SEBI Circular on Accredited Investors (AI-only) and LVF Schemes

SEBI Circular on Accredited Investors (AI-only) and LVF Schemes – December 2025. SEBI’s new framework for Alternative Investment Funds (AIFs) introduces a structured mechanism to allow existing schemes to migrate into AI-only (Accredited Investor–only) schemes or Large Value Funds (LVFs). The objective is to simplify fund operations, provide regulatory flexibility, and create investment structures suitable for financially sophisticated investors. AI-only schemes cater exclusively to accredited investors who meet specific income and net-worth criteria, allowing fund managers to operate with fewer restrictions while maintaining transparency and accountability.
Alongside this, SEBI has also offered operational relaxations for LVFs, such as exemption from the standard private placement memorandum format and annual PPM audits, recognizing the experience and risk capacity of high-value investors. The framework ensures that migration is permitted only with full investor consent, proper disclosures, and timely reporting to SEBI and depositories. Overall, the move strengthens governance, reduces compliance burden, and aligns India’s AIF ecosystem with global best practices.
What is AI-Only Schemes?
AI-only schemes are specialised investment schemes under SEBI’s AIF framework that can accept money only from Accredited Investors (AIs) individuals or institutions that meet SEBI’s defined income, net-worth, and financial sophistication criteria. These investors are assumed to have a higher risk appetite, better financial literacy, and the capacity to understand complex investment products. Because of this, SEBI allows AI-only schemes to operate with a more flexible and lighter regulatory framework compared to standard AIF schemes.
Key characteristics of AI-only schemes include:
 • Restricted participation only Accredited Investors can invest, which ensures a financially sophisticated investor base.
 • Simplified compliance several operational requirements are relaxed as the risk of mis-selling is lower.
 • Mandatory naming rule the scheme’s name must clearly include “AI-only Fund” for transparency.
This structure empowers fund managers to design innovative, high-risk, or niche investment strategies while maintaining clarity and protection for investors.
Migration of Existing AIF Schemes to AI-Only or LVF Category
SEBI’s new framework allows Alternative Investment Funds (AIFs) that were launched before the regulatory amendment to migrate their existing schemes into AI-only schemes or Large Value Funds (LVFs). This migration helps older schemes align with the updated regulatory structure while enabling fund managers to operate with greater flexibility.
However, migration is allowed only when every existing investor provides explicit written consent, ensuring that no investor is forced into a new risk category without approval. The scheme must also comply with all conditions laid down by SEBI for the new category such as investor qualification, minimum investment thresholds, and reporting norms.
After the migration is complete, the AIF must:
 • Update the scheme name to reflect its new status (e.g., “AI-only Fund” or “LVF”).
 • Inform SEBI within 15 days, ensuring regulatory transparency.
 • Notify depositories within 15 days so the scheme classification and records are updated in the market infrastructure.
These steps maintain investor clarity, uphold regulatory discipline, and ensure smooth operational transition.
Accredited Investor Status Continues for Entire Tenure
Under SEBI’s framework, once an investor is admitted into an AIF as an Accredited Investor (AI), their status is considered valid for the entire tenure of the scheme, regardless of any future changes in their financial position or eligibility criteria. This means that even if the investor’s net worth, income level, or accreditation documents no longer meet the qualifying thresholds at a later stage, their participation in the scheme remains fully compliant.
This continuity provides several benefits. It gives predictability and stability to both investors and fund managers, as the fund does not need to reassess eligibility midway or request updated financial documents. It also prevents operational disruptions, avoids unnecessary exits, and ensures that long-term investment strategies can run smoothly without regulatory interruptions. For AIFs, this clarity strengthens governance and simplifies compliance throughout the scheme’s lifecycle.
Tenure Extension Rules for AI-Only Schemes
SEBI allows AI-only schemes to extend their tenure by up to five years, which includes any extensions already availed before migration. This flexibility recognizes that Accredited Investors typically participate in long-term, high-growth, or illiquid investment strategies such as private equity, venture capital, infrastructure, or distressed assets which require longer gestation periods.
By permitting an extended tenure, SEBI ensures that fund managers can execute their investment and exit strategies without being forced into premature liquidation. Investors also benefit, as they can stay invested in high-value opportunities until the fund achieves optimal returns. This extension framework promotes stability, reduces operational pressures, and aligns the lifecycle of AI-only schemes with global alternative investment norms.
Relaxations Available for Large Value Funds (LVFs)
SEBI has introduced meaningful compliance relaxations for Large Value Funds (LVFs), acknowledging that these schemes cater exclusively to sophisticated, high-ticket investors who possess the financial capacity and expertise to evaluate risks independently. These relaxations are designed to reduce unnecessary administrative load while still ensuring adequate regulatory oversight.
Exemption from Standard PPM Format
LVFs are no longer required to use SEBI’s Standard Private Placement Memorandum (PPM) format.
 This flexibility allows fund managers to customise disclosures based on the investment strategy and investor expectations, rather than adhering to a rigid template. It also helps streamline fund structuring and documentation, particularly for complex or innovative investment models.
Exemption from Annual PPM Audit
LVFs are not required to conduct the Annual PPM Compliance Audit, which other AIFs must undertake.
 Importantly, no investor waiver is needed for this exemption. This reflects SEBI’s confidence that LVF investors who typically commit Rs.70 crore or more possess sufficient sophistication to evaluate the fund’s disclosures without mandatory annual audits.
Overall, these relaxations reduce compliance burden, improve operational efficiency, and enable LVFs to function more dynamically within the regulatory framework.
Mandatory Reporting Through Compliance Test Report (CTR)
SEBI requires all Alternative Investment Funds (AIFs) to report their compliance with the revised AI-only and LVF guidelines through the Compliance Test Report (CTR). This report acts as a structured compliance document that captures whether the AIF is adhering to all applicable regulatory standards.
Responsibilities include:

