or directors of the Manager.
Except for the above exceptions, all other investors shall be Accredited Investors.
The requirement may apply to:
The entire Alternative Investment Fund.
A particular scheme of the Alternative Investment Fund.
Conversion of an AIF to an Accredited Investors only Fund.
An AIF or a scheme of an AIF launched before the notification of the SEBI (AIF)( 3rd Amendment) Regulations, 2025 may be permitted:
To convert into an Accredited Investors Only Fund.
This provision applies to:
An entire Alternative Investment Fund or
A particular scheme of an Alternative Investment Fund.
Provided that:
The fund or scheme must have been launched prior to the notification of the 2025 amendment regulations.
Conversion into an Accredited Investors Only Fund is not automatic.
Such conversion shall be subject to conditions specified by the Securities and Exchange Board of India.
SEBI may prescribe requirements, procedures, compliance obligations, approvals, or other conditions for such conversion.
Explanation:
Accredited Investors Only Fund shall include “Large Value Fund for Accredited Investors”
A Large Value Fund for Accredited Investors (LVF) shall be treated as a type of Accredited Investors Only Fund.
So , an LVF is included within the broader category of an Accredited Investors Only Fund.
LVF is defined in 2(pa) below.
(b). Alternative Investment Fund
An Alternative Investment Fund (AIF) means any fund established or incorporated in India.
The fund may be constituted in any of the following forms:
A trust.
A company.
A limited liability partnership (LLP).
A body corporate.
(i).
An AIF shall be a privately pooled investment vehicle.
So , the fund pools or collects money privately from a group of investors for investment purposes.
It is not a public investment vehicle open to the general public in the same manner as public issues.
The fund may collect money from Indian investors or Foreign investors.
The funds collected shall be invested in accordance with a defined investment policy.
A defined investment policy means the fund must have a specified investment strategy or objective governing how investments will be made.
Investments shall be made for the benefit of its investors.
The purpose of the fund is to generate investment returns or benefits for the persons contributing money to the fund.
(ii).
An entity shall qualify as an Alternative Investment Fund only if it is not covered under other SEBI regulations governing fund management activities.
The fund shall not be regulated under the SEBI (Mutual Funds) Regulations, 1996.
The fund shall not be regulated under the SEBI (Collective Investment Schemes) Regulations, 1999.
The fund shall not be regulated under any other regulations of SEBI dealing with fund management activities.
If a fund is regulated under any of the the above regulations then:
The entity shall be regulated under that framework instead of the AIF Regulations.
For the purpose of AIF’s . the following are not AIF’s.
(i). Family Trusts
Family trusts set up for the benefit of “relatives” as defined under the Companies Act, 2013 are excluded.
So , If the trust is created for the benefit of family members falling within the statutory definition of “relatives” then:
Such family trusts shall not be treated as Alternative Investment Funds.
These trusts are generally private family arrangements and not investment pooling vehicles for outside investors.
(ii). ESOP Trusts
ESOP Trusts established under the SEBI (Share Based Employee Benefits) Regulations, 2014 are excluded.
ESOP Trusts permitted under the Companies Act, 2013 are also excluded.
Such trusts are created for administration of employee stock option or share-based benefit schemes.
These trusts shall not be treated as AIF’s because their purpose is employee benefit administration and not pooled investment activity.
(iii). Employee Welfare Trusts or Gratuity Trusts
Employee welfare trusts established for the benefit of employees are excluded.
Gratuity trusts established for employees are excluded.
Such trusts are created to provide employee benefits, welfare measures, retirement benefits, or gratuity payments.
These trusts shall not qualify as Alternative Investment Funds.
(iv). Holding Companies
Holding companies” as defined under Section 2(46) of the Companies Act, 2013 are excluded.
A holding company generally means a company controlling one or more subsidiary companies.
Such companies are not treated as Alternative Investment Funds merely because they hold investments in subsidiaries or other entities.
Their purpose is corporate ownership and control, not pooled fund management.
(v). Other Special Purpose Vehicles (SPVs)
Other Special Purpose Vehicles (SPVs), not established by fund managers, are excluded.
This includes securitisation trusts.
Such entities must be regulated under a specific regulatory framework.
The exclusion applies where the SPV exists for a specialised regulatory or transaction purpose rather than pooled investment management.
If the vehicle is already specifically regulated, it shall not be treated as an Alternative Investment Fund.
(vi). Funds managed by Securitisation Companies or Reconstruction Companies
Funds managed by a securitisation company or reconstruction company are excluded.
Such company must be registered with the RBI under Section 3 of the SARFEASI Act, 2002.
These entities operate within a separate statutory and regulatory framework governing asset reconstruction and securitisation activities.
Therefore, such funds shall not be treated as Alternative Investment Funds.
(vii). Pools of Funds Regulated by Other Regulators
Any pool of funds directly regulated by another regulator in India is excluded.
If a fund is already supervised under another Indian regulatory authority, it shall not be treated as an Alternative Investment Fund.
