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Published on 7 July 2025

SEBI Proposals: Enhancing Co-Investment Flexibility for AIFs

SEBI’s New Moves on Co-Investment in AIFs: What You Need to Know

If you’ve been following India’s growing alternative investment space, here’s something you should keep an eye on: SEBI is proposing some pretty interesting changes to how co-investments work in Alternative Investment Funds (AIFs). And trust me, if you’re a serious investor or manage capital for others, this is worth your time.

First Things First—What Exactly Is Co-Investment?

Let’s simplify it. Imagine you’ve already put your money into an AIF. The fund, in turn, invests across various companies. Now let’s say one of those companies catches your eye—you believe it’s got potential to go big. Co-investment allows you to double down by putting additional money directly into that specific company, over and above your original investment in the fund.

So, What Is SEBI Proposing?

SEBI’s proposals are centered around making co-investment more structured, transparent, and investor-friendly—without losing flexibility. Here's how they’re planning to go about it:

1. Co-Investment Vehicles (CIVs): A New Framework Within AIFs

  • Back to Basics, But Smarter: SEBI isn’t throwing out the pooled investment model—that still remains the core of how AIFs work. But they’re now suggesting a special mechanism within AIFs for co-investment.

  • No More Roundabout PMS Routes: Until now, co-investments were often channelled through Portfolio Management Services (PMS), which brought in their own set of complications and regulatory gaps. SEBI wants to fix this by introducing Co-Investment Vehicles (CIVs)—dedicated schemes that live within the AIF and invest specifically in unlisted companies.

  • High Concentration Allowed: Each CIV can allocate up to 100% of its capital to a single company. That’s rare flexibility in today’s fund structures.

  • Following the EoDB Working Group’s Advice: This initiative stems from broader Ease of Doing Business reforms that aim to modernise India’s capital markets and make life easier for institutional investors.

What This Means for You: If you're an eligible investor, CIVs could give you a cleaner, more transparent way to increase your exposure to specific companies—without stepping outside the protective regulatory boundary of the AIF framework.

2. Expanded Advisory Powers for AIF Managers

  • The Status Quo: Currently, unless you’re a PMS client, your AIF manager isn’t allowed to advise you on listed securities—even if the AIF itself holds them.

  • What SEBI Wants to Change: The proposed reforms would allow AIF managers to advise co-investors on both listed and unlisted securities—regardless of whether those investors are also PMS clients.

  • Why It Matters: This shift could unlock better decision-making for investors. If you’re co-investing in a company that later goes public or is already partially listed, your fund manager can legally share strategic input—something that’s currently restricted.

A Few Nuances That Matter

Let’s not ignore the finer points that could impact how this plays out:

  • Eligibility: Co-investments aren’t open to everyone. They’re typically reserved for sophisticated or institutional investors—those with the know-how and appetite to take on concentrated risk.

  • Fee Structures May Vary: CIVs may offer lower or zero management fees in some cases, recognising that co-investors are shouldering more direct exposure.

  • Skin in the Game: One underrated upside? Co-investment aligns your interests with that of the fund manager. You both have real money riding on the same outcome.

  • High Risk, High Reward: This isn’t a casual bet. Co-investing in a single company means your exposure is concentrated. If it clicks, great. If not, there’s no place to hide. Due diligence isn’t optional—it’s essential.

  • SEBI’s Watchful Eye: By bringing co-investments under the AIF umbrella, SEBI ensures better disclosure, governance, and investor protection. No more ambiguity about who’s responsible for what.

A Practical Example

Let’s say an AIF is investing in a fast-scaling logistics company like Delhivery. Under the old model, co-investors interested in backing Delhivery had to go through a separate PMS channel—fragmented and less regulated. With SEBI’s new CIV structure, they could co-invest directly through the AIF, enjoying both tighter alignment with the fund’s strategy and the added guardrails SEBI provides.

Why This Matters for India’s Investment Ecosystem

This isn’t just about paperwork. If implemented right, SEBI’s proposals could have some real ripple effects:

  • More capital flowing into Indian startups and growth-stage companies—both domestic and global money.

  • Increased flexibility and control for serious investors who want targeted exposure.

  • A solid boost to India’s image as a transparent, well-regulated destination for alternative investments.

Final Word: Smart Reform with a Safety Net

What SEBI is trying to do here is strike a balance. They want to give investors more room to make strategic bets while still keeping the structure clean, safe, and accountable.

It’s not about reinventing the wheel—it’s about tightening the nuts and bolts on how co-investment works, making sure that as investors take bolder calls, the system doesn’t lose its stability.

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