In a move aimed at simplifying operations for private market investors, the SEBI Board has approved a key change allowing Category I and II Alternative Investment Funds (AIFs) to offer co-investment opportunities through a dedicated structure within the AIF itself.
This decision, taken at SEBI’s 210th Board meeting held in Mumbai on June 18, 2025, will enable fund managers and accredited investors to participate directly in investment opportunities alongside the main AIF scheme. The move is expected to boost capital formation in unlisted companies.
Under the new framework, Category I and II AIFs can launch a separate “Co-investment Scheme” or “CIV scheme” for each such opportunity. These CIV schemes will allow accredited investors of a specific AIF scheme to invest directly in unlisted companies where the primary AIF scheme is also making an investment. This is expected to streamline operations by reducing the need for separate Portfolio Management Services (PMS) registrations and minimising shareholder complexity for investee companies.
Currently, co-investments by AIF investors are typically routed through PMS structures, which have posed regulatory and operational challenges. A working group constituted by SEBI highlighted these issues and recommended introducing a more integrated approach. With the new CIV structure, AIF managers will not be required to maintain dual PMS-AIF licences, and companies will no longer need to manage multiple direct investors separately.
Some regulatory relaxations will apply to CIV schemes compared to standard AIF schemes, subject to safeguards that prevent misuse. The move follows a public consultation in May 2025 and incorporates feedback from the Alternative Investment Policy Advisory Committee.
With this change, SEBI aims to enhance the ease of doing business for AIFs while encouraging deeper investor participation in India’s unlisted space.
