The Securities and Exchange Board of India (“SEBI”) held its Board Meeting on March 23, 2026, approving proposed amendments to various regulations as elaborated below.
(i) Amendments to SEBI (Alternative Investment Funds) Regulations, 2012
(a) Reduction of minimum investment threshold in Social Impact Funds to Rs. 1,000 with the objective of widening retail participation in social finance
Under the extant regulatory framework, the minimum investment size in Social Impact Funds (“SIFs”), which operate as a sub-category of Alternative Investment Funds (“AIFs”) under SEBI (Alternative Investment Funds) Regulations, 2012, was set at Rs. 2 lakh per investor. SEBI has now approved a reduction of this minimum investment threshold to Rs. 1,000, aligning the minimum application size for SIFs with the minimum application size applicable to Zero Coupon Zero Principal Instruments (“ZCZP Instruments”) listed on the Social Stock Exchange (“SSE”).
Our View
The reduction in the minimum investment threshold appears aimed at broadening the investor base. However, the lowered ticket size aligns more closely with mutual fund investment levels and is likely to attract a retail investor profile that is qualitatively different from the sophisticated investors for whom the AIF framework was originally designed, thereby necessitating enhanced regulatory oversight by SEBI.
(b) Retention of liquidation proceeds, introduction of “inoperative” status, and rationalisation of compliance obligations for AIFs with residual balances
Under the extant framework, an AIF was required to distribute the liquidation proceeds to investors within the permissible fund life and achieve a NIL bank account balance before surrendering its certificate of registration, making it impossible for funds retaining residual proceeds to exit the regulatory perimeter even with no active management activity.
SEBI has now approved a pragmatic exit framework permitting AIFs to retain liquidation proceeds beyond the permissible fund life in specified circumstances, namely:
(i) where the AIF faces pending litigation or outstanding tax demands, supported by documentary evidence, including show-cause notices, re-assessment notices, or similar official written communications.
(ii) where anticipated liabilities from litigation or tax demand exist and at least 75% of investors by value have consented to the retention; and
(iii) where residual operational expenses remain, substantiated through invoices or prior-year comparables, capped at a maximum period of three years from end of the permissible fund life.
AIFs intending to surrender their registration and having one or more such schemes as mentioned above shall be tagged as ‘inoperative funds’. The compliance requirements for such funds shall be lesser compared to other AIFs, including discontinuation of periodic filings, updating of Private Placement Memorandum, and performance benchmarking.
Our View
This reform addresses a regulatory anomaly whereby AIFs with no active investment or management activity were required to maintain full compliance structures solely due to residual balances arising from litigation, tax disputes, or pending claims. The “inoperative” designation introduces a proportionate middle ground.
(ii) Amendments to facilitate net settlement of funds for Foreign Portfolio Investors
Under the existing gross settlement regime, Foreign Portfolio Investors (“FPIs”) were required to fund the full purchase obligation for each transaction independently, without any set-off against the proceeds of offsetting sales executed on the same day. This resulted in avoidable capital lock-in and recurring foreign exchange conversion costs, which were particularly acute on index rebalancing days when FPIs are simultaneously required to purchase and sell large volumes of securities.
SEBI has now approved net settlement of funds for FPI outright transactions in the cash market. The reform is confined to the funds leg of settlement; securities delivery will continue to be settled on a gross basis. Accordingly, an FPI’s net purchase obligation (purchases minus sales proceeds) for a given settlement cycle will constitute the only funds transfer required, eliminating the need for separate gross funding of each purchase transaction. For this purpose, “outright transactions” are defined as transactions in which there is either a purchase or a sale of a security in a settlement cycle, but not both; non-outright transactions will continue to be confirmed and settled on a gross basis. Securities Transaction Tax and stamp duty shall continue to be levied on a delivery basis, as applicable. Given the necessary system and process modifications, the proposal is to be implemented on or before December 31, 2026.
Our View
By confining netting to the funds leg while preserving gross settlement for securities delivery, SEBI has achieved meaningful cost efficiency without introducing any incremental systemic risk. The reform will have its most material impact on index rebalancing days and other high-volume trading sessions, where the mismatch between gross funding requirements and net economic exposure has historically resulted in significant forex conversion costs for FPIs. The consequent reduction in the cost of participation in Indian equities is a welcome step toward improving India’s competitiveness as a destination for foreign institutional capital.
(iii) Overhaul of “fit and proper person” criteria under Schedule II of the SEBI (Intermediaries) Regulations, 2008
Under the extant Schedule II of the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”), the “fit and proper person” criteria included automatic disqualification triggered by pending criminal complaints and First Information Reports (“FIRs”), irrespective of whether any conviction had been recorded. This approach departed from the internationally accepted practice where rule-based disqualification is typically triggered by conviction rather than by charge or investigation.
