The Securities and Exchange Board of India (SEBI) issued a consultation paper on February 5, 2026, regarding flexibility for Alternative Investment Funds (AIFs) in winding-up schemes or surrendering registration.
The following has been stated:
• SEBI has issued a consultation paper proposing greater flexibility for Alternative Investment Funds (AIFs) in winding up schemes and surrendering registration. Currently, AIFs shall liquidate assets, distribute proceeds after settling liabilities, and maintain a NIL bank balance before surrendering registration. However, many AIFs face difficulties due to pending or anticipated litigation, tax demands, or residual operational expenses, which prevent full distribution within the permissible fund life.
• To address this, SEBI proposes allowing AIF schemes to retain funds beyond the permissible period under specific conditions:
o (i) where there is demonstrable receipt of litigation or tax demand notice,
o (ii) where at least 75% of investors by value consent in cases of anticipated liabilities, and
o (iii) where retained operational expenses are substantiated with supporting documents. Retained funds shall be invested only in permitted liquid instruments under Regulation 15(f).
• SEBI also proposes introducing an “inoperative fund” category for AIFs with no active fund management activity. Such funds would receive regulatory relaxations, including discontinuation of PPM audit, CTR, and quarterly reporting, but shall submit annual status reports, cannot launch new schemes, cannot charge management fees, and shall settle all liabilities and achieve a NIL balance before final surrender. Retention for operational expenses would be capped at three years.
• The comments/suggestions should be submitted by February 26, 2026, only through the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublic%20Comments=yes%20
