Markets watchdog Securities and Exchange Board of India (SEBI) has now announced some relaxation in the deadlines for alternative investment funds (AIFs)

SEBI said that any investment made by an AIF on or after July 01, 2025, shall be held in dematerialised form only

Further, SEBI noted investments made before July 1, 2025 will be exempt from this requirement, barring certain exceptions

Markets watchdog Securities and Exchange Board of India (SEBI) has now relaxed its mandates for alternative investment funds (AIFs) to hold their investments in dematerialised form.

“Any investment made by an  AIF on or after July 01, 2025, shall be held in dematerialised form only, irrespective of whether the investment is made directly in the investee company or is acquired from another entity,” SEBI said in a circular. 

Dematerialisation essentially means transforming the physical shares and securities into digital or electronic form to ensure safety, convenience and efficiency. Notably, AIF is a privately pooled investment vehicle that collects funds from investors under a defined investment policy. The funds are infused as capital for the benefit of its investors.

Further, SEBI noted investments made before July 1, 2025, will be exempt from this requirement, barring certain caveats. 

These exceptions will not be available if the investee company of the AIF is legally mandated to dematerialise its securities. 

Additionally, exemptions will also not be available if the AIF, either independently or alongside other SEBI-registered entities that are required to hold investments in demat form, exercises control over the investee company. In both these cases, SEBI said the investments must be dematerialised by October 31, 2025.

Further, some schemes are exempt from this requirement altogether. These include the ones whose tenure ends by October 31, 2025, or those already in an extended tenure as of February 14, 2025. 

The new provisions are effective immediately and have been brought in by SEBI with an eye on promoting investor protection and improving market transparency. 

This follows SEBI, in June 2023, issuing a circular that directed AIFs, with a corpus of INR 500 Cr and above, to dematerialise their units by October 31, 2023. Other AIFs, with a corpus less than INR 500 Cr, have to dematerialise their units by April 30, 2024. 

In the recent past, SEBI has made or proposed multiple changes to AIF and venture capital fund (VCF) norms. 

For instance, In September 2023, SEBI updated valuation rules for AIF portfolios, aligning most securities with mutual fund regulations (SEBI Mutual Funds Regulations, 1996), except for unlisted, non-traded, or thinly traded securities.

In August 2024, SEBI allowed Category-I and II AIFs to borrow for up to 30 days to meet temporary needs and operations. At the time, borrowing was limited to four times a year and capped at 10% of total investible funds.

Markets watchdog Securities and Exchange Board of India (SEBI) has now announced some relaxation in the deadlines for alternative investment funds (AIFs)

SEBI said that any investment made by an AIF on or after July 01, 2025, shall be held in dematerialised form only

Further, SEBI noted investments made before July 1, 2025 will be exempt from this requirement, barring certain exceptions

Markets watchdog Securities and Exchange Board of India (SEBI) has now relaxed its mandates for alternative investment funds (AIFs) to hold their investments in dematerialised form.

“Any investment made by an  AIF on or after July 01, 2025, shall be held in dematerialised form only, irrespective of whether the investment is made directly in the investee company or is acquired from another entity,” SEBI said in a circular. 

Dematerialisation essentially means transforming the physical shares and securities into digital or electronic form to ensure safety, convenience and efficiency. Notably, AIF is a privately pooled investment vehicle that collects funds from investors under a defined investment policy. The funds are infused as capital for the benefit of its investors.

Further, SEBI noted investments made before July 1, 2025, will be exempt from this requirement, barring certain caveats. 

These exceptions will not be available if the investee company of the AIF is legally mandated to dematerialise its securities. 

Additionally, exemptions will also not be available if the AIF, either independently or alongside other SEBI-registered entities that are required to hold investments in demat form, exercises control over the investee company. In both these cases, SEBI said the investments must be dematerialised by October 31, 2025.

Further, some schemes are exempt from this requirement altogether. These include the ones whose tenure ends by October 31, 2025, or those already in an extended tenure as of February 14, 2025. 

The new provisions are effective immediately and have been brought in by SEBI with an eye on promoting investor protection and improving market transparency. 

This follows SEBI, in June 2023, issuing a circular that directed AIFs, with a corpus of INR 500 Cr and above, to dematerialise their units by October 31, 2023. Other AIFs, with a corpus less than INR 500 Cr, have to dematerialise their units by April 30, 2024. 

In the recent past, SEBI has made or proposed multiple changes to AIF and venture capital fund (VCF) norms. 

For instance, In September 2023, SEBI updated valuation rules for AIF portfolios, aligning most securities with mutual fund regulations (SEBI Mutual Funds Regulations, 1996), except for unlisted, non-traded, or thinly traded securities.

In August 2024, SEBI allowed Category-I and II AIFs to borrow for up to 30 days to meet temporary needs and operations. At the time, borrowing was limited to four times a year and capped at 10% of total investible funds.