The Securities and Exchange Board of India (Sebi) has unveiled a consultation paper proposing a lighter regulatory framework tailored for Alternative Investment Funds (AIFs) that cater exclusively to accredited investors. The reforms, currently out for public consultation, aim to enhance efficiency and accessibility by lowering operational barriers and leveraging fund managers’ due diligence. Key proposals include permitting all Sebi-registered KYC Registration Agencies (KRAs) to certify investor accreditation—and allowing AIF managers to provisionally onboard investors based on their own vetting, pending formal accreditation. Concurrently, Sebi envisions a transition from minimum contribution thresholds toward accreditation status as the primary metric for investor sophistication, signaling a significant shift in the regulatory landscape.
AIF Schemes Exclusively for Accredited Investors: Easier but Secure
Sebi proposes launching a distinct category of AIFs exclusively for accredited investors—individuals or entities meeting specified high net-worth criteria. These “AI-only” schemes would benefit from a more flexible regulatory structure, aligning with the assumption that accredited investors can independently evaluate risk. This includes waivers for pari-passu rights (with explicit investor consent), exemption from mandatory NISM certification for key fund managers, removal of the 1,000-investor cap, extended scheme tenure (up to five years with two-thirds investor approval), and flexible governance in trust-based structures where managers step into trustee roles .
From Contribution Limits to Accreditation Status
Currently, AIF entry is determined by minimum commitment thresholds—such as the ₹1 crore per investor norm. Under Sebi’s vision, this would gradually shift to accreditation status. Both metrics will co-exist during the transition, but the shift underscores the regulator’s intent to prioritize sophistication over sheer capital .
Broadening Accreditation Agents: KRAs in the Driver’s Seat
To expedite onboarding, Sebi suggests empowering all Sebi-registered KRAs—not just subsidiaries of exchanges or depositories—to act as accreditation agencies. This expansion is expected to infuse the system with competition, reduce redundancy, and lower costs while reinforcing oversight .
Provisional Onboarding via Manager Due-Diligence
In a notable operational simplification, AIF managers may be allowed to provisionally onboard accredited investors based on their own rigorous due diligence. Formal accreditation must still follow, and any provisional commitment won’t count toward the fund's corpus until certification is confirmed. For closed-ended AIFs, failure to secure certification by final close would nullify the contribution agreement. Funds may only be received post-certification .
Timeline and Industry Implications
Sebi issued its consultation on June 17, 2025, inviting public comments by July 8, 2025 . Separately, broader AI-only AIF reforms—such as the shift to accreditation status and regulatory relaxations—have a consultation window open until August 29, 2025 .
If implemented, these changes could meaningfully reduce friction in fund-raising, speed capital deployment, and potentially boost accredited investor participation. However, the dual need for efficiency and investor safety remains central—Sebi preserves third-party certification and maintains strict safeguards on provisional commitments.
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Deep Insight:
By leveraging existing KRA infrastructure and empowering fund managers' due diligence, Sebi is reframing the accreditation process not as a regulatory hurdle, but as a facilitator. This model maintains investor protection through certification while removing bureaucratic bottlenecks. Over time, the transition to accreditation-based sophistication could lower barriers for highly capable investors without diluting oversight—striking a delicate balance between regulation and innovation.
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Final Thoughts
Sebi’s proposed reforms represent a forward-leaning evolution in India’s AIF regulation. By aligning legal frameworks with market reality—where crowdfunding platforms, digital onboarding, and rapid capital mobilization are becoming the norm—the regulator is nudging the AIF ecosystem toward greater dynamism. It’s a move that respects investor protection while recognizing growing sophistication among a new generation of investors.
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