SEBI's GARUDA Mechanism: Revolutionising AIF Scheme Launch Timelines Through Regulatory Streamlining

Background and Context

The Securities and Exchange Board of India has introduced a transformative regulatory framework aimed at significantly accelerating the process through which Alternative Investment Funds launch new schemes. Titled Green-Channel: AIF Rollout Upon Document Acknowledgement (GARUDA), this mechanism proposes targeted amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 with a view to enabling quicker and more efficient mobilisation and deployment of capital across the AIF industry.

The proposal emerges from SEBI's broader regulatory reform agenda and reflects a considered acknowledgement that the AIF sector has matured substantially since its early regulatory days. As sophisticated capital pools that channel funds from qualified investors to enterprises requiring growth capital, AIFs occupy a critical position in India's financial ecosystem. Any friction in scheme launch timelines directly translates into delayed capital deployment — an outcome that is increasingly difficult to justify as the industry grows in scale and competence.

The AIF Industry: Scale and Growth

Rapid Expansion Over Five Years

Before diving into the mechanics of the GARUDA proposal, it is essential to appreciate the sheer scale at which the AIF industry has expanded:

• As of March 31, 2026, the total number of registered AIFs stood at 1,849 — up from 732 AIFs as of March 31, 2021, representing a staggering 135% growth over five years.
• Cumulative commitments raised by AIFs have reached INR 15.74 lakh crores, with net investments standing at INR 6.45 lakh crores as of December 31, 2025 — both growing at approximately 30% CAGR over the same period.
• Application inflows have surged correspondingly:

As of March 31, 2026, a total of 183 scheme applications remained pending — comprising 124 first scheme applications and 59 new scheme applications.

This rapid growth makes it imperative that the regulatory process for scheme launches keeps pace with operational demand, rather than becoming a structural bottleneck.

Classification of AIF Schemes: Understanding the Three Buckets

Under the SEBI (Alternative Investment Funds) Regulations, 2012, AIF schemes are categorised into three distinct types, each with its own investor eligibility and regulatory treatment:

1. Large Value Fund for Accredited Investors (LVF)

A scheme where every investor qualifies as an Accredited Investor (AI) and contributes a minimum of INR 25 crore. LVFs already enjoy the most relaxed launch framework — they may launch immediately upon filing their PPM with SEBI and are exempt from the Merchant Banker filing requirement.

2. Accredited Investor Only Scheme (AI Only Scheme)

A scheme where every investor holds Accredited Investor status, with no minimum investment floor prescribed. Notably, pursuant to an amendment to the SEBI (AIF) Regulations, 2012, Angel Funds are now permitted to onboard and raise capital exclusively from Accredited Investors.

3. Regular Schemes

All remaining AIF schemes — including Special Situation Funds (SSFs) — that onboard investors primarily on the basis of a minimum investment threshold of INR 1 crore. This category forms the broadest segment of the AIF universe.

Existing Regulatory Framework Under Regulation 12

Regulation 12 of the SEBI (Alternative Investment Funds) Regulations, 2012 governs the scheme launch process for AIFs. Key requirements under the existing framework include:

• Filing of Placement Memorandum (PPM) with SEBI through a registered Merchant Banker, at least 30 days prior to scheme launch, along with prescribed fees.
• SEBI may communicate comments on the PPM to the Merchant Banker within this period.
• The Merchant Banker is obligated to ensure that all SEBI comments are incorporated into the PPM before the scheme is launched.
• LVFs are exempt from the 30-day filing requirement and the Merchant Banker filing route.