It prevents overlapping regulation by multiple authorities.
The entity shall continue to be governed by its existing regulator rather than under the AIF framework.
(c). Associate
Associate refers to :
A company.
A limited liability partnership (LLP).
Any other body corporate.
Such entity becomes an “associate” if certain persons connected to the Alternative Investment Fund (AIF) hold a specified ownership interest in it.
The relevant persons are:
The director of the AIF.
A trustee of the AIF.
A partner of the AIF.
The Sponsor of the AIF.
The Manager of the AIF.
A director of the Manager.
A partner of the Sponsor.
The ownership/interest may be held: individually by one such person, or collectively by multiple such persons together.
In case of a company: The holding must exceed 15% of the paid-up equity share capital.
In case of an LLP or partnership-based structure: The holding must exceed 15% partnership interest.
Example:
Assume an Alternative Investment Fund named ABC AIF has:
A Sponsor holding 10% equity share capital in XYZ Pvt. Ltd.
A Director of the Manager of ABC AIF holding 8% equity share capital in the same XYZ Pvt. Ltd.
Now the collective holding of both the sponsor and the Director of the Manager of the ABC AIF , is 18% in the company XYZ Pvt. Ltd.
Since the combined holding exceeds 15%:
XYZ Pvt. Ltd. may qualify as an associate of the Alternative Investment Fund for the purposes of these regulations.
The associate relationship arises because persons connected with the AIF (Sponsor and director of the Manager) collectively hold more than the prescribed threshold in that entity.
(d). Board
Board means the Securities and Exchange Board of India established under Section 3 of the Act.
(e). Certificate
Certificate means a certificate of registration granted by the Board under Regulation 6.
(f). Change in Control
(i). In case of a Body Corporate:
(A). Where Shares are Listed on a Stock Exchange
If the body corporate has shares listed on a recognised stock exchange then:
Change in control shall be understood with reference to the meaning of “control” under regulations framed under Section 11(2(h) of the SEBI Act, 1992.
The definition of change in control is not independently provided here.
Generally, control may involve
The right to appoint majority directors.
The ability to influence management or policy decisions.
Control arising through shareholding, agreements, management rights, voting rights, or other arrangements
If control shifts from one person or group to another in terms of the applicable SEBI framework, a change in control may be regarded as having occurred.
(B). Where shares are not listed on a recognised stock exchange
If the shares of the body corporate are not listed on any recognised stock exchange, then:
The meaning of change in control shall be understood with reference to the definition of “control” under Section 2(27) of the Companies Act, 2013.
Under Section 2(27) of the Companies Act, control generally includes:
The right to appoint majority of directors.
The ability to control management or policy decision.
Such control may arise through:
Shareholding.
Management rights.
Shareholders agreements.
Voting agreements.
Any other manner.
If control shifts from one person or group to another, a change in control may be regarded as having occurred.
(ii). In a case other than that of a Body Corporate:
In such cases, change in control shall include
Any change in legal formation.
Any change in ownership.
Any change in controlling interest.
Change in legal formation means a change in the legal structure or constitution of the entity.
Example:
Conversion of a partnership into a limited liability partnership (LLP).
Conversion of a trust structure into another permissible legal structure.
Change in ownership means a change in the persons owning or holding interest in the entity.
Example:
Existing partners exiting and new partners entering a partnership.
Transfer of ownership interest from one person to another.
Change in controlling interest means a change in the person or group exercising control over the management, affairs, or decision-making of the entity.
Explanation:
A person is considered to have a controlling interest if they hold not less than 50% of the voting rights or interest in an entity.
The interest may be held directly.
The interest may also be held indirectly through one or more intermediary entities.
Therefore, ownership or control of 50% or more is sufficient to constitute a controlling interest.
Example (Direct Holding):
If Person A holds 60% of the voting shares of Company X, Person A has a controlling interest in Company X.
Example (Indirect Holding):
Person A owns 70% of Company B.
Company B owns 80% of Company C.
Through Company B, Person A indirectly controls Company C and may be regarded as having a controlling interest in Company C.
(fa). Co-investment
Co-investment means an investment made alongside a Category I or Category II Alternative Investment Fund (AIF).
The investment may be made by:
The Manager of a Category I or Category II AIF.
The Sponsor of a Category I or Category II AIF.
An investor of a Category I or Category II AIF.
The investment shall be made in unlisted securities of investee companies.
Unlisted securities are securities of companies that are not listed on a stock exchange.
Such co-investment can occur only where the Category I or Category II AIF itself makes an investment in the same investee company.
The investment is made along with or in parallel to the investment of the AIF.
A co-investment is linked to the investment activity of the AIF and is not an independent unrelated investment.
Example:
Suppose there is a Category II AIF called Alpha Growth Fund.
Alpha Growth Fund decides to invest in an unlisted start-up called TechNova Pvt. Ltd.
So, TechNova is the main investment of Alpha Growth Fund.
