REGULATORY · COMPETITIVE · INDIA
SEBI permits AIFs to retain liquidation proceeds and creates 'inoperative funds' category
Change
SEBI revised AIF regulations to allow certain funds to retain liquidation proceeds beyond permissible fund life and introduced an 'inoperative funds' category for funds unable to fully close.
Why it matters
SEBI amended winding‑up and registration surrender norms for Alternative Investment Funds. The framework permits retention of liquidation proceeds past the fund's tenure in specified circumstances. SEBI created a new 'inoperative funds' classification for AIFs winding up but unable to achieve full closure due to pending tax demands, litigation, or residual expenses. Surrender of registration is no longer strictly tied to a nil bank balance where these residual obligations exist.
Implications
- · Fund managers can retain proceeds to satisfy pending tax demands, litigation costs, or residual expenses instead of distributing all cash immediately.
- · Investor distributions and liquidity exits can be delayed until residual obligations are resolved, affecting investor cash access.
- · Funds that retain proceeds will carry ongoing compliance, administrative, and disclosure responsibilities while residual obligations persist.
- · Registration surrender timing can be postponed without a nil bank balance, altering deregistration execution for affected AIFs.
Who is affected
- · Investors
- · Compliance teams
- · Legal teams
Source
Topics
Law & Public Safety Regulatory Actions Compliance Finance & Banking Capital Markets