Trustees, sponsors, or the governing body of the AIF must ensure the correctness and completeness of the CTR.

The CTR must reflect compliance with migration rules, investor eligibility norms, scheme classification, and any operational relaxations taken under the new framework.

This periodic reporting allows SEBI to monitor regulatory adherence without intrusive inspections, thereby increasing transparency and reinforcing governance standards.

Through the CTR mechanism, SEBI ensures that AIFs remain compliant throughout the life cycle of the scheme not just at the time of migration or launch.
SEBI’s Regulatory Intent
SEBI’s updated framework for AI-only schemes and Large Value Funds (LVFs) reflects its broader regulatory mission to build a safer, more transparent, and globally competitive alternative investment market in India. The key objective is investor protection, particularly ensuring that only financially capable and well-informed investors participate in complex private-market strategies.
By enhancing disclosure norms, refining migration rules, and mandating structured reporting, SEBI aims to promote transparency and fair conduct across the AIF ecosystem. These reforms also strengthen the governance framework, ensuring fund managers operate with accountability and integrity.
As private market participation increases, SEBI is aligning its rules with international best practices, creating a risk-based regulatory framework. The intent is to balance innovation with investor safety, enabling fund managers to operate efficiently while ensuring that only suitable investors access high-risk investment opportunities.
Impact of These Changes on the AIF Ecosystem
Greater Ease of Doing Business
SEBI’s revised framework gives fund managers far more flexibility in designing and operating AIF schemes, especially those targeted at Accredited Investors. By allowing smoother migration of schemes to AI-only or LVF formats and reducing procedural hurdles, SEBI has created a more supportive environment for innovation, strategic fund structuring, and long-term capital management.
Better Investor Protection
Through improved classification norms, mandatory disclosures, and structured reporting requirements, SEBI ensures that investor interests remain safeguarded. Clearer rules help prevent mis-selling, maintain uniform practices across funds, and allow investors to make informed decisions based on consistent and reliable information.
Enhanced Transparency
The new framework brings transparency into how schemes operate and migrate between categories. With defined timelines, standardized reporting formats, and mandatory communication with SEBI and depositories, the industry benefits from greater clarity, reduced ambiguity, and easier regulatory supervision.
Improved Efficiency
Large Value Funds (LVFs) enjoy significant compliance relaxations such as exemption from standardized PPM formats and annual audits reducing administrative burden and compliance costs. This allows fund managers to focus on strategic decision-making, portfolio performance, and investor servicing rather than repetitive operational tasks.
Conclusion
SEBI’s updated framework represents a major advancement in the evolution of India’s Alternative Investment Fund (AIF) regulatory structure. By enabling existing schemes to migrate seamlessly into AI-only and LVF categories, the regulator has created a more flexible and innovation-friendly environment for fund managers. At the same time, SEBI ensures that investor protection remains central by mandating transparent disclosures, structured reporting, and consistent governance oversight.
These reforms strike the right balance between regulatory discipline and operational freedom. They allow sophisticated investors to participate through more tailored investment vehicles while simplifying compliance for funds serving high-ticket investors. As India’s private market landscape expands rapidly, SEBI’s progressive approach strengthens the country’s position as a dynamic and credible destination for alternative investments. This updated framework not only promotes efficiency and transparency but also supports long-term ecosystem growth.