The Alpha Growth Fund invests ₹50 crore in equity shares of TechNova Pvt. Ltd.
Alongside this investment:
The Manager of the AIF separately invests ₹2 crore in the same company.
One investor (LP) of the AIF also separately invests ₹5 crore in the same funding round.
The Sponsor of the AIF additionally invests: ₹1 crore into TechNova Pvt. Ltd.
The above investments done by the Manager , Investor and Sponsor of the AIF will be considered co-investments.
It is considered co-investments because:
The investment is made alongside the AIF.
The AIF itself is investing in the same company.
The company is unlisted.
The investment is connected to the AIF transaction, and the investors/manager/sponsor are investing in parallel with the AIF.
(fb). Co-investment Scheme
A co-investment scheme is a special arrangement created by a Category I or Category II AIF .
The objective is to allow its existing investors to invest directly alongside the AIF into the same unlisted company.
The AIF itself must already be investing, or must have invested, in that company.
The co-investment cannot happen independently.
The AIF manager co-facilitates or helps organize and structure the direct investment for its investors.
The investment is made in the “unlisted securities” of the investee company.
This usually includes:
Unlisted equity shares.
Compulsorily convertible preference shares (CCPS).
Compulsorily convertible debentures (CCDs).
Other privately held securities.
Only investors of that particular AIF scheme can participate in the co-investment scheme.
Outsiders or persons who are not investors in the AIF scheme cannot generally participate in that co-investment scheme.
The co-investment is linked specifically to a “particular scheme” of the AIF, not necessarily the entire AIF platform.
Example:
Alpha Growth Fund (AIF) invests ₹50 crore into TechNova Pvt. Ltd.
Alongside this, Investor A of the fund invests ₹5 crore directly into TechNova.
Investor B of the fund invests another ₹10 crore directly.
These direct investments are the co-investments.
In a co-investment structure:
The investor still invests in the fund,
But additionally invests directly & separately into the portfolio company itself.
Therefore, the investor gets both indirect and direct exposure.
The co-investment scheme usually follows the same commercial terms as:
The AIF investment because both are investing into the same company and same transaction round.
The co-investment scheme is generally managed or supervised by the same manager managing the AIF.
Co-investment schemes are common in:
Private equity funds,
Venture capital funds,
Growth capital funds,
Infrastructure funds.
Investors often prefer co-investments because:
They can invest larger amounts.
They get direct ownership.
Management fees may be lower.
Carried interest may be lower or absent.
The co-investment investor directly holds securities of the investee company, unlike in the main AIF where the fund itself holds the securities.
Since the investment is direct, the co-investor may separately become:
A shareholder.
A debenture holder.
A holder of convertible instruments in the investee company.
The co-investment scheme is not treated as a random standalone investment vehicle.
It exists only because the AIF is making or has made the main investment.
(g). Company
Company means a company incorporated under the Companies Act, 2013.
(ga). Corporate Debt Market Development Fund
A Corporate Debt Market Development Fund is essentially an Alternative Investment Fund (AIF).
Such Alternative Investment Fund shall be set up in accordance with the provisions of Chapter III-C of these regulations.
(h). Corpus
Corpus means the total amount of funds committed by investors to an Alternative Investment Fund (AIF).
The commitment shall be made through a written contract or any similar document.
The amount refers to committed capital and not merely money already contributed or invested.
The corpus shall be determined as on a particular date.
Accordingly, the amount may vary depending upon the date on which it is calculated.
The commitment must arise from a legally documented arrangement between the investor and the Alternative Investment Fund.
(ha). Credit Default Swaps
Credit Default Swaps
Credit Default Swaps shall have the same meaning as assigned under the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022.
(hb). Custodian
Custodian means a person granted a certificate of registration to carry on the business of a custodian.
The registration must be granted under the SEBI (Custodian) Regulations, 1996.
A person cannot act as a custodian for the purposes of these regulations without obtaining the required registration.
The person must be authorised to carry on the business of custodian in accordance with the applicable SEBI regulatory framework.
The definition is linked to registration status under the SEBI (Custodian) Regulations, 1996.
(i). Debt Fund
A Debt Fund is an Alternative Investment Fund (AIF).
Such Alternative Investment Fund shall invest primarily in debt securities.
The principal or dominant investment focus of the fund must be debt instruments.
Investments may be made in debt securities of
Listed investee companies.
Unlisted investee companies.
The fund may also invest in securitized debt instruments.
Investments shall be made in accordance with the stated objectives of the fund.
The investment activity must align with the objectives, strategy, or mandate disclosed by the fund.
In essence , the Essential elements of a Debt Fund are:
It must be an Alternative Investment Fund.
It must primarily invest in debt securities or securitized debt instruments.
Investments may relate to listed or unlisted investee companies.
Investments must follow the stated objectives of the fund.
(ia). Dissolution Period
Dissolution period refers to a period that begins after the expiry of the liquidation period of a scheme.
