The Securities and Exchange Board of India (SEBI) on June 16, 2026, issued Guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status.
SEBI has introduced amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 on April 18, 2026, providing flexibility to AIFs in relation to winding up of schemes and surrender of registration. The circular clarifies conditions under which AIFs may retain liquidation proceeds beyond the permissible fund life, including situations involving ongoing or anticipated litigation, investor consent (minimum 75% by value), or pending operational expenses related to winding up.
The framework requires that retained monies be properly disclosed to investors, including the amount and expected retention period. In case of operational expenses, retention is capped at three years beyond the permissible fund life. All such retained funds must be invested in accordance with regulatory provisions, and once liabilities are settled, the remaining funds must be distributed to investors before completing the winding-up process.
Further, SEBI has introduced the concept of an “Inoperative Fund,” allowing AIFs with retained monies or pending litigation to maintain registration without active operations. Such funds cannot launch new schemes or charge management fees and must comply with specified regulatory conditions. They are also required to submit annual status reports on retained funds and liabilities to SEBI and investors.
This framework is also extended to erstwhile Venture Capital Funds. The circular is effective immediately and aims to streamline fund closure processes while safeguarding investor interests and ensuring regulatory clarity.
[Circular No. HO/19/34/11(2)2026-AFD-POD1/I/13764/2026]
