Framework for AIFs to make co-investment within AIF structure under SEBI

On 9 September 2025, the Securities and Exchange Board of India (SEBI) issued a circular introducing a framework for Alternative Investment Funds (AIFs) to provide co-investment opportunities within their structure under the SEBI (AIF) Regulations, 2012. The amendment allows Category I and II AIFs to launch co-investment schemes (CIV schemes) for accredited investors, in addition to the existing co-investment route through Portfolio Managers under SEBI (Portfolio Managers) Regulations, 2020. Under this framework, managers of AIFs may facilitate co-investments either via the PMS route or through CIV schemes, with each CIV scheme required to maintain separate bank and demat accounts and have ring-fenced assets. Co-investments by an investor across CIV schemes are capped at three times their contribution in the main AIF scheme, except for certain exempted institutional investors such as sovereign wealth funds and development financial institutions. Restrictions are placed on ineligible investors, leverage, indirect exposures, and regulatory compliance to ensure alignment with the AIF Regulations. CIV schemes must also adopt governance and operational standards to prevent misuse of the flexibility provided. Expenses and rights in co-investments are to be shared proportionately, while compliance reporting and investor grievance redressal mechanisms are to align with AIF regulatory requirements. The circular further provides a template for the shelf private placement memorandum (Shelf PPM) for CIV schemes, detailing structure, governance, investment terms, expenses, reporting, conflicts of interest, and risk disclosures. The new framework, effective immediately, is aimed at easing operations for AIFs while safeguarding investor interests and ensuring regulatory oversight.

Securities and Excgange Board of India

Circular No. SEBI/HO/AFD/AFD-POD-1/P/CIR/2025/126 Dated: September 09, 2025

To,
All Alternative Investment Funds (AIFs)

Sir/Madam,

Sub: Framework for AIFs to make co-investment within the AIF structure under SEBI (Alternative Investment Funds) Regulations, 2012

1. With an objective to enhance ease of doing business for Alternative Investment Funds (“AIFs”), Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (‘AIF Regulations’), have been amended and notified on September 09, 2025 to permit Category I and Category II AIFs to offer co-investment facility to accredited investors by launching a separate co-investment scheme (“CIV scheme”) within AIF Regulations. This is in addition to the co-investment currently being facilitated to investors of AIFs through Co-investment Portfolio Managers under SEBI (Portfolio Managers) Regulations, 2020 (“PMS route”).

2. In terms of sub-regulation 7 of regulation 17A of AIF Regulations, co-investment through a CIV scheme shall be carried out by manager of Category I or Category II AIFs in the manner and subject to the conditions as may be specified by the Board from time to time. In this regard, below mentioned operational modalities are being specified by this circular:

2.1. Managers of AIFs shall make co-investment for an investor in an investee company either through PMS route or CIV scheme route.

2.2. In terms of regulation 17(A)(2), manager of AIF shall file a shelf placement memorandum (template available at Annexure), that inter alia includes, principal terms relating to co-investments, governance structure, and regulatory framework for co-investment, etc.

2.3. Each CIV scheme shall have separate bank account and demat account and assets of each CIV scheme shall be ring fenced from assets of the other schemes.

2.4. Co-investments of an investor in an investee company across CIV schemes shall not exceed three times of the contribution made by such investor in the total investment made in the said investee company through the scheme of the AIF to which aforesaid CIV schemes are affiliated.

However, the aforesaid restriction shall not apply to the following types of investors (i.e. these investors may invest any amount in an investee company through CIV schemes):

2.4.1. Multilateral or Bilateral Development Financial Institutions; 2.4.2. State Industrial Development Corporations;

2.4.3. Entities established or owned or controlled by the Central Government or a State Government or the Government of a foreign country, including Central Banks and Sovereign Wealth Funds.

2.5. In case an investor of a scheme of an AIF excused / excluded or has defaulted in contributing to the investment made in an investee company by such scheme of AIF, such investor shall not be allowed to co-invest in the said investee company.

2.6. The manager shall ensure that the CIV scheme does not make any investment:

2.6.1. that would lead to its investors acquiring or holding an interest/exposure in an investee company indirectly, that they cannot acquire or hold directly,

2.6.2. that would necessitate additional regulatory disclosure if they had invested directly

2.6.3. where the investee company cannot receive investments from such investor directly.

2.7. CIV Scheme shall not borrow funds directly or indirectly or engage in any kind of leverage.

2.8. Investors of a CIV scheme shall have rights in the investment of the CIV scheme and in the distribution of proceeds of the investment, pro-rata to their contribution to the CIV scheme, except to the extent carried interest (or additional return or whatever name it is called) is shared with the sponsor or manager of the AIF or employees/directors/partners of the manager of AIF.