SEBI has now approved a comprehensive overhaul of the fit and proper framework, incorporating the following key changes:
a. The automatic disqualification triggered by pending criminal complaints and FIRs is replaced by a principle-based, case-by-case assessment,
b. The category of offences triggering disqualification upon conviction has been expanded beyond the earlier “moral turpitude” standard to include all economic offences,
c. The initiation of winding up proceedings has been removed as a standalone ground for disqualification, though disqualification upon an actual order of winding up is retained;
d. The applicant / intermediary shall be required to inform SEBI within 15 working days of the recognized stock exchanges of occurrence of any event envisaged under Clause 3(b) involving itself, its KMPs or persons in control;
e. An express provision for granting a reasonable opportunity of being heard before declaring a person as not ‘fit and proper’ shall be inserted;
f. The default prohibition of five years on applying for fresh registration in cases where no time period is specified in the relevant order has also been omitted;
g. The category of proceedings that trigger non-consideration of registration has been confined to proceedings under Sections 11B(1) and 11(4) of the SEBI Act, 1992, removing ambiguity regarding the scope of disqualifying proceedings.
SEBI has also approved the retroactive withdrawal of pending cases initiated under the stricter prior framework, providing relief to entities that were subjected to disqualification proceedings solely on the basis of pending complaints or FIRs without conviction.
(iv) Amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014
SEBI has approved four targeted amendments to the regulatory frameworks governing Infrastructure Investment Trusts (“InvITs”) and Real Estate Investment Trusts (“REITs”):
Continued SPV holding post-concession
InvITs and REITs will be permitted to continue holding special purpose vehicles (“SPVs”) beyond the conclusion / termination of the concession agreement, with a one-year exit window to be computed from the later of: (a) completion of the concession agreement; (b) conclusion of pending claims; or (c) expiry of the defect liability period. The time taken to obtain relevant statutory or regulatory approvals for exiting the investment in such SPV shall be excluded from the one-year window. Additionally, InvITs shall have the option, in lieu of exiting, to acquire a new infrastructure project in the same SPV within the prescribed period. Adequate disclosures regarding investment in such SPVs shall be made in the annual report of the InvIT.
Expanded liquid fund deployment
The permissible universe for deployment of liquid funds has been expanded to include schemes holding AA-rated and above instruments, as against the prior restriction to higher-rated instruments only. Specifically, InvITs and REITs will be permitted to invest in liquid mutual fund schemes where the credit risk value is at least 10 and which fall under Class A-I or Class B-I in the potential risk class matrix specified by SEBI. Under the prior framework, such deployment was limited to schemes with a credit risk value of at least 12 under Class A-I only (i.e., schemes holding AAA-rated instruments, Government Securities, State Development Loans, Repo on Government Securities, TREPS, and cash).
Greenfield investment access for privately listed InvITs
Privately listed InvITs will now be permitted to invest in greenfield infrastructure projects, subject to a cap of 10% of the asset value of the InvIT. This amendment aligns the investment norms for privately listed InvITs with those already applicable to publicly listed InvITs; under the prior framework, privately listed InvITs were specifically prohibited from investing in PPP greenfield infrastructure projects.
Broader borrowing permissions for leveraged InvITs
The scope of permissible borrowings for leveraged InvITs has been expanded to cover capital expenditure, major maintenance obligations, and debt refinancing, in addition to the existing permitted purposes. These expanded permissions apply specifically to InvITs with leverage exceeding 49% and up to 70% of the value of their assets. Under the prior framework, such InvITs were permitted fresh borrowings only for acquisition or development of infrastructure projects.
(v) Adoption of conflict-of-interest and disclosure framework for SEBI’s Chairman, Whole-Time Members, and employees based on the recommendations of the High-Level Committee on conflict of interest, constituted in March 2025.
SEBI has adopted the recommendations of a High-Level Committee (“HLC”) on conflict of interest constituted in March 2025, which include:
• Investment restrictions currently applicable to SEBI employees will now extend uniformly to the Chairman and Whole-Time Members (“WTMs”), who will be required to liquidate, freeze, or divest equity holdings upon joining. Specifically, the Chairman and WTMs shall choose one of the following four options for equity and equity-related investments held at the time of joining: (a) liquidate; (b) freeze; (c) sell pursuant to a trading plan; or (d) sell without a trading plan with prior approval.
