India’s alternative investment industry has grown rapidly over the past few years, attracting institutional investors, family offices, and high-net-worth individuals into private equity, venture capital, private credit, and other specialised investment strategies. As this industry expands, ensuring transparency and protecting investor interests has become increasingly important.
To address this, the Securities and Exchange Board of India (SEBI) has proposed a new framework to standardise how Alternative Investment Funds (AIFs) obtain investor approvals and manage potential conflicts of interest. The proposal aims to simplify operational processes while improving governance and ensuring investors receive consistent treatment.
Let us understand what SEBI has proposed and why these changes matter.
What’s Happening?
SEBI has released a consultation paper proposing significant changes to the governance framework for Alternative Investment Funds (AIFs). The regulator wants to standardise how AIFs obtain investor consent for important decisions and strengthen the rules governing transactions involving potential conflicts of interest.
Currently, different AIFs follow different methods to obtain investor approvals. Some treat an investor’s failure to respond as deemed approval, while others count only the votes actually cast. According to SEBI, this lack of uniformity has created operational challenges and inconsistent treatment of investors.
To address this, SEBI has proposed allowing AIFs to choose one of three standardised voting methods. However, each fund will have to clearly disclose the chosen method in its fund documents and follow it consistently for all investors within the same scheme.
The regulator has also proposed bringing consistency to approval thresholds by prescribing a 75% investor approval (by value) wherever investor consent is required.
Three Standard Voting Methods
SEBI has proposed three recognised methods through which AIFs can seek investor approval.
Under the Deemed Consent method, investors who do not respond within the specified timeline will be treated as having approved the proposal.
The Present and Voting method considers only those investors who actively participate in the voting process. Non-participating investors are excluded from the calculation.
The third option, Express Voting, requires explicit approval from investors. Only votes cast in favour count towards meeting the required approval threshold, while non-responses neither support nor oppose the proposal.
SEBI has proposed that every AIF should adopt only one of these methods for a particular scheme instead of using different approaches for different investors.
Stronger Rules for Conflict of Interest
Apart from standardising investor approvals, SEBI has also proposed expanding the scope of transactions that require investor consent.
At present, investor approval is required mainly for transactions involving an ‘associate’ of the AIF manager or sponsor. However, SEBI believes the existing definition is too narrow and may not capture several transactions where conflicts of interest could exist.
The regulator has therefore proposed replacing the term ‘associate’ with the broader concept of ‘related party’ for conflict-related transactions. This would bring AIF regulations closer to the framework followed under the Companies Act and other SEBI regulations.
According to SEBI, this change will improve transparency and reduce the possibility of connected-party transactions escaping investor scrutiny.
What Does This Mean for Investors?
Although AIFs are primarily meant for sophisticated investors and high-net-worth individuals, the proposals aim to strengthen investor protection without making fund operations unnecessarily cumbersome.
A standardised voting framework will provide greater clarity on how investor approvals are obtained and reduce inconsistencies across different funds. Clear disclosure of voting procedures, timelines, and communication methods can also make the decision-making process more transparent.
The broader definition of related-party transactions is expected to improve governance by ensuring that more potentially conflicted transactions require investor approval before they are executed.
Overall, the proposals seek to strike a balance between operational flexibility for fund managers and stronger safeguards for investors.
What’s Next?
SEBI has invited public comments on the consultation paper until July 21, 2026.
After reviewing stakeholder feedback, the regulator may issue the final framework. If implemented, the proposals are expected to make AIF governance more transparent, improve consistency in investor approvals, and strengthen oversight of conflict-related transactions across India’s rapidly growing alternative investment industry.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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