Sebi Tweaks AIF Rules, Cuts Entry Bar For Social Funds, Eases FPI Settlements

The Securities and Exchange Board of India (Sebi) has cleared a clutch of changes that, taken together, nudge the market towards fewer procedural snags and more practical compliance. The decisions, taken at its March 23, 2026, board meeting in Mumbai, span alternative investment funds, foreign portfolio investors, social impact funds, and internal governance.

None of these moves is flashy on its own. But each addresses something the industry has been grappling with for a while.

AIFs Get Breathing Room At The End Of Fund Life

For AIF managers, one recurring pain point has been the end-of-life phase of a fund. The rules required them to distribute all proceeds and bring bank balances to zero before surrendering registration. In reality, that neat closure is rarely possible. Tax assessments linger. Legal disputes drag on. Some expenses simply cannot be pinned down in advance.

According to a recent press statement by Sebi, funds will now be allowed to hold back a portion of proceeds beyond their tenure if there is a clear reason, say, a pending tax demand, litigation, or documented operational costs. There is also a time cap in place for such retention.

Alongside this, Sebi has introduced the idea of “inoperative funds.” These are AIFs that are effectively done with active investing but are yet to wind up formally. Instead of making them comply with the full set of ongoing requirements, the regulator will allow a lighter regime until they exit.

The change is less about leniency and more about acknowledging how fund closures actually play out.

FPIs To Benefit From Net Settlement

Foreign Portfolio Investors (FPIs) have long flagged the inefficiencies of settling trades on a gross basis. Even when buy and sell positions offset each other, they have had to arrange full funding for purchases, which adds to costs, especially when currency movements are involved.

That is now set to change. FPIs will be allowed to settle funds on a net basis for cash market transactions. In simple terms, if purchases and sales balance out within a settlement cycle, the funding requirement reduces.

The mechanics of securities settlement remain unchanged, and so do taxes such as securities transaction tax and stamp duty. But from an operational standpoint, this is a meaningful shift, particularly on days when portfolios are rebalanced.

Social Impact Funds Open Up To Retail Investors

Another decision that stands out is the sharp reduction in the minimum investment for social impact funds. The entry bar has been brought down to Rs 1000 from Rs 2 lakh.

The move is aimed at widening participation and bringing these instruments closer to the retail investor universe. Until now, the relatively high minimum ticket size had kept this space limited to a narrower pool of investors.

With the lower threshold, the expectation is that more individuals will be able to participate in funding social initiatives through market-linked instruments.

InvITs, REITs, And Other Operational Tweaks

There are also a series of smaller but relevant changes for infrastructure and real estate investment trusts. These include flexibility in holding certain assets beyond project completion, a wider set of options for parking surplus funds, and adjustments to borrowing norms.

These steps are meant to deal with practical issues that crop up in managing such vehicles, rather than impose rigid timelines that do not always align with ground realities.

Separately, the regulator has revised the “fit and proper person” criteria for intermediaries. The updated approach moves away from automatic disqualification in certain situations, such as the mere existence of a complaint, and instead allows for a case-by-case assessment.

Governance Within Sebi Also Gets Attention

The board has also acted on recommendations relating to conflicts of interest and disclosures for its own members and officials. The changes include tighter disclosure norms, clearer definitions of related parties, and systems to track potential conflicts.

Some of the more structural recommendations, particularly those involving oversight of board members, have been sent to the central government for a decision.

A Set Of Changes That Add Up

Seen individually, these decisions may not seem like a major reset. But together, they suggest a regulator trying to smooth edges rather than redraw the map.

There is a consistent thread running through them: where rules have proved cumbersome in practice, they are being adjusted. Where participation has been limited by entry barriers, those are being lowered. And where oversight needs to remain firm, it is being retained.

It is a mix of small corrections. But in markets, that is often how larger shifts begin.