SEBI AIF Norms Review: Pro-Rata and Pari-Passu Rules
Why in the news
Fund managers, legal advisers and investors objected that the December 2024 AIF circular was too inflexible and disturbed existing fund structures, so SEBI took another look at it.
Key facts
- Pro-rata rights: profits and losses are shared in proportion to each investor’s committed capital.
- Pari-passu rights: investors are treated alike on drawdowns and distribution of returns, unless an exemption applies.
- Aim: fairness, transparency and uniformity, plus clarity on waterfall models and preferential rights seen in legacy and global investor structures.
About AIFs
AIFs are privately pooled vehicles. Typical targets are social-impact ventures, infrastructure, hedge funds, venture capital and private equity rather than ordinary listed instruments. They can be set up as trusts, LLPs, companies or other permitted entities.
Categories of AIFs
| Category | Focus | Examples |
|---|---|---|
| I | Innovation, start-ups, SMEs, social impact | Venture capital funds, angel funds (₹25 lakh minimum per investor), infrastructure funds, social venture funds |
| II | Private equity and debt, no leverage | PE funds, debt funds, fund of funds |
| III | Aggressive, market-linked strategies with leverage and arbitrage | PIPE funds, hedge funds (typically 2% management fee plus 20% performance fee) |
Investor norms
- Eligible: resident Indians, NRIs and foreign nationals.
- Minimum ticket: ₹1 crore, relaxed to ₹25 lakh for fund managers, employees and directors.
- Lock-in: at least 3 years.
- Ceiling: a scheme may have at most 1,000 investors, and an angel fund only 49.
Exam angle
- Governing rules: SEBI (AIF) Regulations, 2012.
- Terms: pro-rata, pari-passu, waterfall, PIPE.
- Numbers: ₹1 crore, 3 years, 1,000 investors, 49 for angel funds.