“With an objective to enhance ease of doing business for Alternative Investment Funds (AIFs), the Board approved the proposal to permit Category I & II AIFs to offer Co-investment scheme (CIV scheme) under SEBI (Alternative Investment Funds) Regulations, 2012. This will further facilitate AIFs and investors to co-invest and will support capital formation in unlisted companies through AIFs,” a Sebi release said.
With this move, the market watchdog aims to streamline investment operations and enhance capital formation in unlisted companies.
In market parlance, ‘Co-investment’ refers to investment made by a manager or sponsor of the AIF or by investor of Category I and II AIFs in unlisted investee companies where such Category I or Category II AIF(s) invests.
The decision was taken in Sebi’s 210th board meeting held yesterday.
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For instance, a scheme of an AIF is investing in a company for Rs 100 crore on behalf of investors in the pool, as part of the scheme’s portfolio. If the need of the company is Rs 300 crore, the manager of the AIF, may offer this additional investment opportunity to any investor of the scheme of AIF who may want to invest in addition to their investment through the AIF.Also Read: Sebi board meeting: Regulator approves PSU delisting, IPO reforms, dematerialisation of Securities. 10 key takeaways
What Sebi has done?
1) Simplification of current co-investment processUntil now, such co-investments had to be routed through the Portfolio Management Services (PMS) framework. This required managers to register under both AIF and PMS regimes, creating compliance and operational hurdles. The new framework removes this dual-regulation burden.
2) Each co-investment gets a separate scheme
A unique CIV scheme will be created for every co-investment opportunity, with safeguards to ensure it’s used for legitimate purposes and to prevent misuse.
3) Relaxed regulatory norms for CIVs
Certain compliance requirements that apply to standard AIF schemes will be relaxed for CIVs to ensure operational ease without compromising oversight.
4) Supports capital formation in startups & unlisted firms
The initiative will enable large, flexible capital flows to promising unlisted ventures, benefiting both investors and early-stage companies.
The move has been backed by public and industry consultation as the reforms follow the May 2025 public consultation paper, which received broad support from stakeholders. SEBI also factored in inputs from the Alternative Investment Policy Advisory Committee.
This move is expected to deepen the Indian startup investment ecosystem by offering investors direct, transparent co-investment paths while enabling AIFs to efficiently structure large funding rounds.
Also Read: Sebi board meeting: Regulator eases IPO rules for start-up founders, mandates dematerialisation of securities
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