SEBI issued a circular on June 16, 2026, titled "Guidelines for winding up of AIFs with respect to retention of proceeds and 'Inoperative Fund' status". This circular revises the regulatory framework governing the closure and liquidation of Alternative Investment Funds (AIFs).
What Changed
The circular introduces formal procedures for the retention of proceeds during the winding-up process of an AIF. It also defines the conditions under which an AIF may be classified as an 'Inoperative Fund' - a status that triggers specific reporting and compliance obligations. These provisions supplement existing requirements under the SEBI (Alternative Investment Funds) Regulations, 2012.
Who Is Affected
All registered AIFs, their managers (investment managers), trustees, and custodians must adopt the new guidelines. The circular applies to both open-ended and closed-ended AIFs, though winding-up scenarios typically affect closed-ended funds more directly.
Compliance Timeline
The circular is effective from the date of issuance - June 16, 2026. AIF managers must immediately review their fund documents and winding-up procedures to ensure conformity. Where a fund is in the process of winding up, the new retention and inoperative fund rules apply prospectively from this date.
Key Provisions
- Retention of Proceeds: The circular specifies how long and under what conditions an AIF may retain proceeds (e.g., from asset sales) before full distribution to investors. This addresses situations where final expenses or contingent liabilities are outstanding.
- Inoperative Fund Status: A fund may be deemed inoperative if it has not made any investments for a specified period and holds only residual assets or cash. Once classified, the fund must follow prescribed reporting and disclosure norms.
- Winding-Up Procedure: The circular clarifies the documentation, filings, and timelines required to formally close an AIF and seek deregistration from SEBI.
Operational Impact
AIF managers should update their compliance manuals and fund governance policies to incorporate the new definitions and procedures. Trustees must ensure that the winding-up process adheres to the circular's requirements, particularly regarding the treatment of retained proceeds and the timely declaration of inoperative status. Failure to comply may result in regulatory scrutiny or enforcement action under the AIF Regulations.
Read the full circular at the source URL: https://www.sebi.gov.in/legal/circulars/jun-2026/guidelines-for-winding-up-of-aifs-with-respect-to-retention-of-proceeds-and-inoperative-fund-status_102171.html
Source: Guidelines for winding up of AIFs with respect to retention of proceeds and 'Inoperative Fund' status
Domain: sebi.gov.in
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