The Securities and Exchange Board of India (SEBI) has notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations 2025, introducing co-investment within the alternative investment funds (AIFs) framework, aiming to improve the ease of doing business, and allowing category I and II investors to participate.
The new co-investment scheme is in addition to the existing AIF co-investment scheme through portfolio managers.
Under the new scheme, managers of category I or II AIFs will conduct the co-investment by filing a shelf placement memorandum. This memorandum would include principal terms relating to co-investments, the governance structure and regulatory framework for co-investment, with each scheme having a separate bank and demat account, and all assets are ring fenced from the assets of other schemes. The co-investment cannot exceed three times the contribution of an investor in the investee company, unless made through specific financial institutions.
The new scheme also includes a penalty where an investor, who has defaulted in their contribution, would not be allowed to co-invest in the investee company.
The manager is required to ensure that the investors do not hold such a stake in the company indirectly that they would not be allowed to have directly, or make such an investment that would require them to make additional disclosures if they had made it directly, and that no investee company received funds from an investor they are not supposed to receive funds from.
Expenses incurred to make the co-investment are to be shared proportionately between the AIF and co-investment scheme as per the ratio of the investments.
