SEBI’s 2026 Amendments to Alternative Investment Fund Regulations: Lower Thresholds, New Inoperative Tag & Flexible Distributions

The Securities and Exchange Board of India has notified the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2026, bringing focused but impactful changes to the regulatory framework governing Alternative Investment Funds (AIFs).

These amendments refine the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 by:

  • Sharply reducing a key monetary threshold in Regulation 10(c) from “two lakh” to “one thousand”;
  • Expanding SEBI’s power to prescribe conditions for distribution of proceeds under Regulation 29(7); and
  • Introducing a new concept of an “inoperative fund” through insertion of sub-regulation (10A) in Regulation 29.

Collectively, these steps are designed to ease specific compliance burdens, create more flexibility in winding-up and distribution processes, and enable clearer regulatory handling of dormant or inactive AIFs.

Statutory Basis and Enactment Details

The amendment regulations are issued by SEBI in exercise of powers under:

  • Section 30(1) read with Section 11(1),
  • Section 11(2)(ba) and Section 11(2)(c), and
  • Section 12(1) and Section 12(1B)

of the Securities and Exchange Board of India Act, 1992 (15 of 1992).

Key formal aspects of the notification are as follows:

  • Title: Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2026
  • Notification No.: SEBULAD-NRO/GN/2026/303
  • Place and date of issue: Mumbai, 16th April, 2026
  • Effective date: The regulations become operative from the date of their publication in the Official Gazette.

Note: The base framework, i.e., the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, was originally notified on May 21, 2012 via Notification No. SEBI/LAD-NRO/GN/2012-13/04/11262 and most recently amended on November 19, 2025 by the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2025, Notification No. SEBI/LAD-NRO/GN/2025/274.

Key Amendment 1: Significant Reduction in Threshold under Regulation 10(c)

What Has Changed in Regulation 10(c)?

The first substantive change under the 2026 amendment relates to Regulation 10(c) of the 2012 AIF Regulations. In the third proviso to Regulation 10(c), the monetary reference has been altered as follows:

  • Earlier wording: “two lakh”
  • New wording: “one thousand”

Thus, the threshold figure in that specific proviso is now “one thousand” instead of “two lakh”.

Implication of the Reduction

While the underlying text of Regulation 10(c) is not reproduced in the amendment notification, the scale of reduction—from a figure of “two lakh” to “one thousand”—is substantial. Conceptually, this change:

  • Eases compliance by lowering the concerned monetary trigger;
  • Potentially broadens access or reduces minimum requirement in the context in which Regulation 10(c) operates (for example, procedural or filing-based thresholds); and
  • Signals SEBI’s intent to make a particular aspect of the AIF regime more practical and less burdensome, especially where a high threshold may have been acting as a friction point.

AIF managers and investment teams should revisit Regulation 10(c) in the principal 2012 Regulations, read it with the amended threshold, and revise their internal compliance matrices accordingly.

Practical Step: Compliance officers of AIFs should update their regulatory checklists, offer documents, internal policies, and investor-facing documentation wherever the figure “two lakh” under Regulation 10(c) had been referenced operationally.

Key Amendment 2: Enhanced Flexibility in Distribution of Proceeds – Regulation 29(7)

Pre-Amendment Position under Regulation 29(7)

Regulation 29 of the 2012 Regulations deals with the winding up, dissolution, and related distributions of an AIF. Sub-regulation (7) relates to the distribution of proceeds after satisfying all liabilities of the AIF.

Prior to the 2026 amendment, Regulation 29(7) allowed distribution of the remaining proceeds post discharge of liabilities, but did not explicitly embed SEBI’s ongoing power to stipulate additional conditions for such distributions.

New Wording Inserted in Regulation 29(7)