• These restrictions will apply prospectively to spouses and dependent family members, with existing investments being grandfathered. These restrictions are confined to direct investment in shares and do not extend to investments in unlisted securities, ESOPs acquired as part of the pay package, or discretionary Portfolio Management Services where the fund manager acts independently. The definition of “family” has been aligned and shall mean: (i) spouse; (ii) dependent children, including adopted children and stepchildren; (iii) any person for whom the member/employee serves as a legal guardian; and (iv) any other person related by blood or marriage to the member/employee or their spouse and substantially dependent on such person.
• Investments in commercial ventures, including unlisted companies, must be fully liquidated or kept frozen during tenure, and any vested options must be exercised before joining SEBI. New investments in pooled vehicles shall be permitted, provided the scheme is professionally managed by a regulated market intermediary.
• The Chairman and WTMs of SEBI will be classified as “insiders” under the SEBI (Prohibition of Insider Trading) Regulations, 2015.
• A concentration cap of 25% has been introduced, limiting the exposure of the Chairman, WTMs, and covered family members to any single SEBI-registered intermediary, with breaches triggering mandatory recusal obligations.
• Members and employees are also required to disclose to SEBI any negotiation or agreement for future employment.
• A new Office of Ethics and Compliance, a digital recusal system, and a whistleblower mechanism will be established to provide institutional infrastructure for the framework; and
• Mandatory initial, annual, and event-based disclosures of assets, liabilities, and relationships will be required. The public disclosure norm for immovable property has been aligned with All India Services and Central Civil Services standards, though full asset and liability details will be disclosed internally to SEBI rather than publicly.
• The public disclosure of immovable property details extends to Executive Directors and Chief General Managers of SEBI, in addition to the Chairman and WTMs. As regards Part-Time Members of the Board drawn from the Ministry of Finance or RBI, their conduct will be governed by the rules of their parent organisation; other Part-Time Members will continue to make disclosures of share holdings and past professional assignments at the time of assuming office, with the lookback period harmonised to three years, and on an annual basis thereafter. No public disclosure of assets and liabilities is required for Part-Time Members.
The Board has, however, referred two significant recommendations of the HLC to the Central Government: (a) the HLC’s recommendation for the conflict-of-interest framework to be notified as separate, enforceable regulations (as opposed to incorporation into SEBI’s existing voluntary Code on Conflict of Interest for Members of the Board of 2008); and (b) the establishment of an independent Oversight Committee on Ethics and Compliance with external supervision of the framework. In the interim, the newly created Office of Ethics and Compliance will be supervised by the Chief Vigilance Officer, who reports to the Chairman. The next steps for implementation of the framework include amendments to the SEBI (Employees’ Service) Regulations, 2001, revision of the Code on Conflict of Interest for Members of the Board of 2008 (“Code of 2008”), issuance of operational guidelines, and the establishment of requisite systems and processes for management of conflict of interest within SEBI.
Our Views
The classification of the Chairman and WTMs as “insiders” under the SEBI (Prevention of Insider Trading) Regulations, 2015 is symbolically and substantively important. It closes a manifest incongruity in which the regulator enforced insider trading restrictions on market participants while its own leadership operated under a more permissive regime.
The 25% concentration cap is a novel and practically significant measure. Single-intermediary concentration creates a specific conflict risk where a regulator’s leadership has a material financial interest in the continued good standing of a regulated entity they may be called upon to supervise or adjudicate against. The recusal trigger is an appropriate institutional response.
However, two significant limitations temper the reform’s effectiveness. First, the decision to incorporate the framework into Code of 2008 rather than notify it as binding regulations materially undermines its enforceability. The distinction between a voluntary code and a binding regulatory framework is not merely procedural, it determines whether non-compliance attracts defined legal consequences or merely institutional disapproval. The HLC’s recommendation for enforceable regulations was well-founded and its referral to the Central Government, while procedurally appropriate, introduces uncertainty about the timeline and form of binding implementation.
Second, the referral of the independent Oversight Committee recommendation to the Central Government means that, in the interim, the Office of Ethics and Compliance will be supervised by the Chief Vigilance Officer, who reports to the Chairman. An accountability framework whose primary supervisory officer reports to the very person whose conduct the framework is designed to regulate is structurally compromised. Independent external oversight is not merely desirable but essential to the credibility of any institutional accountability mechanism. The Central Government’s response to both referred recommendations will be determinative of whether this episode results in durable institutional reform.
More broadly, the conflict-of-interest framework adopted by SEBI could usefully serve as a template for analogous reforms across financial sector regulators in India. The governance concerns that prompted the HLC’s constitution are not unique to SEBI, the absence of standardised, enforceable conflict-of-interest frameworks across financial regulators is a systemic vulnerability that warrants a coordinated legislative or executive response.