Frequently Asked Questions (FAQs)
Q1. What is the main purpose of the SEBI circular on AI-only and LVF schemes?
Ans. The December 2025 SEBI circular aims to streamline the regulatory framework for Alternative Investment Funds (AIFs) by allowing migration of existing schemes to AI-only or LVF categories. It introduces flexibility for sophisticated investors, strengthens governance, and reduces compliance burden for large-value schemes while preserving investor protection.
Q2. What is an AI-only scheme under SEBI regulations?
Ans. An AI-only scheme is an AIF structure restricted exclusively to Accredited Investors, who meet SEBI’s financial eligibility criteria. These schemes enjoy relaxed compliance norms, greater structuring freedom, and are required to clearly mention “AI-only” in the scheme name.
Q3. Who qualifies as an Accredited Investor (AI)?
Ans. Accredited Investors are individuals or institutions that meet SEBI-prescribed income, net worth, or professional criteria. They are considered financially sophisticated and capable of understanding private-market risks. Their accreditation allows them access to AI-only investment schemes.
Q4. Can existing AIF schemes migrate to AI-only or LVF category?
Ans. Yes. SEBI allows schemes launched before the amendment to migrate, but only if all existing investors provide positive consent and the AIF meets all updated regulatory requirements.
Q5. What changes must be made after migrating to an AI-only scheme?
Ans. The AIF must:
 • Update the scheme name with “AI-only Fund”
 • Inform SEBI within 15 days of migration
 • Inform Depositories within 15 days for updated classification
 This ensures disclosure, transparency, and proper regulatory tagging.
Q6. Will an investor lose Accredited Investor status if their financial condition changes later?
Ans. No. SEBI clarifies that once an investor is admitted as an Accredited Investor at onboarding, their status remains valid for the entire tenure of the scheme, regardless of future changes in wealth or income.
Q7. What is the tenure extension limit for AI-only schemes?
Ans. AI-only schemes may extend their tenure for up to five years, including any previously taken extensions. This suits long-term private-market strategies preferred by high-net-worth investors.
Q8. What relaxations are available for Large Value Funds (LVFs)?
Ans. LVFs enjoy two major relaxations:
 • Exemption from SEBI’s standard Private Placement Memorandum (PPM) format
 • Exemption from mandatory annual audit of PPM compliance
 They do not require investor waiver for these exemptions.
Q9. Do AIFs need to update their Compliance Test Report (CTR)?
Ans. Yes. AIFs must include all changes arising from the circular in their CTR. Trustees, sponsors, or governing bodies are responsible for accurate reporting to ensure regulatory compliance.
Q10. Why has SEBI introduced these updates?
Ans. The framework reflects SEBI’s intent to:
 • Protect investor interests
 • Encourage risk-appropriate regulation
 • Promote transparency and governance
 • Reduce compliance burden for sophisticated investor funds
 It aligns India’s AIF ecosystem with global private-market standards.
Q11. How do these changes affect fund managers?
Ans. Fund managers get increased operational flexibility, especially when structuring innovative strategies for accredited or large-value investors. Reduced paperwork and simpler compliance ease administrative workloads.
Q12. How do these changes benefit investors?
Ans. Investors gain:
 • Clearer disclosure
 • Better classification of schemes
 • Improved reporting standards
 • Access to high-flexibility investment structures
 It enhances safety and transparency across the AIF ecosystem.

