SEBI board announces wide-ranging changes to AIF, FPI, REIT/InvIT and governance norms
The Securities and Exchange Board of India (SEBI) convened its board meeting on March 23, where it cleared a broad set of regulatory reforms spanning intermediaries, foreign investors, alternative investment funds, and governance frameworks.
Aimed at striking a balance between improving ease of doing business and strengthening regulatory oversight, the measures include compliance relaxations for AIFs and REITs/InvITs, revisions to the ?fit and proper? norms, and operational enhancements for FPIs, among other initiatives.
For Alternative Investment Funds, SEBI has introduced flexibility in scheme wind-up by permitting retention of liquidation proceeds beyond fund life under specified conditions, including pending litigation, tax liabilities, or operational expenses, subject to investor consent and disclosure requirements.
A framework to classify such vehicles as inoperative funds with reduced compliance obligations has also been approved, addressing structural inefficiencies in fund closure.
For Foreign Portfolio Investors, the regulator has approved net settlement of funds for cash market transactions, replacing the current gross settlement system for the cash leg.
This is expected to reduce funding requirements, lower transaction costs, and improve liquidity efficiency, particularly during high-volume trades such as index rebalancing, while retaining gross settlement for securities to mitigate market risk. Implementation is targeted by 31 December 2026.
In the Social Impact Segment, the minimum investment threshold for Social Impact Funds under AIF regulations has been sharply reduced from ₹2 lakh to ₹1,000, aligning with zero-coupon instruments under ICDR norms and enabling broader retail participation in the Social Stock Exchange ecosystem.
For InvITs and REITs, SEBI has introduced multiple operational relaxations, including allowing continued holding of SPVs beyond concession expiry under defined conditions, expanding investment avenues for temporary surplus funds into lower-risk liquid mutual funds, permitting privately listed InvITs to invest up to 10% in under-construction infrastructure assets, and enabling additional borrowing flexibility for leveraged InvITs for refinancing and maintenance capex.
On the regulatory and governance side, amendments to the ?fit and proper person? criteria under intermediary regulations shift toward a more principle-based framework, removing automatic disqualification triggers linked to pending proceedings while expanding coverage to economic offences and strengthening disclosure requirements.
Additionally, SEBI has approved recommendations from the High-Level Committee on conflict of interest, including stricter disclosure norms for officials, investment restrictions (including for immediate family), recusal frameworks, and the creation of institutional mechanisms such as digital monitoring systems and an ethics oversight structure.
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