It comes into operation when certain investments of the scheme remain unliquidated even after the liquidation period has ended.
The purpose of the dissolution period is to facilitate the liquidation of such remaining investments.
During this period, efforts are made to dispose of or realize the value of the investments that could not be liquidated earlier.
The dissolution period serves as an additional stage in the winding-up process of the scheme.
Example:
Suppose an Alternative Investment Fund (AIF) launches a scheme with a tenure of 8 years.
Stage 1 – Scheme Tenure
The scheme invests in several start-ups and private companies.
At the end of the 8-year tenure, most investments are sold and proceeds are distributed to investors.
Stage 2 – Liquidation Period
The scheme enters a liquidation period to sell the remaining investments.
During this period, the fund successfully liquidates most of the leftover assets.
Stage 3 – Investments Remain Unliquidated
Even after the liquidation period ends, one portfolio company has not yet been sold because:
A suitable buyer is not available, or
The company is in the middle of a merger, or
Market conditions are unfavorable.
Stage 4 – Dissolution Period
The scheme enters the dissolution period.
The remaining unliquidated investment continues to be held temporarily.
The fund manager works to sell or otherwise realize the value of that investment.
Stage 5 – Final Dissolution
Once the remaining investment is sold and the proceeds are distributed to investors:
All assets of the scheme stand liquidated,
The winding-up process is completed, and
The scheme is dissolved.
(ib). Encumbrance
Encumbrance shall have the same meaning as assigned under Chapter V of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
The definition is not separately provided in these regulations.
The meaning must be understood by referring to Chapter V of the SEBI Takeover Regulations, 2011.
Any interpretation of the term shall follow the meaning prescribed under that regulatory framework.
If the meaning of “encumbrance” under the SEBI Takeover Regulations changes, the meaning applicable here may also change accordingly.
In effect, these regulations adopt the definition by reference, instead of reproducing an independent definition.
(j). Equity Linked Instruments
Equity linked instruments refers to instruments that are linked to, or capable of being converted into, equity shares.
These instruments may not be equity shares at the time of issuance but have the potential to become equity shares in the future.
The term includes instruments convertible into equity shares.
It also includes share warrants, which give the holder the right to acquire equity shares in accordance with their terms.
The term includes preference shares that are compulsorily or optionally convertible into equity shares.
It also includes debentures that are compulsorily or optionally convertible into equity shares.
Explanation:
Equity Shares
Equity shares represent ownership in a company.
A holder of equity shares becomes a shareholder of the company.
Equity shareholders generally have voting rights and participate in the profits and growth of the company.
Share Warrants
A share warrant gives the holder the right, but not the obligation, to acquire equity shares of a company in the future.
The holder can choose whether or not to convert the warrant into shares.
Warrants are often issued to investors as an additional benefit or incentive.
Compulsorily Convertible Debentures (CCDs)
A debenture is a debt instrument through which a company borrows money from investors.
In the case of a CCD, the debenture must be converted into equity shares after a specified period or upon the occurrence of a specified event.
The investor has no choice regarding the conversion.
Optionally Convertible Debentures (OCDs)
An OCD is also a debt instrument issued by a company.
However, the conversion into equity shares is optional.
Depending on the terms of the instrument, the investor (or sometimes the company) may choose whether to convert the debenture into equity shares.
Although warrants, CCDs, and OCDs may initially be debt or hybrid instruments, they are linked to equity because they either:
Convert into equity shares, or Give the holder the right to acquire equity shares.
(k). Form
Form means any of the forms set out in the First Schedule.
(ka). Goods
Goods means the goods notified by the Central Government under Section 2(bc) of the Securities Contracts (Regulation) Act, 1956.
Only those goods specifically notified by the Central Government of India shall be covered under this definition.
Such goods must form the underlying asset of a commodity derivative.
An underlying asset means the asset whose value or price forms the basis of the derivative contract.
Accordingly, the term covers goods used as the basis for trading or settlement of commodity derivatives.
Goods not notified under the SCRA framework shall not fall within this definition for the purposes of these regulations.
(l). Hedge Fund
A Hedge Fund is a type of Alternative Investment Fund (AIF).
Such a fund employs diverse or complex trading strategies to generate returns.
The fund actively invests and trades in a wide range of securities and financial instruments.
It may invest in securities that carry different levels and types of risk.
The fund may also invest in complex financial products.
These products may include listed derivatives as well as unlisted derivatives.
Unlike traditional investment funds that may follow a simple buy-and-hold strategy:
Hedge funds often use sophisticated techniques such as arbitrage, short selling, leverage, and derivative-based strategies.
(m). Infrastructure Fund
An Infrastructure Fund is a type of Alternative Investment Fund (AIF).
Such a fund invests primarily in entities that are engaged in, or formed for the purpose of, operating, developing, or holding infrastructure projects.
The fund may invest in unlisted securities of such entities.
It may also invest in partnership interests of such entities.
