The Securities and Exchange Board of India (“SEBI”) has issued a consultation paper proposing certain amendments to the regulatory framework governing Large Value Funds (“LVFs”) for Accredited Investors (“AIs”) under the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) dated 8th August, 2025 (“Consultation Paper”). The primary objective of this Consultation Paper is to invite public comments and suggestions on certain proposed changes, relevant modifications to other related provisions and the position of investors under such a regime.
Current Framework
Presently, LVFs may be structured either as a scheme of an AIF (or as an AIF in itself) and in order to be eligible to make such investment in an LVF, each investor is: (i) required to commit a minimum investment of ₹70 crores and (ii) required to be an AI. SEBI has proposed a reduction of this minimum investment threshold citing that the existing limit is excessive and restricts participation by several potential investors (including institutional investors who are often constrained by internal policies relating to risk diversification across AIF products). The restrictions in place also pose a difficulty for the domestic investors to compete against the foreign players who typically have substantially higher financial support.
While the AIF Regulations prescribes a ₹70 crore minimum investment threshold for AIs to take part in LVFs, the SEBI (Portfolio Management) Regulations, 2020 (“PM Regulations”) prescribes a lower minimum investment requirement of ₹10 crores, which leads to inconsistency.
Further, SEBI also notes that while insurance companies constitute a significant part of domestic investors, the Insurance Regulatory and Development Authority of India (“IRDAI”) imposes stringent exposure caps on investments by such insurance companies in AIFs/ VC funds (3% of the fund in the case of life insurance companies and 5% of assets in the case of general insurance companies). Consequently, a reduction in the minimum investment threshold would enable broader participation by institutional investors, including insurance companies thereby strengthening the domestic capital base of AIFs.
New proposals
In light of the above, the Consultation Paper has set forth the following proposals:
Proposal 1: To enhance capital inflows into AIFs and provide domestic investors with a competitive hand against foreign investors, SEBI has proposed to reduce the minimum investment threshold in LVFs from ₹70 crores to ₹25 crores and to make corresponding amendments to the PMS Regulations to align the overall regulatory framework.
Proposal 2: Regulation 4 (g) (i) of the AIF Regulations presently requires the ‘key investment team’ of the AIF Manager to include at least one individual holding a relevant certification from the National Institute of Securities Markets (“NISM”). Since all investors in LVF schemes are AIs (who are generally considered capable of conducting independent due diligence including assessment of the credentials of the AIF Manager), SEBI has proposed to dispense with the requirement of relevant NISM certification for Managers of AIFs operating exclusively as LVFs.
Proposal 3: AIFs are presently mandated to adhere to a prescribed template for their Private Placement Memorandum (“PPM”) and to undergo an annual audit of PPM compliance. An exemption from these requirements currently exists for AIFs or schemes where: (i) each investor commits to a minimum of ₹70 crores; and (ii) each investor provides a waiver to that effect. With the proposed reduction in the minimum commitment to ₹25 crores, this exemption is noted to become obsolete with respect to LVFs. However, considering that all LVF investors are AIs with access to professional advisory support, it is proposed that LVFs be exempted from adherence to the PPM template and also from the annual PPM audit requirement.
Proposal 4: Regulation 20 (8) of the AIF Regulations imposes responsibility on the members of the Investment Committee (‘ICOM’) appointed by the Manager of an AIF, to ensure compliance with internal policies and procedures. At present, AIFs or schemes in which: (i) each investor commits at least ₹70 crores; and (ii) each investor provides a waiver against the application of Regulation 20(8), exempts the ICOM from responsibility cast by this Regulation 20(8). In view of the proposed reduction in the minimum commitment threshold for LVFs and the reasoning provided for the previous proposals (citing AIs’ access to due diligence and professional advisory support), SEBI has proposed to exempt members of the ICOM of LVFs from the requirement of Regulation 20(8) and from the condition of obtaining waivers from investors.
Proposal 5: The existing framework limits the number of investors in an AIF scheme to 1,000. Given that LVFs cater exclusively to AIs (who generally make substantial minimum commitments), SEBI has noted that there is no relevance for such a cap to exist and has accordingly proposed to remove the restriction on the number of investors in LVFs.
Proposal 6: To ensure that the benefits of the proposed framework are fully realized, SEBI has proposed to provide an option to allow existing AIF schemes (which meet the eligibility criteria of LVFs) to transition into LVF schemes.
Conclusion
The proposals in the Consultation Paper aim to make the framework for LVFs more practical and accessible by lowering thresholds for investors, especially domestic and institutional investors. The proposed changes are intended to encourage greater participation, simplify compliance, and strengthen the flow of capital into AIFs, thereby supporting the growth of the domestic investment ecosystem.
