SEBI Allows Close-Ended AIFs to Invest During Extended Tenure

Informal Guidance No. AFD/PoD/OW/2025/18380, Dated: 09.07.2025

A company approached the Securities and Exchange Board of India (SEBI) for informal guidance on whether a close-ended Alternative Investment Fund (AIF) can make new investments during its extended tenure, or whether it is restricted only to liquidating existing investments.

1. Regulatory Context – AIF Tenure and Restrictions

Under the SEBI (Alternative Investment Funds) Regulations, 2012, the tenure of close-ended AIFs is fixed, with an option for extension. The liquidation and dissolution periods—phases after the expiry of fund tenure—are clearly restricted in terms of fresh investments.

• During liquidation and dissolution periods, AIFs are barred from making new investments and are allowed only to liquidate existing portfolio assets.

2. SEBI’s Clarification on Extended Tenure

SEBI clarified that:

• The restriction on new investments does not apply during the extended tenure granted under Regulation 13(6) of the AIF Regulations.
• Therefore, AIFs may make new investments during the extended period provided two conditions are met:

1. 1. The fund documents (such as the private placement memorandum or contribution agreement) permit such investments, and
   2. Prior disclosures are made to the investors regarding such investments during the extended period.

3. Implications for Fund Managers and Investors

This clarification offers greater flexibility to fund managers by allowing them to:

• Continue evaluating and executing investment opportunities during the extension period,
• Maximise portfolio value, and
• Avoid premature liquidation of funds.

However, fund managers must ensure contractual compliance and maintain transparency with investors through appropriate disclosures.

4. Conclusion

SEBI’s informal guidance affirms that close-ended AIFs are permitted to invest during their extended tenure, provided such investments are backed by governing documents and clearly disclosed to investors, aligning with the spirit of informed investor participation and fund governance.

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