SEBI’s new framework for Alternative Investment Funds (AIFs) introduces a structured mechanism to allow existing schemes to migrate into AI-only (Accredited Investor–only) schemes or Large Value Funds (LVFs). The objective is to simplify fund operations, provide regulatory flexibility, and create investment structures suitable for financially sophisticated investors. AI-only schemes cater exclusively to accredited investors who meet specific income and net-worth criteria, allowing fund managers to operate with fewer restrictions while maintaining transparency and accountability.

Alongside this, SEBI has also offered operational relaxations for LVFs, such as exemption from the standard private placement memorandum format and annual PPM audits, recognizing the experience and risk capacity of high-value investors. The framework ensures that migration is permitted only with full investor consent, proper disclosures, and timely reporting to SEBI and depositories. Overall, the move strengthens governance, reduces compliance burden, and aligns India’s AIF ecosystem with global best practices.

What is AI-Only Schemes?

AI-only schemes are specialised investment schemes under SEBI’s AIF framework that can accept money only from Accredited Investors (AIs) individuals or institutions that meet SEBI’s defined income, net-worth, and financial sophistication criteria. These investors are assumed to have a higher risk appetite, better financial literacy, and the capacity to understand complex investment products. Because of this, SEBI allows AI-only schemes to operate with a more flexible and lighter regulatory framework compared to standard AIF schemes.

Key characteristics of AI-only schemes include:

• Restricted participation only Accredited Investors can invest, which ensures a financially sophisticated investor base.

• Simplified compliance several operational requirements are relaxed as the risk of mis-selling is lower.

• Mandatory naming rule the scheme’s name must clearly include “AI-only Fund” for transparency.

This structure empowers fund managers to design innovative, high-risk, or niche investment strategies while maintaining clarity and protection for investors.

Migration of Existing AIF Schemes to AI-Only or LVF Category

SEBI’s new framework allows Alternative Investment Funds (AIFs) that were launched before the regulatory amendment to migrate their existing schemes into AI-only schemes or Large Value Funds (LVFs). This migration helps older schemes align with the updated regulatory structure while enabling fund managers to operate with greater flexibility.

However, migration is allowed only when every existing investor provides explicit written consent, ensuring that no investor is forced into a new risk category without approval. The scheme must also comply with all conditions laid down by SEBI for the new category such as investor qualification, minimum investment thresholds, and reporting norms.

After the migration is complete, the AIF must:

• Update the scheme name to reflect its new status (e.g., “AI-only Fund” or “LVF”).

• Inform SEBI within 15 days, ensuring regulatory transparency.

• Notify depositories within 15 days so the scheme classification and records are updated in the market infrastructure.

These steps maintain investor clarity, uphold regulatory discipline, and ensure smooth operational transition.

Accredited Investor Status Continues for Entire Tenure

Under SEBI’s framework, once an investor is admitted into an AIF as an Accredited Investor (AI), their status is considered valid for the entire tenure of the scheme, regardless of any future changes in their financial position or eligibility criteria. This means that even if the investor’s net worth, income level, or accreditation documents no longer meet the qualifying thresholds at a later stage, their participation in the scheme remains fully compliant.

This continuity provides several benefits. It gives predictability and stability to both investors and fund managers, as the fund does not need to reassess eligibility midway or request updated financial documents. It also prevents operational disruptions, avoids unnecessary exits, and ensures that long-term investment strategies can run smoothly without regulatory interruptions. For AIFs, this clarity strengthens governance and simplifies compliance throughout the scheme’s lifecycle.

Tenure Extension Rules for AI-Only Schemes

SEBI allows AI-only schemes to extend their tenure by up to five years, which includes any extensions already availed before migration. This flexibility recognizes that Accredited Investors typically participate in long-term, high-growth, or illiquid investment strategies such as private equity, venture capital, infrastructure, or distressed assets which require longer gestation periods.

By permitting an extended tenure, SEBI ensures that fund managers can execute their investment and exit strategies without being forced into premature liquidation. Investors also benefit, as they can stay invested in high-value opportunities until the fund achieves optimal returns. This extension framework promotes stability, reduces operational pressures, and aligns the lifecycle of AI-only schemes with global alternative investment norms.

