SEBI Allows AIFs to Launch or Convert to AI-Only and LVF Schemes

CIRCULAR HO/19/34/11(5)2025-AFD-POD1/I/188/2025’; Dated: 08.12.2025

1. Regulatory Context

SEBI has allowed Alternative Investment Funds (AIFs) to either:

1. Launch new schemes exclusively for accredited investors or Large Value Funds (LVFs), or
2. Convert existing schemes into such AI-only or LVF structures.

The revised framework provides regulatory relaxations to funds catering to these investor segments, acknowledging their sophistication, risk appetite, and ability to evaluate complex fund strategies.

2. Mandatory Naming Requirement

Any scheme that operates exclusively for:

• Accredited investors, or
• Large Value Funds (LVFs)

must explicitly include in its scheme name:

• “AI only fund”, or
• “LVF”

This mandatory nomenclature fosters transparency, clarity for investors, and system-level standardisation for intermediaries and market infrastructure institutions.

3. Migration of Existing Schemes

Existing AIF schemes may migrate into AI-only or LVF structures, provided:

• Positive consent is obtained from 100% of existing investors
• Migration cannot be executed through a deemed consent or negative option mechanism
• The migration will only take effect after receipt of explicit affirmative consent from all unit holders

This ensures investor protection, clear disclosure, and alignment with revised risk–return expectations.

4. Post-Conversion Compliance

Once an existing scheme is successfully converted:

• Fund managers must update the scheme name to reflect its new status as an “AI only fund” or “LVF”
• Managers must intimate SEBI and the depositories within 15 days of conversion
• Depositories and market intermediaries will then carry out system-level updates, ensuring:

1. 1. Correct classification in reporting and fund databases,
   2. Accurate identifiers for filings, transactions, and holdings

5. Regulatory Intent

SEBI’s modification seeks to:

• Promote innovation and product flexibility within AIF structures
• Allow sophisticated investors to access specialised, high-risk strategies with fewer regulatory constraints
• Simplify compliance for funds serving investors who do not require extensive regulatory micromanagement
• Encourage market depth and product variety in India’s alternative investment ecosystem

6. Compliance Considerations for Fund Managers

AIFs and investment managers must:

• Review investor eligibility criteria before scheme launch or conversion
• Ensure disclosures, consents, and scheme documentation comply with SEBI’s directives
• Plan system, reporting, and operational updates in advance for seamless conversion
• Maintain clear communication with SEBI, depositories, and distribution platforms

Non-compliance may lead to regulatory scrutiny, reporting issues, or operational delays.

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