With over 1,800 currently active SEBI approved funds, and aggregate funds raised of approx. INR 6.78 lakh crores, the Indian alternative investment fund (AIF) industry has matured considerably since the introduction of the SEBI (Alternative Investment Funds) Regulations in 2012. AIFs today channel significant domestic and offshore capital across private equity, venture capital, real estate, credit, and infrastructure. As the industry scales, however, a structural opportunity presents itself — one that could meaningfully ease the fund launch process whilst allowing SEBI to focus its considerable expertise where it matters most.The proposal is a considered and constructive one: that SEBI delegate the authority to grant AIF registrations and approve Private Placement Memoranda (PPMs) to designated quasi-regulatory intermediaries, such as SEBI-registered merchant bankers or custodians of AIFs.
A Growing Regulatory Workload
SEBI’s mandate is extraordinarily broad, beyond processing registrations applications and granting approvals, the regulator is simultaneously engaged in policy development, market surveillance, enforcement, inspections of intermediaries, investor protection initiatives, and continuous regulatory reform. It is a reflection of SEBI’s centrality to Indian capital markets that so many functions converge at its door.It is in this context that one notes, with empathy rather than criticism, that a considerable number of AIF registration applications and PPM approvals presently remain pending before SEBI. Fund managers, their investors, and the broader ecosystem absorb the consequential delays in launch timelines and capital deployment. A structural solution — rather than incremental fixes — is what the moment calls for.
The Background Framework Is Already in Place
Importantly, the regulatory groundwork for such a delegation has already been laid by SEBI itself. Through a series of detailed circulars, SEBI has substantially standardised the PPM framework. Critical investor protection principles — including pro rata and pari passu rights of investors — have been comprehensively codified. AIF units are mandatorily required to be held in dematerialised form, and NAVs must be reported to depositories, ensuring transparency and traceability.Within the AIF framework itself, SEBI has already recognised that pre-approval is not universally necessary. Large Value Funds for Accredited Investors — where each investor commits a minimum of INR 25 crores — may launch new schemes without a separate PPM approval from SEBI, on the basis that accredited investors possess the sophistication to protect their own interests. This policy choice is instructive: it signals that approval can be safely calibrated to the nature of the participants and the robustness of the existing framework.
Precedents That Inspire Confidence
SEBI has successfully deployed the delegation model on multiple prior occasions, each time with demonstrably positive outcomes.
When the FPI regime was introduced in 2014, SEBI empowered Designated Depository Participants (DDPs) to grant registrations to foreign portfolio investors. The results were transformative — registration timelines shortened dramatically, foreign investor access improved, and SEBI was relieved of the administrative burden of processing thousands of individual applications. The FPI-DDP model is widely regarded as one of the most effective regulatory design choices in recent Indian capital markets history.
A similar approach governs Foreign Venture Capital Investors (FVCI), where most procedural and compliance matters are administered through DDPs rather than directly by SEBI. This has meaningfully boosted ease of doing business for foreign venture funds investing in India. Similary, stock exchanges have been delegated to regulatory authority in respect of investment advisers and research analysts — again, within the framework of SEBI’s regulations, and subject to SEBI’s overarching supervision.
In GIFT City too, fund managers are able to launch funds under the ‘green channel’ PPM clearance route – a regulatory pathway granted by IFSC Authority to ease operations.
In each of these cases, the delegated authority operates strictly within the regulatory framework prescribed by SEBI. The regulator’s role is not diminished — it is elevated, from front-line processor to systemic supervisor.
The Proposal
SEBI should designate experienced merchant bankers or AIF custodians to review and process AIF registration applications and scheme PPMs, granting approvals upon satisfaction of compliance with SEBI’s regulatory framework and circulars.
Merchant bankers bring proven expertise in regulatory document review and structured finance. AIF custodians already perform a de facto oversight function — monitoring investment conditions, maintaining records, and ensuring adherence to the PPM — making them natural candidates for a formalised approval role. Both categories of intermediaries are themselves regulated by SEBI, ensuring accountability at every level.
SEBI could prescribe a detailed checklist-based review framework to ensure consistency across approvals. Designated intermediaries could be made accountable for non-compliant approvals, and SEBI would retain full authority to audit, inspect, and take enforcement action. The supervisory architecture remains intact; only the point of first contact changes.
The Opportunity Ahead
Assets under management have grown substantially, and AIFs have established themselves as indispensable vehicles for channeling patient capital into sectors that conventional finance does not readily serve — infrastructure, early-stage ventures, distressed credit, and structured products.
SEBI has, over the years, demonstrated a remarkable capacity for regulatory innovation. The delegation of AIF registration and PPM approval authority to designated intermediaries is the natural next step — consistent with the regulator’s own precedents, aligned with the national ease of doing business agenda, and responsive to the needs of a maturing industry.
AIFs have proven to be bellwethers of India’s asset management growth story. The regulatory process that governs their launch deserves to reflect that maturity. It is hoped that the much talked about ‘lodge and launch’ policy for AIFs will accommodate this proposals which is directed to improve efficiency for all stakeholders.
(Views are personal)