2.9. Any expenses associated with co-investment, shall be shared proportionately between the scheme of AIF and CIV scheme in the ratio of their investments.

2.10. CIV scheme shall be subject to implementation standards, if any, formulated by Standard Setting Forum of AIF, in consultation with SEBI, to ensure that the investment by CIV scheme are made for bona-fide purposes and that the flexibility extended in this regard is not misused.

3. The implementation standards, if any, formulated by SFA in consultation with SEBI, shall be adopted by AIFs, Managers of AIFs and their Key Management Personnel for compliance with the provisions of this circular. Such implementation standards shall be published on websites of the industry associations which are part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PE VC CFO Association and Trustee Association of India.

4. The trustee/sponsor of AIF, as the case may be, shall ensure that the ‘Compliance Test Report’ prepared by the manager in terms of Chapter 15 of Master Circular for AIFs, includes compliance with the provisions of this circular.

5. This circular shall come into force with immediate effect.

6. This circular is issued with the approval of the competent authority.

7. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulations 17A(7) and 36 of AIF Regulations, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

8. The circular is available on SEBI website at sebi.gov.in under the categories “Legal framework – Circulars” and “Info for – Alternative Investment Funds”.

Yours faithfully,

Aparna Thyagarajan
Chief General Manager
Tel no.: +91-22-26449024
aparnat@sebi.gov.in

CONFIDENTIAL SHELF PRIVATE PLACEMENT MEMORANDUM FOR CO-INVESTMENT SCHEME(S)

[For private circulation only]

By [name of the AIF] for [name of affiliated Main Scheme]

[The AIF] is registered with SEBI as a Category [I/II] Alternative Investment Fund with effect from [date of registration]

Registration No._____________

Trustee (For AIFs set up as Trust):

Manager: [•]

This private placement memorandum, with respect to the affiliated / relevant scheme, is being furnished to you on a confidential basis for you to consider investing in the units of the co-investment scheme (“CIV Scheme”) in relation to [name of the affiliated / relevant scheme (“Main Scheme”)], a scheme of [the AIF], which is established as Trust/Company/LLP under the Indian Trusts Act, 1882/Companies Act, 2013. This private placement memorandum (“Memorandum” / “Shelf PPM”) shall not be reproduced or provided to others without the prior written permission of the Manager.

The information contained in this Memorandum may not be provided to others who are not directly concerned with your decision regarding the proposed investment. By accepting delivery of this Memorandum, you agree to the foregoing, and to return this Memorandum if you do not invest in the units of the CIV Scheme(s) of the Main Scheme, as the case may be. Investors are requested to note that no returns from the CIV Scheme(s) are assured or guaranteed. It is clarified that this Memorandum is qualified in its entirety by reference to the detailed information contained in the memorandum of the Main Scheme of the AIF.

Name of accredited investor: _________________________

Copy No._______________

Client ID (if any) of the Main Scheme___________

Important Notice

An investment in the CIV Scheme(s) is suitable only for those investors of the Main Scheme of the AIF that are fulfilling the Eligibility Criteria defined hereinbelow and requires the financial ability and willingness to remain invested for the total tenure of the respective CIV Scheme(s), to accept the high risks and lack of liquidity inherent in an investment in scheme(s) of this nature.

There can be no assurance that a CIV Scheme will achieve its target returns.

(Signature of Investor)

Name of Investor: __________________________

Name of the Distributor (if applicable)__________

Date :______________
Place :

DISCLAIMER

[Please note that while the below is indicative language, please add required notices and other qualifications, that may be relevant from the CIV Scheme perspective, herein under]

This confidential memorandum is issued in connection with and relates to investments in the units of scheme(s), which is a CIV Scheme(s) of the Main Scheme of the AIF. The Main Scheme is registered with / is a scheme of [•], which is registered with the Securities and Exchange Board of India (“SEBI”) as a category [I/II] alternative investment fund (“AIF”) under the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”). This Memorandum does not constitute an offer or a solicitation of an offer to subscribe to the units described herein from any person other than the person whose name appears on the cover page of this Memorandum. No person, other than such person, receiving a copy of this Memorandum, may treat the same as constituting an offer or a solicitation of an offer to subscribe to the units of the CIV Scheme(s) described herein.

The information in this [draft] memorandum for the CIV Scheme(s) is not exhaustive and may be changed. This Memorandum is not an offer to subscribe to the units and does not solicit an offer to subscribe to units in any jurisdiction where the offer or sale is not permitted.

