The Securities and Exchange Board of India (SEBI) on Monday eased winding-up norms for Alternative Investment Funds (AIF) Regulations and surrendering registration.
Under the revised framework, AIFs will be allowed to retain liquidation proceeds beyond the permissible fund life in specific circumstances. The decision comes after SEBI observed that some AIFs were unable to close operations due to pending tax demands, litigation, or residual expenses, despite having no active fund management activity.
Exit delays
Currently, AIFs are required to distribute all proceeds within the fund tenure and achieve a nil bank balance before surrendering their registration. However, delays linked to regulatory or legal obligations have forced certain funds to continue holding licences and comply with ongoing regulatory requirements.
To address this, SEBI has permitted retention of proceeds subject to conditions such as receipt of litigation or tax notices, consent of at least 75 per cent of investors by value for meeting anticipated liabilities, or substantiation of retained amounts for operational expenses. In the case of operational costs, the retention period has been capped at three years from the end of the fund’s life.
The regulator has also introduced a new category of ‘inoperative funds’ for AIFs that are in the process of winding up but unable to fully close due to such residual issues. These funds will be subject to lighter compliance norms, including exemption from periodic filings, private placement memorandum updates and performance benchmarking requirements.
The move is expected to significantly reduce compliance burden on AIFs with no active investment activity, while maintaining necessary regulatory oversight.