Relaxations Available for Large Value Funds (LVFs)

SEBI has introduced meaningful compliance relaxations for Large Value Funds (LVFs), acknowledging that these schemes cater exclusively to sophisticated, high-ticket investors who possess the financial capacity and expertise to evaluate risks independently. These relaxations are designed to reduce unnecessary administrative load while still ensuring adequate regulatory oversight.

Exemption from Standard PPM Format

LVFs are no longer required to use SEBI’s Standard Private Placement Memorandum (PPM) format.

This flexibility allows fund managers to customise disclosures based on the investment strategy and investor expectations, rather than adhering to a rigid template. It also helps streamline fund structuring and documentation, particularly for complex or innovative investment models.

Exemption from Annual PPM Audit

LVFs are not required to conduct the Annual PPM Compliance Audit, which other AIFs must undertake.

Importantly, no investor waiver is needed for this exemption. This reflects SEBI’s confidence that LVF investors who typically commit Rs.70 crore or more possess sufficient sophistication to evaluate the fund’s disclosures without mandatory annual audits.

Overall, these relaxations reduce compliance burden, improve operational efficiency, and enable LVFs to function more dynamically within the regulatory framework.

Mandatory Reporting Through Compliance Test Report (CTR)

SEBI requires all Alternative Investment Funds (AIFs) to report their compliance with the revised AI-only and LVF guidelines through the Compliance Test Report (CTR). This report acts as a structured compliance document that captures whether the AIF is adhering to all applicable regulatory standards.

Responsibilities include:

Trustees, sponsors, or the governing body of the AIF must ensure the correctness and completeness of the CTR.
The CTR must reflect compliance with migration rules, investor eligibility norms, scheme classification, and any operational relaxations taken under the new framework.
This periodic reporting allows SEBI to monitor regulatory adherence without intrusive inspections, thereby increasing transparency and reinforcing governance standards.

Through the CTR mechanism, SEBI ensures that AIFs remain compliant throughout the life cycle of the scheme not just at the time of migration or launch.

SEBI’s Regulatory Intent

SEBI’s updated framework for AI-only schemes and Large Value Funds (LVFs) reflects its broader regulatory mission to build a safer, more transparent, and globally competitive alternative investment market in India. The key objective is investor protection, particularly ensuring that only financially capable and well-informed investors participate in complex private-market strategies.

By enhancing disclosure norms, refining migration rules, and mandating structured reporting, SEBI aims to promote transparency and fair conduct across the AIF ecosystem. These reforms also strengthen the governance framework, ensuring fund managers operate with accountability and integrity.

As private market participation increases, SEBI is aligning its rules with international best practices, creating a risk-based regulatory framework. The intent is to balance innovation with investor safety, enabling fund managers to operate efficiently while ensuring that only suitable investors access high-risk investment opportunities.

Impact of These Changes on the AIF Ecosystem

Greater Ease of Doing Business

SEBI’s revised framework gives fund managers far more flexibility in designing and operating AIF schemes, especially those targeted at Accredited Investors. By allowing smoother migration of schemes to AI-only or LVF formats and reducing procedural hurdles, SEBI has created a more supportive environment for innovation, strategic fund structuring, and long-term capital management.

Better Investor Protection

Through improved classification norms, mandatory disclosures, and structured reporting requirements, SEBI ensures that investor interests remain safeguarded. Clearer rules help prevent mis-selling, maintain uniform practices across funds, and allow investors to make informed decisions based on consistent and reliable information.

Enhanced Transparency

The new framework brings transparency into how schemes operate and migrate between categories. With defined timelines, standardized reporting formats, and mandatory communication with SEBI and depositories, the industry benefits from greater clarity, reduced ambiguity, and easier regulatory supervision.

Improved Efficiency

Large Value Funds (LVFs) enjoy significant compliance relaxations such as exemption from standardized PPM formats and annual audits reducing administrative burden and compliance costs. This allows fund managers to focus on strategic decision-making, portfolio performance, and investor servicing rather than repetitive operational tasks.

