The Securities and Exchange Board of India (SEBI) has proposed the establishment of a dedicated Co-Investment Vehicle (CIV) to enable Alternative Investment Funds (AIFs) to offer co-investment opportunities within their existing frameworks.

Each co-investment opportunity will necessitate the launch of a new scheme, requiring prior notification to SEBI and the submission of a shelf Private Placement Memorandum (PPM) at registration or afterward.

These proposals were detailed in a consultation paper released on May 9, 2025, aiming to foster innovation and enhance investor participation in India's AIF sector.

This initiative is part of SEBI's ongoing adjustments to the AIF framework, which are informed by industry feedback and the challenges faced by the sector.

Previously, co-investors were required to sell their shares simultaneously with the AIF on identical terms, which limited flexibility and led to demands for relaxed rules.

The introduction of co-investment allows funds to bypass limitations related to ticket size and portfolio management, facilitating larger investments while maintaining control.

The proposed CIV schemes will benefit from exemptions from certain regulations, including investment diversification norms and minimum tenure commitments, providing greater operational flexibility.

SEBI has emphasized the importance of implementing standards to prevent potential misuse of the CIV scheme's enhanced flexibility.

In addition to the CIV proposal, SEBI suggests lifting existing restrictions that prevent AIF managers from providing advisory services related to listed securities, thereby expanding their operational capabilities.

This proposal follows ongoing requests from private equity and venture capital funds since 2022 to ease co-investment norms within the AIF structure.

Participation in the new CIV schemes will be limited to accredited investors, who must meet specific criteria, including minimum commitment size and strategic value.

Each CIV scheme will be required to operate with its own bank account, demat account, and Permanent Account Number (PAN), ensuring clear identification and compliance.