SEBI Proposes Flexibility for AIFs During Winding Up

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  • Last Updated on 8 February, 2026

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SEBI AIF winding up

Consultation Paper Dated 05.01.2026

The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing measures to streamline the processes for winding up of Alternative Investment Fund (AIF) schemes and surrender of AIF registration.

The proposals seek to address practical challenges faced by AIFs that have completed their tenure but continue to exist for limited residual purposes.

1. Background and Regulatory Concerns

SEBI has observed that certain AIFs:

  • Continue to retain liquidation proceeds beyond the permissible fund life
  • Are unable to achieve a NIL bank balance, which is a prerequisite for surrender of registration

This situation commonly arises due to:

  • Pending litigation
  • Tax demands
  • Outstanding operational or statutory liabilities

As a result, such AIFs face regulatory uncertainty despite having otherwise completed their fund lifecycle.

2. Objective of the Proposals

The consultation paper aims to:

  • Provide regulatory clarity for AIFs that have completed their tenure
  • Enable an orderly winding-up process where funds continue to exist only for limited residual purposes
  • Address operational difficulties in surrendering registration due to unavoidable pending obligations

3. Key Proposals

3.1 Framework for AIFs Retaining Funds Beyond Permissible Life

SEBI has proposed a clearer regulatory framework for AIFs that:

  • Have completed their permissible fund life, but
  • Continue to retain funds solely to meet pending legal, tax, or operational requirements

This would help align regulatory expectations with practical realities.

3.2 ‘Inoperative’ Status for Certain AIFs

It has also been proposed that:

  • AIFs that have not retained any monies beyond the permissible fund life
  • May apply for an ‘inoperative’ status, instead of remaining fully operational or being compelled to surrender registration

This measure is intended to reduce unnecessary compliance burden on inactive funds.

4. Invitation for Public Comments

Considering the potential impact of these proposals on AIFs, fund managers, investors, and other market participants, SEBI has invited public comments and suggestions on the consultation paper.

5. Timeline for Submission of Comments

  • Last date to submit comments – 26 February 2026

Stakeholders are encouraged to provide feedback within the prescribed timeline to aid SEBI in finalising the regulatory framework.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied