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AIF winding-up norms eased; retention of proceeds allowed in select cases

Business Line  

The Securities and Exchange Board of India (Sebi) has eased winding-up norms for Alternative Investment Funds (AIF) Regulations and surrendering registration.Under the revised framework, AIFs will be allowed to retain liquidation proceeds beyond the permissible fund life in specific circumstances. The decision comes after SEBI observed that some AIFs were unable to close operations due to pending tax demands, litigation, or residual expenses, despite having no active fund management activity.Currently, AIFs are required to distribute all proceeds within the fund tenure and achieve a nil bank balance before surrendering their registration. However, delays linked to regulatory or legal obligations have forced certain funds to continue holding licences and comply with ongoing regulatory requirements.The regulator has also introduced a new category of ‘inoperative funds’ for AIFs that are in the process of winding up but unable to fully close due to such residual issues. These funds will be subject to lighter compliance norms, including exemption from periodic filings, private placement memorandum updates and performance benchmarking requirements.