Notwithstanding anything contained in the CIV scheme(s) documents, the Manager shall continue to be responsible for the compliance with the AIF Regulations, SEBI circulars, and the directions issued by SEBI, from time to time, and other applicable laws in relation to operations and reporting by AIFs. The Manager has taken all reasonable care to ensure that the information in this Memorandum is true and accurate in all material respects and that there are no material facts, the omission of which would make any statement in this Memorandum, whether of fact or opinion, misleading. No other representation, warranty or undertaking is given in respect of the information in this Memorandum by the Manager or by any other person duly authorized by the Manager and neither the Manager nor any other person duly authorized by the Manager takes responsibility for the consequences of reliance upon any statement or information contained in, or any omissions from, this Memorandum.

Prospective investors should review the CIV Scheme(s) documents carefully. Nothing in this Memorandum, the information contained in it or any other information supplied in connection with the CIV Scheme (other than the CIV Scheme documents, the terms set out in the summary of principal terms section of this Memorandum to the extent incorporated in the CIV Scheme documents by reference, and the confidentiality understanding contained herein) shall form the basis of any contract.

The units of the CIV Scheme(s) are not being offered for sale or subscription to public, but are being privately placed with a limited number of eligible investors of the Main Scheme of the AIF as per the AIF regulations, and the Eligibility Criteria provided below, as well as in the private placement memorandum of the Main Scheme. Information provided herein has not been approved by SEBI or any other legal or regulatory authority in India, nor has any such regulatory authority passed upon or endorsed the accuracy or adequacy of this memorandum.

Investors may request additional information in relation to the fund by writing to the Manager: Name of the Manager:

Name of Contact Person:
Communication Address:
Telephone No.:

Email:

Directory

A. Investment Manager

B. Trustee

C. Custodian

D. Merchant Banker

E. Legal Advisor

F. Tax Advisor

[Please note:

a. This is a template for shelf PPM (“Shelf PPM or Memorandum”) for Co-investment Scheme(s), and in case any head/point/section included herein under is not applicable to such scheme(s), in any manner whatsoever, it will be required to be mentioned, against such head/point/section of the PPM, that the same is “not applicable” to the CIV Scheme(s).

b. This Shelf PPM is the placement memorandum for all the co-investments offered by the Main Scheme of the AIF through the CIV Scheme(s).

c. In case additional information is required to be disclosed in the Shelf PPM for CIV Scheme(s), which is in addition to the already-stated information contained in this template Shelf PPM, the Shelf PPM may include “supplementary information” sub-sections at the end of each section of the Shelf PPM, in order to cover such additional information, that would be otherwise relevant to the sections captured in this template Shelf PPM. In addition to such section-specific supplementary information, an additional section, e. “Section___-Supplementary Information”, can be provided at the end of the Shelf PPM, for inclusion of all such additional information, that is not relevant to any section of the template Shelf PPM, but is required to be disclosed to investors, such as key risk factors, conflicts of interest for the CIV Scheme(s), etc.

d. Please note this template can be modified if the AIF is established as a company or limited liability partnership, wherever applicable.]

SECTION I: KEY DETAILS APPLICABLE TO CIV SCHEME(S) OF THE MAIN SCHEME

1. CIV Scheme Structure and Governance Structure

• CIV Scheme structure chart and brief details of the relevant entities to be provided here for quick reference.
• For further details, please refer to Section IV: Fund Structure and Section V: Governance Structure of the private placement memorandum of the Main Scheme of the AIF (“Main Scheme PPM”).

2. Principle Terms of the CIV Scheme

This section provides the principal terms of CIV schemes of the main scheme (name of scheme) of AIF (name of AIF), which may be provided in detail elsewhere in this document and may also have references in the PPM of the main scheme (name of scheme) of AIF (name of AIF). The terms hereof are subject to modification or withdrawal, subject to prior intimation or prior approval, as the case may be.

3. For other details, please refer to relevant sections of the placement memorandum of Main Scheme of the AIF viz. Section VI: Track Record of Manager, Section VIII: Principles of Portfolio Valuation, Section IX: Conflict of interest, Section X: Risk Factors, Section XI: Legal, Regulatory, and Tax Consideration, Section XII: Illustration of Fees, Expenses and Other Charges, Section XIV – Disciplinary History, Section XV- Glossary.

SECTION II: CONFLICTS OF INTEREST

This section shall lay out, in detail:

• All potential sources of conflicts of interests that the Manager envisages due to additional investment in the investee company of the Main Scheme through CIV Scheme

[Note: Also please refer to Section IX: Conflict of interest of the placement memorandum of Main Scheme of the AIF]

SECTION III: SUPPLEMENTARY INFORMATION

[Note: Any additional information in relation to the Fund/Scheme, Manager, investment team which does not form part of the standard disclosures and the section-wise supplementary section under the earlier sections, may be indicated hereinunder.]