Conclusion

SEBI’s updated framework represents a major advancement in the evolution of India’s Alternative Investment Fund (AIF) regulatory structure. By enabling existing schemes to migrate seamlessly into AI-only and LVF categories, the regulator has created a more flexible and innovation-friendly environment for fund managers. At the same time, SEBI ensures that investor protection remains central by mandating transparent disclosures, structured reporting, and consistent governance oversight.

These reforms strike the right balance between regulatory discipline and operational freedom. They allow sophisticated investors to participate through more tailored investment vehicles while simplifying compliance for funds serving high-ticket investors. As India’s private market landscape expands rapidly, SEBI’s progressive approach strengthens the country’s position as a dynamic and credible destination for alternative investments. This updated framework not only promotes efficiency and transparency but also supports long-term ecosystem growth.

Frequently Asked Questions (FAQs)

Q1. What is the main purpose of the SEBI circular on AI-only and LVF schemes?

Ans. The December 2025 SEBI circular aims to streamline the regulatory framework for Alternative Investment Funds (AIFs) by allowing migration of existing schemes to AI-only or LVF categories. It introduces flexibility for sophisticated investors, strengthens governance, and reduces compliance burden for large-value schemes while preserving investor protection.

Q2. What is an AI-only scheme under SEBI regulations?

Ans. An AI-only scheme is an AIF structure restricted exclusively to Accredited Investors, who meet SEBI’s financial eligibility criteria. These schemes enjoy relaxed compliance norms, greater structuring freedom, and are required to clearly mention “AI-only” in the scheme name.

Q3. Who qualifies as an Accredited Investor (AI)?

Ans. Accredited Investors are individuals or institutions that meet SEBI-prescribed income, net worth, or professional criteria. They are considered financially sophisticated and capable of understanding private-market risks. Their accreditation allows them access to AI-only investment schemes.

Q4. Can existing AIF schemes migrate to AI-only or LVF category?

Ans. Yes. SEBI allows schemes launched before the amendment to migrate, but only if all existing investors provide positive consent and the AIF meets all updated regulatory requirements.

Q5. What changes must be made after migrating to an AI-only scheme?

Ans. The AIF must:

• Update the scheme name with “AI-only Fund”

• Inform SEBI within 15 days of migration

• Inform Depositories within 15 days for updated classification

This ensures disclosure, transparency, and proper regulatory tagging.

Q6. Will an investor lose Accredited Investor status if their financial condition changes later?

Ans. No. SEBI clarifies that once an investor is admitted as an Accredited Investor at onboarding, their status remains valid for the entire tenure of the scheme, regardless of future changes in wealth or income.

Q7. What is the tenure extension limit for AI-only schemes?

Ans. AI-only schemes may extend their tenure for up to five years, including any previously taken extensions. This suits long-term private-market strategies preferred by high-net-worth investors.

Q8. What relaxations are available for Large Value Funds (LVFs)?

Ans. LVFs enjoy two major relaxations:

• Exemption from SEBI’s standard Private Placement Memorandum (PPM) format

• Exemption from mandatory annual audit of PPM compliance

They do not require investor waiver for these exemptions.

Q9. Do AIFs need to update their Compliance Test Report (CTR)?

Ans. Yes. AIFs must include all changes arising from the circular in their CTR. Trustees, sponsors, or governing bodies are responsible for accurate reporting to ensure regulatory compliance.

Q10. Why has SEBI introduced these updates?

Ans. The framework reflects SEBI’s intent to:

• Protect investor interests

• Encourage risk-appropriate regulation

• Promote transparency and governance

• Reduce compliance burden for sophisticated investor funds

It aligns India’s AIF ecosystem with global private-market standards.

Q11. How do these changes affect fund managers?

Ans. Fund managers get increased operational flexibility, especially when structuring innovative strategies for accredited or large-value investors. Reduced paperwork and simpler compliance ease administrative workloads.

Q12. How do these changes benefit investors?

Ans. Investors gain:

• Clearer disclosure

• Better classification of schemes

• Improved reporting standards

• Access to high-flexibility investment structures

It enhances safety and transparency across the AIF ecosystem.