In its continued effort to strengthen transparency and fairness within India’s alternative investment space, the Securities and Exchange Board of India (SEBI) has issued a draft circular inviting public comments on “Clarifications and specific modalities with respect to maintaining pro-rata rights of investors of AIFs.” The consultation seeks to provide clarity and operational guidance to Alternative Investment Funds (AIFs) and their investors while ensuring adherence to regulatory intent.
Background: Strengthening Investor Protection in AIFs
The SEBI (Alternative Investment Funds) Regulations, 2012—a key framework governing private pooled investment vehicles—were amended on November 18, 2024, introducing provisions to uphold pro-rata and pari-passu rights of investors within an AIF scheme. These changes aimed to ensure fairness by mandating that investors receive treatment proportional to their commitments and on equal footing with other investors in the same class.
Following these amendments, SEBI issued a circular on December 13, 2024, titled “Pro-rata and pari-passu rights of investors of AIFs.” That circular prescribed the general principles and certain specific exemptions under which deviations from pro-rata rights could be permitted.
However, since then, SEBI has received numerous representations from the AIF industry, including fund managers, trustees, and investors, seeking greater clarity and flexibility on the operational aspects of maintaining pro-rata rights. Many stakeholders highlighted practical challenges in applying the rules, especially in complex fund structures, secondary transfers, and follow-on investment scenarios.
Purpose of the Draft Circular
Taking into account these industry representations and inputs from the Standard Setting Forum for AIFs, SEBI has prepared a draft circular to provide further clarification and lay down specific modalities for maintaining pro-rata rights.
The draft circular aims to:
• Align operational practices with the regulatory intent of equal investor treatment.
• Offer clear guidance on situations where exemptions or flexibility may be warranted.
• Standardize disclosures and compliance procedures for fund managers.
This step reflects SEBI’s consultative and balanced regulatory approach — one that safeguards investor interests while recognizing the practical realities of the AIF ecosystem.
Public Consultation and Participation
SEBI has opened the draft circular for public comments until November 28, 2025. Stakeholders—including fund managers, investors, legal experts, and industry bodies—are encouraged to share their feedback, suggestions, and concerns to help shape the final circular.
Comments can be submitted through SEBI’s official Public Comments Portal at:
👉 https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
In case of technical issues, submissions may also be sent via email to afdconsultation@sebi.gov.in, with a copy to padmab@sebi.gov.in, using the subject line: “Clarifications and specific modalities with respect to maintaining pro-rata rights of investors of AIFs.”
A Step Toward Greater Transparency and Fairness
This initiative underscores SEBI’s ongoing efforts to foster a transparent, investor-friendly AIF ecosystem. By providing clarity on pro-rata rights—an issue central to investor equity and trust—SEBI is reinforcing the importance of fair play and accountability within India’s rapidly expanding alternative investment sector.
The regulator’s decision to invite public participation once again highlights its collaborative policy-making approach, ensuring that regulations evolve in consultation with stakeholders and remain in sync with market dynamics.
As India’s AIF industry continues to grow, such initiatives will be vital in maintaining the right balance between regulatory discipline and operational flexibility, paving the way for a more resilient and globally competitive investment landscape.