In addition, the fund may invest in listed debt instruments issued by such entities.
The fund may also invest in securitized debt instruments relating to such entities.
The investments may be made in investee companies or Special Purpose Vehicles (SPVs) involved in infrastructure projects.
Infrastructure projects may include sectors such as roads, highways, ports, airports, power generation, transmission networks.
It might also include railways, telecommunications, water supply systems, and other infrastructure facilities.
Explanation:
Infrastructure’shall be as defined by the government of India from time to time.
(n). Inspecting Authority
The term "inspecting authority" refers to a person or persons appointed by the Board.
The Board may appoint one individual or multiple individuals as the inspecting authority.
Such appointment is made for the purpose of exercising the powers provided under Regulation 30.
The inspecting authority acts on behalf of the Board while carrying out inspections under the regulations.
(o). Investee Company
The term "investee company" refers to an entity in which an Alternative Investment Fund (AIF) makes an investment.
The investee entity may be a company.
It may also be a Special Purpose Vehicle (SPV).
It may be a Limited Liability Partnership (LLP).
The term also includes any other body corporate.
In addition, it includes a Real Estate Investment Trust (REIT).
It also includes an Infrastructure Investment Trust (InvIT).
Accordingly, whenever an AIF invests in any of these entities, that entity is regarded as the investee company for the purposes of the regulations.
(p). Investable Funds
Investable funds means the amount of money available for making investments.
It is calculated from the corpus of the scheme of the Alternative Investment Fund.
From the corpus, the estimated expenditure for administration and management of the fund is deducted.
The deduction is based on the expenses expected to be incurred over the entire tenure of the fund.
The amount remaining after such deduction constitutes the investable funds.
Example:
Suppose an Alternative Investment Fund (AIF) has:
Corpus of the scheme: ₹100 crore.
Estimated administration and management expenses for the entire tenure of the fund: ₹10 crore.
So the investable funds are Rs. 90 crore.
Essentially , The AIF has collected a total corpus of ₹100 crore from its investors.
It estimates that ₹10 crore will be spent on administration, management fees, compliance, legal expenses, audit fees, and other fund-related expenses during the fund's tenure.
After deducting these estimated expenses, ₹90 crore remains available for making investments.
Explanation:
For the purposes of this clause the term Tenure:
Refers to the duration of a scheme as specified in the fund documents.
The tenure begins from the date of first close of the scheme.
The first close is the date on which the fund first accepts commitments from investors and commences its fund-raising process.
The tenure continues until the last date of the term specified in the fund documents.
Accordingly, tenure represents the entire operational life of the scheme, from its first close until the end of its specified term.
Usually , The estimated administration and management expenses for this entire period are taken into account while calculating the fund's investable funds.
(pa). Large Value Fund for Accredited Investors
A Large Value Fund for Accredited Investors (LVF) is a type of Alternative Investment Fund (AIF) or scheme of an AIF.
To qualify as an LVF, every investor in the fund or scheme must be an accredited investor.
An exception is made for the Manager, Sponsor, employees or directors of the AIF, and employees or directors of the Manager.
The above mentioned people are not required to satisfy this accredited investor condition.
Each accredited investor must invest not less than ₹25 crore in the fund or scheme.
The ₹25 crore threshold applies to each investor individually.
If even one investor (other than the exempt persons mentioned above) invests less than ₹25 crore, the fund or scheme would not qualify as a Large Value Fund for Accredited Investors.
So , an LVF is an AIF that is exclusively meant for accredited investors making large-ticket investments of at least ₹25 crore each.
Conversion into a Large Value Fund for Accredited Investors
If an AlF or a scheme of an AlF that was launched before the notification of the SEBI (AlF) (Third Amendment) Regulations, 2025 wants to convert into a Large Value Fund then:
Such a fund or scheme may be permitted to convert into a Large Value Fund for Accredited Investors (LVF).
The conversion is not automatic and is subject to the conditions specified by the Board.
The fund or scheme must comply with any requirements prescribed by the Board for such conversion.
Upon satisfying the prescribed conditions, the existing fund or scheme may be treated as a Large Value Fund for Accredited Investors.
(pb). Liquidation Period
Liquidation period refers to a period that begins after the tenure of a scheme comes to an end.
The liquidation period starts upon the expiry of the scheme's tenure or its extended tenure, if any.
The duration of the liquidation period is one year.
During this period, the fund may take steps to liquidate or dispose of its remaining investments and assets.
The purpose of the liquidation period is to facilitate an orderly winding up of the scheme after the investment period has ended.
Example:
Suppose an Alternative Investment Fund (AIF) launches a scheme with:
Tenure of the scheme: 8 years.
Date of commencement: 1 January 2020.
Expiry of tenure: 31 December 2027.
At the end of the tenure, the scheme still holds certain investments, such as:
Shares of an unlisted company
Units of another investment vehicle
Certain debt instruments
Since these investments have not yet been fully exited, the scheme enters the liquidation period.
