SEBI’s New Vision For Large Value Funds: Rethinking Investor Safegaurds
- CCL NLUO
- 3 days ago
- 6 min read
Authors: Kashish Jhunjhunwala & Rudraksh Sharma
Third and Fourth year law student at Gujarat National Law University, Gandhinagar
I. Introduction
The Securities and Exchange Board of India’s (SEBI) consultation paper released on 8th August 2025 suggests significant rule relaxations for Large Value Funds (LVFs), a special Alternative Investment Fund (AIF) category for accredited investors. Under the current rules, an LVF is an AIF scheme in which every non-promoter investor is an accredited investor and commits at least Rs. 70 crores. The draft suggests lowering that ticket to Rs. 25 crores and granting LVFs multiple exemptions, like SEBI’s standard Private Placement Memorandum (PPM) format and mandatory PPM‐audit, key person NISM certification, the 1,000‐investor cap, and even Investment Committee liability, as well as allowing existing schemes to convert into LVFs. These changes, if adopted, would mark a significant shift toward a light‐touch regime for very large or sophisticated funds. This blog reviews the proposals’ context, the policy rationale, and likely impact on fund design, investor safeguards and market structure.
II. Evolution of Accredited Investors and LVFs
India’s AIF framework originally imposed uniform rules, such as a Rs. 1 cr minimum ticket for each Limited Partner (LP), one‐year lock‐in, diversification limits, etc. In 2021, SEBI introduced an accredited investor regime, which is defined by income/net‐worth criteria or professional status. SEBI assumed such investors are sophisticated enough to bear higher risk and take on lighter regulation. Under the 2021 Amendment Regulations, any AIF (or scheme) in which every non‐promoter investor is accredited and invests ≥Rs. 70 cr is designated a “Large Value Fund for Accredited Investors”. LVFs immediately gained several relaxations, for example, the ordinary Rs. 1 cr commitment floor for AIFs was waived, and portfolio concentration limits were doubled. In short, LVFs were treated as an elite subset of AIFs.
In recent years, SEBI has steadily expanded the accredited investor regime. A May 2024 circular made the new AIF certification (NISM Series XIX-C) mandatory for fund managers. SEBI also mandated a uniform PPM template and, via Regulation 28, an annual audit of PPM compliance. These requirements apply to all AIFs, subject to investor waivers in minimal cases. In practice, an LVF can avoid the standard PPM and audit only if each LP (other than promoter/manager) commits ≥Rs. 70 cr and waives the requirement. The consultation paper dated 8th August 2025 asks whether to remove all such burdens for LVFs, reflecting a broad policy shift, with fully accredited LPs at stake. SEBI is re‐examining whether traditional retail style safeguards are necessary.
III. Key Proposals & their Implications
Lowering the Rs. 70 Crores Threshold to Rs. 25 Crores
Reducing the minimum ticket to Rs. 25 crores would enlarge the pool of eligible investors and sponsors. SEBI’s paper notes that accredited investors, by definition, already possess sufficient financial acumen, so lowering the bar mainly improves market access without diluting investor sophistication. It cites recommendations by the Alternative Investment Policy Advisory Committee (AIPAC) that Rs. 25 cr still represents a significant sum for corporates or Ultra High Net Worth Individuals (UHNIs). It could draw in regulated entities (e.g. smaller insurance or pension funds) with strict exposure limits.
A lower threshold could spur new funds targeting wealthy families, corporate treasuries or niche investors who can mobilise Rs. 25 cr but not Rs. 70 cr per person. In particular, long-term institutional players (pension, insurance, etc.) often have caps on single issuer exposure, i.e. a Rs. 25 cr entry may fit their mandates better than Rs. 70 cr. Over time, this may broaden the AIF ecosystem and deepen capital availability, especially for significant ticket investments in infrastructure, real estate or growth equity.
Now the question is whether Rs. 25 cr is truly justified as a protection metric, or if the price of admission should be driven by investor accreditation alone. In other words, does a Rs. 25 cr LP necessarily have comparable sophistication to one putting in Rs. 70 cr? Moreover, if SEBI later eases the accredited investor standards, will the substance of “sophistication” remain reliable? Finally, even at Rs. 25 cr, these funds remain far beyond the reach of true retail, so the impact is mainly on High Net Worth Individuals (HNIs) and institutional players, arguably appropriate for an ultra-rich fund.
