The Securities and Exchange Board of India (“SEBI”) released a consultation paper on August 8, 2025 (“Consultation Paper”), seeking public comments on proposed flexibilities for Large Value Funds for Accredited Investors (“LVF”) under the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”).

The Consultation Paper seeks to address operational and structural impediments currently faced by LVFs. Presently, the high minimum investment threshold has restricted participation primarily to large global institutions, while several Accredited Investors (“AI”), particularly domestic institutional investors, are constrained by internal diversification norms requiring spread across multiple Alternative Investment Funds (“AIF”) products. Further, requirements such as adherence to standard Private Placement Memorandum (“PPM”) template and National Institute of Securities Markets (“NISM”) certification for key investment team of manager have reduced flexibility that could otherwise be extended to LVFs.

To address these issues, the Consultation Paper proposes amendments aimed at providing greater flexibility regarding investment norms, investor composition, and compliance requirements. These changes are intended to promote ease of doing business, encourage broader participation, and attract long-term capital into the AIF ecosystem.

This update provides an overview of the amendments proposed in the Consultation Paper.

Current relaxations available to LVFs

1. Exemption from prior review of PPM by SEBI

Under the proviso to Regulation 12(3) of the AIF Regulations, LVF schemes are exempt from filing their PPM with SEBI through a merchant banker. Instead, LVFs can launch such schemes immediately upon filing the PPM with SEBI, without waiting for SEBI’s comments.

2. Relaxed portfolio diversification norms

Regulation 15(1)(c) of the AIF Regulations prescribes portfolio diversification requirements. These are relaxed for LVFs as follows:

1.1. Category I and II LVFs are permitted to invest up to 50% (fifty percent) of their investable funds in a single investee company as compared to the general limit of 25% (twenty-five percent) applicable to other Category I and II AIF schemes.

1.2. Category III LVFs are permitted to invest up to 20% (twenty percent) of their investable funds in a single investee company as compared to the general limit of 10% (ten percent) applicable to other Category III AIF schemes.

3. Extended tenure flexibility

While Regulation 13(5) of the AIF Regulations permits close-ended AIFs to extend their tenure by up to 2 (two) years with approval from two-thirds of their unit holders by value, the proviso to it allows LVFs to seek an extension of up to 5 (five) years with similar investor approval.

4. Flexibility on pari-passu rights

Under the second proviso to Regulation 20(22) of the AIF Regulations, LVFs are exempted from ensuring pari-passu rights among investors, provided an explicit waiver is obtained from the concerned AI. Pursuant to the SEBI’s circular dated December 13, 2024, this exemption is subject to: (i) appropriate disclosures in the PPM of the scheme; and (ii) an undertaking from each AI at onboarding, acknowledging that LVFs may offer differential rights to select investors which could affect the interests of other investors of LVF.

Proposals for consideration

1. Reduction of minimum investment threshold in LVFs 

Regulation 2(1)(pa) of the AIF Regulations stipulates that each investor in a LVF must invest not less than Rs. 70,00,00,000 (Rupees seventy crore). The Consultation Paper proposes to reduce this threshold to INR 25,00,00,000 (Rupees twenty-five crore). It observes that such reduction would broaden the investor base by allowing participation of domestic institutions and insurance companies otherwise constrained by internal diversification norms and exposure limits prescribed by the Insurance Regulatory and Development Authority of India. Further, the reduced threshold maintains the intended sophistication of investors, as only AIs are eligible.

2. Relaxation of NISM Certification Criteria for AIFs which have only LVF schemes

Regulation 4(g)(i) of AIF Regulations stipulates that the key investment team of the manager of AIFs must include at least 1 (one) key personnel holding a SEBI-specified certification, as a prerequisite for obtaining registration as an AIF. The Consultation Paper recommends that this requirement be waived for AIFs which exclusively operate LVF schemes. The rationale is that AIs investing in LVFs are capable of conducting independent due diligence, including evaluation of the manager’s credentials and track record, and therefore do not require the additional safeguard of mandatory certification.

3. Exemption from the requirements to follow standard template PPM and annual audit of terms of PPM, without requirement of specific waivers from investors

Clause 2.4.4 of the Master Circular for AIFs (“AIF Master Circular”) currently exempts AIFs or schemes in which each investor commits to a minimum contribution of Rs. 70,00,00,000 (Rupees seventy crore) and provides a waiver from following the SEBI specified PPM template and conducting annual audit of PPM terms. The Consultation Paper proposes to extend this exemption to all LVFs without requiring a separate investor waiver. Given by their very nature, LVFs involve substantial capital commitments from AIs, who are regarded as sophisticated participants and typically have access to professional investment teams for conducting due diligence and risk assessment. Accordingly, the Consultation Paper considers the audit and template PPM requirements to be unnecessary.

4. Exemption from responsibility on members of investment committee of LVFs without requirement of specific waivers from investors

Regulation 20(8) of AIF Regulations imposes responsibility on members of the investment committee to ensure compliance with AIF policies and procedures laid down pursuant to Regulation 20(3). However, AIF schemes where each investor has made a minimum commitment of Rs. 70,00,00,000 (Rupees seventy crore) and has furnished a waiver with respect to compliance with Regulation 20(8) are exempt from following this requirement. The Consultation Paper proposes to exempt investment committee members of LVFs from this responsibility without the need for explicit waivers. Consequently, in such cases, responsibility for investment decisions is of the AIF, its manager, and their key management personnel. The SEBI Alternative Investment Policy Advisory Committee recommends that, since AIs provide undertakings under Clause 12.2 of AIF Master Circular while availing services of investment providers, members of the investment committee of LVFs may be exempted from the requirement under Regulation 20(8), and the need for obtaining investor waivers may also be dispensed with.

5. Removal of the cap on maximum number of investors in LVFs

Regulation 10(f) of the AIF Regulations limits the maximum number of investors in an AIF scheme to 1,000 (one thousand) investors except for angel funds where the maximum number of angel investors per scheme is capped at 200 (two hundred). The Consultation Paper states that, since LVFs comprise only AIs who make large commitments, the limit on maximum investors may not be relevant.

6. Transition option to existing eligible AIFs

The Consultation Paper also proposes to permit existing AIF schemes, where each investor is an AI and meets the minimum commitment threshold, to convert into LVF schemes. Such conversion would be subject to obtaining consent from all investors.

Conclusion

The Consultation Paper’s proposed amendments to the LVF framework represent a progressive step toward aligning India's AIF regime with global best practices and the broader recognition that sophisticated investors require less regulatory protection due to their financial capacity and due diligence capabilities. If implemented, the reforms are likely to expand the pool of participants, accelerate fundraising, and enhance structuring flexibility. Their effectiveness, however, will hinge on fund managers maintaining robust internal governance and transparent disclosure standards in the absence of certain prescriptive requirements. Overall, the proposals reflect SEBI’s forward?looking approach aimed at attracting long?term capital, easing operational frictions, and consolidating the position of LVFs as a key instrument in India’s private capital landscape.

Please find attach a copy of the Consultation Paper, here.

This update has been contributed by Adity Chaudhury (Partner), Dharma Teja Palada and Vaibhav Kesarwani (Associates). 

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