Markets regulator Securities and Exchange Board of India (SEBI) issued a circular on September 19, 2024, introducing key modifications to the framework for the valuation of Alternative Investment Funds (AIFs). These changes come as a response to industry feedback and aim to bring greater consistency and transparency to the valuation process for AIF investment portfolios.

The modifications revolve around Clause 22 of SEBI's Master Circular for AIFs. Specifically, the valuation of securities not covered under the existing norms, such as unlisted and thinly traded securities, will now follow guidelines endorsed by an AIF industry association representing at least 33% of SEBI-registered AIFs. 

SEBI has also extended the timeline for reporting valuation based on audited data of investee companies, moving the deadline from six to seven months after the financial year-end.

In addition, SEBI has clarified that any change in valuation methodology will not be considered a "Material Change," provided transparency is maintained by disclosing both old and new methodologies to investors.

The circular also introduces new eligibility criteria for independent valuers and provides a timeframe for harmonising valuation norms across entities by March 31, 2025.  These changes will take effect immediately, to safeguard investor interests and foster a standardised approach to valuations within the AIF sector.

The full circular is available on the SEBI website here.