During the one-year liquidation period, the fund manager may:
Sell the remaining shares of portfolio companies.
Redeem or dispose of debt instruments.
Realize proceeds from pending exits.
Settle liabilities and expenses of the scheme.
Distribute the realized proceeds to investors.
(pc). Liquidation Scheme
A "liquidation scheme" is a close-ended scheme launched by an Alternative Investment Fund.
It is created only for the purpose of dealing with investments that remain unliquidated after the expiry of another scheme's tenure.
The investments transferred to the liquidation scheme are purchased from a scheme whose tenure has already expired.
The objective of the liquidation scheme is to hold and liquidate those remaining investments in an orderly manner.
It is not established to make fresh investments or pursue a new investment strategy.
Accordingly, a liquidation scheme serves as a mechanism to facilitate the realization and disposal of investments that could not be liquidated before the expiry of the original scheme.
Example:
Suppose an Alternative Investment Fund (AIF) launches Scheme A, a close-ended scheme with:
Corpus: ₹500 crore.
Tenure: 8 years.
Investment objective: Investing in unlisted growth-stage companies.
At the end of the 8-year tenure, most investments have been exited. However, two investments remain:
Shares of Company X with 60 Crore.
Shares of Company Y with 40 crore.
The fund manager is unable to sell these investments before the expiry of Scheme A because:
Company X is planning an IPO in the next two years.
Company Y is negotiating a strategic sale that has not yet concluded.
So , instead of forcing a premature sale at a lower value, the AIF launches a Liquidation Scheme.
How the Liquidation Scheme Works
Scheme A's tenure expires. (ie. - 8 years in this case.)
The remaining investments worth ₹60 crore are transferred to the Liquidation Scheme.
The Liquidation Scheme purchases these investments from Scheme A.
The Liquidation Scheme's sole purpose is to hold and eventually sell Company X and Company Y.
No new investments are made under the Liquidation Scheme.
So , After 18 months, Company X completes its IPO and the shares are sold.
After 2 years, Company Y is acquired by another company and the shares are sold.
The proceeds are distributed to investors.
The Liquidation Scheme is then wound up.
(q). Manager
"Manager" refers to the person or entity appointed by an Alternative Investment Fund to manage its investments.
The Manager is responsible for making investment decisions and overseeing the investment activities of the fund.
The designation of the Manager is determined by its functions and responsibilities, regardless of the title by which it is called.
An individual, company, LLP, or any other eligible entity may act as the Manager.
The Manager and the Sponsor may be different entities.
However, the same person or entity may act as both the Manager and the Sponsor of the fund.
(qa). Not for Profit Organization
The term "not for profit organization" is not independently defined in the AIF Regulations.
Instead, it carries the same meaning assigned to it in clause (e) of Regulation 292A of the SEBI (ICDR) Regulations, 2018.
Accordingly, the meaning of the term must be determined by referring to the ICDR Regulations.
Whenever the term "not for profit organization" is used in the AIF Regulations:
It should be interpreted in the same manner as it is interpreted under Regulation 292A(e) of the ICDR Regulations.
(r). Private Equity Fund
A Private Equity Fund is a type of Alternative Investment Fund (AIF).
Such a fund invests primarily in the equity shares, equity-linked instruments, or partnership interests of investee entities.
The investments are made in accordance with the stated investment objective of the fund.
The fund generally seeks to acquire ownership or a significant stake in investee companies.
Returns are typically generated through appreciation in the value of the investee companies and eventual exit from the investment.
Example: A fund that invests in unlisted companies by acquiring equity stakes, supports their growth, and later exits through a sale or public offering would be a Private Equity Fund.
(ra). Shelf Placement Memorandum
A Shelf Placement Memorandum is a placement memorandum filed by an Alternative Investment Fund (AIF).
It is specifically used for the purpose of launching co-investment schemes.
The Shelf Placement Memorandum serves as a common disclosure document for multiple co-investment schemes.
Instead of filing a separate placement memorandum for each co-investment scheme, the AIF may use a Shelf Placement Memorandum in accordance with the regulatory framework.
This facilitates the launch of co-investment schemes in a more streamlined manner.
So , a Shelf Placement Memorandum is a master placement document that enables an AIF to launch co-investment schemes under a common regulatory filing.
Explanation:
A Placement Memorandum (PM) is the primary disclosure document of an Alternative Investment Fund (AIF).
It contains key information about the fund, such as its investment strategy, risks, fees, management team, investor rights, and other important details.
A co-investment scheme is a scheme through which certain investors invest alongside the main AIF in a specific investment opportunity.
Example:
Suppose a Private Equity Fund identifies an attractive company and wishes to invest ₹100 crore.
The fund itself may invest ₹70 crore, while certain investors may be given an opportunity to invest the remaining ₹30 crore directly through a co-investment scheme.
Thus, the investors "co-invest" alongside the main fund in the same investee company.
