The Securities and Exchange Board of India (SEBI) has issued a draft circular seeking public comments on operational clarifications for maintaining pro-rata rights of investors in Alternative Investment Funds (AIFs).
The draft follows industry feedback after amendments to the AIF Regulations, 2012, and a related SEBI circular from December 2024. Comments can be submitted until November 28, 2025, via the regulator’s website.
The proposal aims to ensure uniformity in how AIFs interpret and implement investors’ rights in relation to their capital commitments and distribution of investment proceeds.
It clarifies that for close-ended schemes, an investor’s commitment may be considered as either total commitment or undrawn commitment when drawing capital or distributing proceeds. The chosen method must be disclosed upfront in the Private Placement Memorandum (PPM) and cannot be altered during the fund’s tenure.
Further, AIFs are barred from using unutilised commitments of investors excused from certain investments, and drawdowns must not create disproportionate exposure to any investee company. Existing funds may continue with their current drawdown methods but must align future ones with the clarified options. SEBI also clarified that proceeds from investments made before December 13, 2024, may continue to be distributed as per the existing waterfall structure already disclosed to investors.
For open-ended Category III AIFs, SEBI notes that pro-rata drawdowns may not be applicable since investors can enter or exit anytime. Such schemes will issue and redeem units at Net Asset Value (NAV), and distribute proceeds pro-rata to unit holdings.
The draft also modifies previous guidance on carried interest, clarifying that pro-rata requirements do not extend to profits shared with fund managers or sponsors. All commitments, including those from overseas investors, must be recorded in rupees for regulatory purposes.
Once finalised, the new norms will become part of SEBI’s AIF compliance framework to enhance transparency and protect investor interests.
