2025: Year in review for AIFs in India
One of the most significant developments has been the introduction of Co-Investment Vehicle (CIV) framework in September 2025, which fundamentally reshaped how AIFs can facilitate co-investment.
The year 2025 has been remarkable for India’s alternative investment funds (AIF). While the year may not have started with many changes and reforms, by the second half of the year, the Securities and Exchange Board of India (SEBI) introduced a series of significant regulatory developments in the AIF space, with targeted reforms to streamline compliance, strengthen investor safeguards, and modernise fund operations. Key changes ranged from revised frameworks for angel funds and co-investment structures to the introduction of ‘Accredited Investor (AI)- only’ schemes.
One of the most significant developments has been the introduction of Co-Investment Vehicle (CIV) framework in September 2025, which fundamentally reshaped how AIFs can facilitate co-investment. While previously AIFs could only offer co-investment opportunities to their investors via the Co-PMS route i.e. by obtaining license as a Co-PMS manager, Category I and II AIFs are now permitted to offer co-investment by launching a dedicated co-investment scheme within the AIF structure. While the CIV framework has been restricted in scope — with participation limited exclusively to AI and investor-level exposure capped at three times the investor’s commitment to the main AIF (except for sovereign, multilateral and development institutions), it is a welcome change that fund managers have long sought avenues for offering co-investment rights to investors in a less cumbersome manner.
Another key update has been the complete overhaul of the angel fund framework, representing the most extensive revisions since angel funds were first introduced under the AIF Regulations. SEBI transitioned angel funds into a fully AI-centric model, requiring all new angel funds to raise capital entirely from AI. Fund operations were streamlined by moving away from the deal-by-deal schemes towards fund-level investing, supported by rationalised investment thresholds (lowering the minimum to INR 10 lakh and increasing the maximum to INR 25 crore), removal of concentration limits, and a more permissive follow-on framework, even after an investee ceases to qualify as a start-up.
Another key update has been the complete overhaul of the angel fund framework, representing the most extensive revisions since angel funds were first introduced under the AIF Regulations
SEBI extended this sophistication-oriented logic to broader fund structures through its reforms introducing AI-only schemes and the revised Large Value Fund (LVF) framework. AI-only schemes were granted substantial flexibility, including exemption from pari-passu requirements, permission for up to five years of cumulative tenure extensions, removal of the 1,000-investor cap, and reductions in certification and trustee-level responsibilities. Simultaneously, LVFs saw a sharp reduction in minimum commitment—from INR 70 crore to INR 25 crore—significantly widening their institutional appeal. The earlier June-July 2025 consultation paper on AI-only schemes provided some directional insight, but the September reforms ultimately defined the final contours of this regime.
After receiving industry feedback on circulars issued in late 2024 regarding pro-rata and pari-passu rights of investors, SEBI issued a consultation paper in November 2025 offering much sought clarity on drawdown procedures, maintaining pro-rata rights of investors in open-ended schemes, and expanding the universe of investors who can receive additional returns from an AIF. While the language in the consultation paper did not factor the potential recipients of additional return in the broadest sense, it is an indication of SEBI’s intent and willingness to allow for a regulatory climate responsive to stakeholder needs.
Separately on the Reserve Bank of India (RBI) front, stricter exposure limits were introduced in July 2025, effective January 1, 2026, for ‘regulated entities’ (REs) in AIFs by capping individual RE investments at 10% of an AIF’s corpus and limiting cumulative RE investments to 20% of an AIF’s corpus. These measures reflect RBI’s intent to prevent potential conflicts of interest whilst building on the existing framework monitoring and prohibiting ‘evergreening’ of loans.
Further, the Pension Fund Regulatory and Development Authority (PFRDA) issued master circulars in December 2025 allowing National Pension System Funds (NPS Funds) to invest in AIFs—previously allowed only in fragments. Whilst PFRDA imposed restrictions such as limiting investments to Category I and Category II AIFs with a minimum corpus of Rs 100 crore, a welcome move by SEBI, this circular ensures NPS money flows only into larger and more established funds rather than smaller, riskier pools, providing legitimate avenues for diversification.
Taken together, the reforms of 2025 demonstrate SEBI’s deliberate move towards fostering an environment that offers greater flexibility to AIFs and investors alike, on par with the international standards, where investor sophistication is assured while preserving the integrity of the broader AIF ecosystem. One can expect more measures and steps from SEBI focused on clarifying and strengthening the AI framework as well as other anticipated changes geared towards ease of operations and activities for AIFs and managers.
Disclaimer – The article has been authored by Siddharth Shah, Senior Partner, Gaurita Udiyawar, Counsel and Deeksha Chugh, Senior Associate at Khaitan & Co. Views expressed are personal