If an AIF plans to launch multiple co-investment schemes over time, filing a separate placement memorandum for each scheme can become cumbersome.
To address this, the AIF may file a Shelf Placement Memorandum.
A Shelf Placement Memorandum is essentially a master placement memorandum that contains the common disclosures applicable to all future co-investment schemes.
Once the Shelf Placement Memorandum is filed, the AIF can launch individual co-investment schemes under that framework, usually by providing scheme-specific details separately.
This reduces repetitive filings and simplifies the process of launching multiple co-investment schemes.
Illustaration:
Suppose an Alternative Investment Fund (AIF) called Growth Fund I regularly identifies co-investment opportunities for its investors.
The fund first identifies an investment opportunity in Company A and launches Co-investment Scheme A.
Later, it identifies opportunities in Company B and Company C, for which it launches Co-investment Scheme B and Co-investment Scheme C.
All three schemes are managed by the same manager, follow the same governance framework, have similar risk disclosures, and are governed by substantially similar terms.
If the AIF were required to prepare a separate and complete placement memorandum for each scheme, much of the information would be repeated three times.
To avoid this duplication, the AIF files a Shelf Placement Memorandum, which contains all the common disclosures applicable to its co-investment schemes.
Once the Shelf Placement Memorandum is in place, the AIF does not need to prepare a full placement memorandum every time a new co-investment opportunity arises.
Instead, when launching Co-investment Scheme A, B, or C, the AIF only provides the scheme-specific details, such as:
The name of the investee company.
The amount proposed to be invested.
The terms of the particular investment.
Any risks specific to that investment.
Thus, the Shelf Placement Memorandum acts like a master document, while the individual co-investment schemes are launched through shorter scheme-specific disclosures.
(s). SME
SME stands for Small and Medium Enterprise.
The AIF Regulations do not provide an independent definition of SME.
Instead, the term has the same meaning as assigned to it under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).
Accordingly, whether an enterprise qualifies as a Small or Medium Enterprise is determined by the criteria prescribed under the MSME Act.
The applicable criteria may change from time to time if the MSME Act or the rules made thereunder are amended.
(t). SME Fund
An SME Fund is a type of Alternative Investment Fund (AIF).
Such a fund invests primarily in the securities of companies that qualify as Small and Medium Enterprises (SMEs).
The fund may invest in unlisted securities of SME companies.
It may also invest in securities of SMEs that are already listed on an SME Exchange or the SME segment of a stock exchange.
In addition, the fund may invest in securities of SMEs that are proposed to be listed on an SME Exchange or SME segment.
The primary focus of the fund is financing and growth of small and medium-sized businesses.
(ta). Social Enterprise
Social enterprise is not independently defined in the AIF Regulations.
Instead, it carries the same meaning assigned to it in Regulation 292A(h) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
Accordingly, the meaning of the term must be determined by referring to the ICDR Regulations.
A social enterprise generally refers to an entity that is engaged in creating positive social impact and addressing social or environmental challenges.
Such entities primarily work towards achieving measurable social objectives rather than focusing solely on profit generation.
Whenever the term "social enterprise" is used in the AIF Regulations, it should be interpreted in the same manner as it is interpreted under Regulation 292A(h) of the ICDR Regulations.
(tb). Social Impact Fund
A Social Impact Fund is a type of Alternative Investment Fund (AIF).
Such a fund invests primarily in:
Securities of social ventures.
Units of social ventures.
Partnership interests in social ventures.
Securities of social enterprises.
The primary objective of the fund is to create a measurable social impact while making investments.
The fund focuses on entities that work towards social welfare, solving social problems, or providing social benefits.
The fund must establish social performance norms to measure the social impact of its investments.
These norms act as benchmarks for evaluating whether the fund is achieving its intended social objectives.
(tc). Social Stock Exchange
“Social stock exchange" is not independently defined in the AIF Regulations.
Instead, it carries the same meaning assigned to it in Regulation 292A (i) of the SEBI (ICDR) Regulations, 2018.
Accordingly, the meaning of the term must be determined by referring to the ICDR Regulations.
A Social Stock Exchange (SSE) is a segment of a recognized stock exchange that facilitates fund-raising by social enterprises and promotes investment towards social impact initiatives.
It provides a platform through which eligible social enterprises can raise funds from investors, donors, and other contributors.
So , when the term "social stock exchange" is used in the AIF Regulations, it should be interpreted in the same manner as it is interpreted under Regulation 292A(i) of the ICDR Regulations.
(td). Social Units
Social Units are units issued by a Social Impact Fund or by a scheme of a Social Impact Fund.
These units are issued to investors who contribute money with the objective of creating social impact.
The investors agree to receive only social returns or social benefits from their contribution.
Such investors do not expect or receive any financial return, profit, interest, dividend, or capital appreciation on their investment.
The focus of the investment is therefore on achieving social outcomes rather than generating monetary gains.
Example:
An investor contributes funds to a Social Impact Fund that finances education projects for underprivileged children.