Lifting the 1,000 Investor Cap
Regulation 10(f) of the SEBI (AIF) Regulations, 2012 strictly caps schemes at 1,000 investors, except for angel funds. The consultation paper asks whether this cap should be removed entirely for LVFs. Since LVF LPs are all accredited and committed to large sums (now ≥Rs. 25 cr), SEBI reasons that the 1,000 limit may not be relevant. Industry bodies agree, and the paper notes AIPAC’s support for unlimited LPs in LVFs.
Removing the investor count limit would allow LVFs to scale up their investor base. For example, a fund focusing on infrastructure might co-invest alongside 500 accredited family offices or institutional pools without worrying about caps. In other markets, for example, Rule 506(b) of the U.S. Securities Act of 1933, accredited‐investor funds routinely admit unlimited LPs. Greater capacity could help allocate big projects or diversify holdings across many sponsors. It could also boost liquid secondary marketability; a fund with more LPs may have a broader exit market.
The 1,000 cap was originally a proxy for ensuring AIF schemes stayed private. This is to avoid public issue obligations. Allowing unlimited LPs risks blurring that distinction. Even if all are accredited, having thousands of owners could pose coordination challenges and dilute due diligence quality. Moreover, compliance monitoring (e.g. KYC/AML, reporting) becomes heavier with more investors. SEBI must confirm that regulatory filings and disclosures remain robust if LP numbers swell. Some may argue that instead of an outright removal, a higher threshold, or a scaled disclosure regime once specific LP counts are hit, might be sensible.
Transition Option for Existing AIFs
A novel element of the consultation paper is allowing existing AIF schemes to convert into LVFs. Under the draft, any AIF scheme (new or old) whose current LPs already meet the LVF criteria, i.e. each LP is accredited and has invested ≥Rs. 25 cr, could elect to become an LVF and inherit the relaxations. This conversion would require positive consent from all the investors in the scheme. In other words, an eligible fund could re‐register itself or amend its status as an LVF if every LP agrees to the transition.
This transition pathway helps funds already operating informally, like LVFs, to formalise under the new dispensation. It prevents regulatory arbitrage where new funds get benefits but older ones are stuck. For fund managers, it could unlock existing portfolios, like an open AIF with 30 deep-pocketed LPs, to fully adopt LVF status without raising new capital. This may encourage uniformity in fund labels and simplify SEBI’s oversight.
The requirement of unanimous investor consent is a high hurdle. Even one dissenting LP, perhaps a smaller accredited entity, could block the conversion. In practice, it might be challenging to reconvene all LPs or secure a 100% sign-off. SEBI might consider whether a super majority suffice. There is also a timing issue; existing AIFs that do not meet the Rs. 25 cr threshold (e.g. some LPs have Rs. 15 cr tickets) would be ineligible, which may create a two-tier system of otherwise similar funds. Overall, the policy seems investor protection-conscious but may be administratively cumbersome.
IV. Conclusion
In essence, SEBI's LVF proposals imply a transition from prescriptive regulation to investor self-reliance due to their credible ability for self-protection. SEBI trusts LPs to negotiate terms directly by cutting the entry ticket to Rs. 25 cr. This consultation paper also suggests exempting LVFs from the 1,000 investor cap under Regulation 10(f) because it mirrors global norms like the U.S. Rule 506(b) for accredited investor funds. Still, SEBI must ensure expanded LP access does not weaken due diligence or overwhelm compliance systems. Existing AIFs can convert into LVFs if they have unanimous consent, and this prevents regulatory arbitrage. However, unanimity for older funds might prove to be unworkable. Further, there is a legal ambiguity as these proposals do not provide clear guidelines concerning continuing obligations like annual financial filings and KYC/AML. Overall, there is a need to analyse the need for reasonable investor protection standards without sacrificing regulatory efficiency objectives. For effective implementation, SEBI should calibrate investor limits to prevent quasi-public schemes and safeguard important disclosures through streamlined PPM or key risk factor filings, specifying remaining compliance duties.
Note: This article has been reviewed by Mr. Anshuman Vikram Singh (Partner, AZB & Partners), at the Tier II Stage.
