SEBI AIF Regulations: what changed in 2025, and what's coming in 2026

The SEBI (Alternative Investment Funds) Regulations, 2012 are the operating rulebook for every AIF in India. They started as a fairly light-touch framework and have been amended close to twenty times since. Most of those amendments were narrow technical fixes. A few rewrote how the industry runs day to day.

The 2024 and 2025 cycles fall into the second bucket. If you run a Category I, II, or III AIF and you have not refreshed your compliance manual, your custodian arrangement, or your NAV cadence in the last twelve months, you are out of date. The 2026 cycle is going to add more on top.

We work through this with fund managers in our AIF advisory practice and the same questions come up. What actually changed, what is still in draft, and where does our fund need to spend the next quarter getting compliant. This article walks through the answers.

What 2024 settled, briefly

Two pieces from 2024 still matter for the 2025 baseline. The first was the September 2024 Master Circular consolidation, which pulled together more than thirty earlier circulars into one document. The Master Circular is the working text every fund's compliance officer should be reading; the underlying regulation has not been rewritten, but the circular reorganises the operational rules in a way that makes the obligations easier to track.

The second was the clarification on Category I and Category II funds investing in unlisted securities. The regulator narrowed the window for investments in listed securities (other than for liquidity management) and tightened the definition of what counts as an unlisted instrument with an embedded equity feature. Angel funds were retained as a Cat I sub-category through this round.

The 2025 amendments that actually changed operations

Three changes from 2025 are now binding and reshape how funds run.

Monthly NAV reporting for Category I and II. Earlier, quarterly NAV reporting was the default for Cat I and Cat II funds and most fund managers ran quarterly internal valuations. The 2025 amendment moved this to monthly NAV reporting for every category. The mechanics: independent valuer engagement on a monthly cadence, valuation committee review, custodian validation, and LP reporting by the tenth of the following month. For private equity funds where the underlying portfolio is illiquid, this has been operationally painful. Most funds we work with have moved to a stable-NAV-plus-quarterly-mark-to-market hybrid, where the monthly NAV reflects only realised events and the full valuation refresh happens quarterly. SEBI has not objected to this approach so far, but the regulation does not formally permit it either.

Custodian appointment for Category III. Cat III funds were earlier permitted to self-custody for unlisted positions. The 2025 amendment removed this carve-out. Every Cat III AIF now needs a SEBI-registered custodian for all securities holdings. For long-short equity funds this was a non-event since they were already custodied. For Cat III funds running structured credit or special situations, the change forced custodian onboarding mid-life of the fund, which is not a trivial exercise.

Tighter LP reporting standards. The 2025 amendment expanded the minimum content of the quarterly LP report. It now needs to include a deal-by-deal valuation note, a portfolio company-level financial summary, an explicit risk-factor disclosure, and a fee and expense reconciliation. The two-page LP letter is no longer compliant. Most funds we advise have moved to a fifteen-to-twenty page quarterly investor report.

Leverage relaxation for Cat III, with conditions

The other 2025 change worth flagging is the partial relaxation of the leverage cap on Cat III AIFs. The base position remains 2x of the fund corpus. The amendment created a defined window for higher leverage in two cases: derivatives positions where the leverage is notional rather than economic, and structured credit positions where the leverage is collateralised. The conditions are tight and require monthly leverage reporting to SEBI.

We have seen a handful of long-short equity funds use the derivatives carve-out to run effective leverage closer to 3x. The structured credit carve-out is rarely used because the documentation overhead is heavy and the underlying transactions are typically bilateral anyway.

What 2026 is shaping up to bring

Three threads are visible in the SEBI consultation papers and industry feedback rounds from late 2025. None are final law yet, so what follows is reasoned speculation, not regulation.

Accreditation framework changes. The current LP eligibility test is a net worth and financial assets threshold (₹2 crore net worth, ₹1 crore in financial assets for individual accreditation). SEBI has indicated through its consultation paper that it intends to formalise an accreditation agency framework with a registry, periodic re-verification, and standardised documentation. The likely effect for funds is that the burden of verifying LP eligibility shifts partly to a regulator-recognised accreditation agency rather than sitting entirely with the fund manager.

Expanded KMP definition. Key Managerial Personnel under the AIF rules are currently a narrow set: the fund manager, the compliance officer, and one or two others. The proposed expansion would add the head of investment committee, the head of risk, and the senior investment professionals running each strategy line. The compliance consequence is that fit-and-proper checks, fingerprinting, and background verification would extend to a wider group of fund personnel.

ESG integration mandate. SEBI's broader ESG push is likely to reach the AIF regulations in 2026. The expected shape is a mandatory ESG policy at the fund level, ESG risk disclosure in the PPM (private placement memorandum), and an annual ESG report alongside the audited accounts. For Cat I Social Impact funds this is largely already in place. For Cat II PE funds it would be new.

The thing to watch is whether the 2026 amendments arrive as a single package or, as has been the recent pattern, as a sequence of separate circulars across the calendar year. The latter is more painful operationally because the compliance team is reabsorbing a moving target.

What we do with this in practice

When a fund manager engages us on AIF compliance, the first thirty days are spent rebuilding the compliance calendar against the current rulebook. Monthly NAV, custodian arrangements, expanded LP reporting, and leverage reporting (where applicable) are the four items that most often need work. After the calendar is rebuilt, the question is whether the fund's documentation (PPM, LPA, side letters) still aligns with the regulatory baseline. The 2025 amendments forced PPM updates for most funds; the 2026 cycle is likely to force another round.

The funds that handle this well are the ones that treat the AIF rulebook as a moving document and have a quarterly compliance review built into their operating rhythm. The funds that struggle are the ones that wrote a compliance manual at registration and have not opened it since.

One regulation, two operating modes

There is an old way to run an AIF in India, which is to comply at the minimum standard and address SEBI questions as they arrive. There is a newer way, which is to anticipate the regulatory direction and operate ahead of the line. The cost difference between the two modes is not large. The risk difference is significant. The 2025 cycle punished funds that were in the first mode. The 2026 cycle is going to punish them more.

If your fund has not had a full compliance refresh in the last twelve months, that is the work to commission this quarter. The cost of doing it is small. The cost of not doing it is a SEBI examination letter, which is an event most fund managers would prefer to avoid.