Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2025

What it does

Co-investment lets a fund's own investors put more money into a particular portfolio company alongside the fund. Before September 2025 the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 allowed an investor of an alternative investment fund to do this only through a co-investment portfolio manager registered under the Portfolio Managers Regulations, 2020. The Second Amendment Regulations change that. A Category I or Category II fund may now offer its accredited investors a co-investment scheme of the fund itself.

Each such scheme holds one investee company and cannot borrow. It exits when the main scheme exits. An investor's co-investment is capped at three times what that investor put into the same company through the main scheme. Multilateral and bilateral development financial institutions, State Industrial Development Corporations, and entities established, owned or controlled by the Central Government, a State Government or a foreign government, including central banks and sovereign wealth funds, are outside the cap.

Who it binds

Managers and sponsors of Category I and Category II alternative investment funds that choose to offer a co-investment scheme, and the accredited investors who take part in one. The Securities and Exchange Board of India is the regulator. A Category III fund is outside the new route, and a manager that wants to use the portfolio manager route is dealt with under the other regulations.

What has changed, and when

The amendment took effect from 9 September 2025, according to the footnotes in the consolidated text of the Regulations that the Board publishes. It rewrote the definition of co-investment, inserted definitions of a co-investment scheme and a shelf placement memorandum, and inserted a new regulation 17A. It omitted regulation 15(1)(b), the old rule on the terms of co-investment. The successor, regulation 17A(8), keeps the bar on more favourable terms but narrows the exit limb from terms of exit including the timing to timing alone.

On the same day the Board issued a circular, No. SEBI/HO/AFD/AFD-POD-1/P/CIR/2025/126, which set the operating conditions. That circular is no longer the operative document. The Master Circular for Alternative Investment Funds issued on 3 June 2026 and last updated on 7 September 2026 rescinds it and carries its operative paragraphs into a chapter of its own.

What turns on it in practice

The change affects how a fund structures a deal, and it is dealt with in the site's note on the three times cap. The first question is whether the investor is inside the cap or outside it. A sovereign wealth fund or a development finance institution is outside, and an investor not in the listed classes is inside, so the allocation among investors has to be tracked against each investor's contribution to the main scheme for that particular company.

The second is the document. The scheme needs its own placement material, and the inserted definition of a shelf placement memorandum is the vehicle for that. The third is the interaction with the main scheme's terms: a scheme that cannot borrow and that exits with the main scheme must be consistent with the fund's governing documents and with the side letters that investors have, and a most favoured terms right in a side letter has to be read against the bar on more favourable terms in regulation 17A(8).

For an investor, the portfolio manager route remains, with different economics. Which route fits, and how the fund documents are drafted to match it, are questions of structure for each fund.