The investor's objective is to support the social cause and create positive social impact, not to earn a financial return.
(u). Social Venture
A social venture is an entity formed with the primary purpose of promoting social welfare, solving social problems, or providing social benefits.
The entity may be constituted as a trust, society, company, venture capital undertaking, or limited liability partnership (LLP).
The focus of a social venture is on creating positive social impact rather than primarily pursuing profit.
The term specifically includes:
(i). Public charitable trusts registered with the Charity Commissioner.
(ii). Societies registered for charitable purposes or for the promotion of science, literature, or fine arts.
(iii). Companies registered under Section 8 of the Companies Act, 2013.
(iv). Microfinance institutions.
These entities are regarded as social ventures because they are established to address social needs, promote public welfare, or provide benefits to society.
(v). Omitted.
(w). Sponsor
Sponsor refers to the person or persons who establish or set up an Alternative Investment Fund (AIF).
The Sponsor is typically responsible for initiating the creation of the fund and bringing it into existence.
There may be a single Sponsor or multiple Sponsors.
Where the AIF is constituted as a company, the term Sponsor includes its promoter.
Where the AIF is constituted as a Limited Liability Partnership (LLP), the term Sponsor includes its designated partner.
The Sponsor plays a foundational role in the establishment and structuring of the Alternative Investment Fund.
(wa). Startup
Startup refers to a private limited company or a limited liability partnership (LLP).
Merely being a private company or LLP is not sufficient to qualify as a startup.
The entity must satisfy the criteria prescribed by the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India.
The relevant criteria are set out in Notification No. G.S.R. 127(E) dated 19 February 2019.
The entity must continue to satisfy the conditions specified under the applicable DPIIT framework.
If the Central Government issues a new policy or modifies the existing policy in the future, the updated criteria will apply.
Accordingly, whether an entity qualifies as a startup for the purposes of the AIF Regulations is determined by reference to the prevailing DPIIT policy.
(x). Trust
Trust refers to a trust that has been legally established under applicable law.
A trust may be established under the Indian Trusts Act, 1882.
Alternatively, a trust may be established under a specific Act of Parliament.
A trust may also be established under a State legislation.
Only trusts that are validly constituted under one of these legal frameworks are covered by this definition.
In the context of AIFs, a trust is one of the permissible legal structures through which an Alternative Investment Fund may be established.
(y). Unit
A unit represents the beneficial interest of an investor in an Alternative Investment Fund (AIF) or in a scheme of the AIF.
By holding units, an investor acquires a proportionate interest in the assets, investments, and returns of the fund.
Units are the means through which an investor participates in the fund.
The extent of an investor's interest in the fund is generally determined by the number of units held by that investor.
A unit may be fully paid up, meaning the investor has paid the entire amount payable for the unit.
A unit may also be partly paid up, meaning only a portion of the amount payable for the unit has been paid and the remaining amount may be called for later.
Explanation:
For the purpose of this clause:
A partly paid up unit represents only the portion of the investor's committed capital that has actually been contributed to the Alternative Investment Fund or its scheme.
The investor may have committed a larger amount to the fund, but only a part of that commitment has been invested so far.
As and when the fund makes capital calls and the investor contributes additional amounts, the extent to which the units are paid up increases.
Example:
An investor commits ₹10 crore to a fund but has contributed only ₹4 crore.
The partly paid up units represent the ₹4 crore invested, while the remaining ₹6 crore remains an uncalled commitment.
In simple terms, partly paid up units reflect the amount that the investor has actually invested out of the total amount committed to the fund.
(z). Venture Capital Fund
A Venture Capital Fundis an Alternative Investment Fund (AIF)
Such Alternative Investment Fund shall invest primarily in unlisted securities.
The principal or dominant investment focus of the fund must be unlisted securities.
Investments shall be made in:
Start-ups.
Emerging venture capital undertakings.
Early-stage venture capital undertakings.
Such undertakings shall be mainly involved in:
New products.
New services.
Technology-based activities.
Intellectual Property Right (IPR)-based activities.
A new business model.
The focus of the fund is investment in businesses at an early or developing stage with innovative or growth-oriented activities.
Investments are generally intended for businesses that are not yet mature and are engaged in:
Innovation.
Technology.
Services.
Products.
Intellectual property.
Novel commercial models.
The term shall also include a migrated venture capital fund as defined under Chapter III-D of these regulations.
Accordingly, a migrated venture capital fund recognised under Chapter III-D shall also be treated as a Venture Capital Fund for the purposes of these regulations.
(za). Venture Capital Undertaking
A Venture Capital Undertaking means a domestic company.
The company must be not listed on a recognised stock exchange at the time investment is made.
The relevant point of time for determining eligibility is the time of making investment.
If the company is listed on a recognised stock exchange at the time investment is made, it shall not qualify as a Venture Capital Undertaking under this definition.
Please note that , The definition applies only to a domestic company, and not to a foreign company.
