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.
SEBI Issues Caution to Public on ‘Digital Gold’ Investments
The Securities and Exchange Board of India (SEBI) has issued a public caution advising investors to exercise extreme care when dealing with so-called “Digital Gold” or “E-Gold” products being offered on various online platforms. The regulator clarified that these digital offerings are not recognized or regulated under SEBI’s framework and therefore fall outside its jurisdiction and investor protection mechanisms.
SEBI-Regulated Avenues for Gold Investment
To ensure safe and transparent investment opportunities, SEBI has already established multiple regulated gold investment products within the securities market. These include:
- Exchange-Traded Commodity Derivative Contracts – allowing investors to trade gold futures and options on recognized stock exchanges.
- Gold Exchange Traded Funds (ETFs) – mutual fund schemes that invest in physical gold or gold-related instruments and are traded like shares on stock exchanges.
- Electronic Gold Receipts (EGRs) – a recent innovation introduced by SEBI, EGRs represent gold in electronic form and can be traded on stock exchanges, enabling seamless conversion between physical and digital holdings.
All these instruments are governed by SEBI regulations and are available through SEBI-registered intermediaries such as brokers, mutual funds, and depository participants. These regulated products are designed to ensure investor protection, transparency, and accountability, offering a secure way to gain exposure to gold without handling it physically.
The Risks of Unregulated ‘Digital Gold’ Products
SEBI noted that several digital and online platforms are aggressively promoting Digital Gold or E-Gold as an easy alternative to physical gold investment. However, such products are not recognized as “securities” under Indian law nor categorized as commodity derivatives under SEBI’s regulatory ambit.
This means they operate entirely outside SEBI’s supervision, leaving investors vulnerable to significant risks, including:
- Counterparty Risk: Since the gold may be held or managed by private entities without regulatory oversight, there is no assurance that the gold actually exists or that the seller can honor redemption commitments.
- Operational Risk: In the absence of standardization or regulatory audit, digital gold platforms may face technological or administrative failures that could lead to losses.
- Legal Risk: Disputes arising from digital gold transactions may not have access to SEBI’s grievance redressal mechanisms or arbitration forums, making recovery difficult.
In essence, investors have no regulatory safety net when dealing in such unregulated products.
Investor Advisory: Stay Within the Regulated Framework
SEBI has strongly advised investors to:
• Invest only through SEBI-regulated gold products such as ETFs, EGRs, or commodity derivatives available on recognized stock exchanges.
• Deal only with SEBI-registered intermediaries, ensuring transactions occur within the legally protected securities market ecosystem.
• Refrain from engaging with unregulated online platforms offering gold investment options that are not governed by SEBI or any other financial regulator.
Conclusion: Safety Over Speculation
The regulator’s warning underscores a vital message—if an investment product is outside SEBI’s purview, investor protection does not apply. While the promise of convenience and quick profits in “Digital Gold” schemes may seem appealing, the lack of regulatory oversight exposes investors to serious risks.
By sticking to SEBI-regulated products like Gold ETFs and Electronic Gold Receipts, investors can safely participate in India’s gold market while enjoying transparency, liquidity, and protection under law.