As India’s AIF ecosystem has scaled, the nature of governance required to run funds has changed.
In the early phase, AIFs operated within a regulated framework with governance practices calibrated to the scale of the market at the time. Fund sizes were smaller, LP bases were more concentrated, and operating complexity was limited. As a result, capital raise and deployment was faster, decision-making was simpler, and processes evolved alongside growth.
Over the last four to five years, that environment has shifted.. Larger funds and a more diversified LP base—including global investors—have increased the need for clarity and consistency in how capital is: –
- allocated,
- valued,
- and reported.
It is in this context that recent SEBI mandates need to be viewed. They are not corrective in nature, nor do they question intent. They reflect a clear regulatory direction: as the AIF ecosystem matures, governance must deepen to match its scale.
From the perspective of a SEBI-registered AIF, these measures represent more than incremental compliance. They reflect a structural move toward an LP-first, system-led market. While the operating demands are real, they support outcomes that strengthen the ecosystem—greater trust, consistency, and long-term capital confidence..
The developments below highlight how this shift is taking shape across participation, valuation, and fund operations.
- The “Accredited Investor” Filter: A Clearer Risk Lens
SEBI’s revised Angel Fund framework introduced a significant change by transitioning Angel Funds to an Accredited Investor–only model.
The underlying logic is direct. Early-stage investing carries a high degree of uncertainty. The expectation is that such capital should come from investors who have the financial capacity and experience to assess risk across a full startup cycle, not just at entry.
More importantly, this marks a strategic shift in how participation is structured. By limiting participation to accredited investors, the framework has reduced capital availability but filters for risk-aligned capital.
This reduces friction during decision-making and aligns founders with investors who can engage beyond the transaction. Capital, in this context, is not just funding—it is perspective, judgement, and the ability to stay engaged when outcomes are not linear.
- Real-Time Truth: The Unit Valuation Mandate
AIFs have historically shared Net Asset Value (NAV) information with investors through periodic NAV statements based on independent valuation. That practice continues unchanged.
A recent SEBI circular introduced another pillar of transparency: mandatory reporting of AIF unit value to Depositories.
Under this requirement, AIFs must upload the latest available Net Asset Value (NAV) for each ISIN to the depository system by May 1, 2026, or within 30 days from the date of valuation of the investment portfolio, whichever is later.
The intent is not to increase the frequency of valuation or disclosure, but to standardise where valuation data resides. With AIF units now held in dematerialised form, NAV information is being aligned with the same depository infrastructure.
The Cost of Quality: An Operational Reality
It is important to acknowledge a practical truth: transparency has a cost.
These mandates introduce a measurable compliance load for fund managers –
- Verifying accredited investor status,
- maintaining placement documentation,
- coordinating with IBBI-registered valuers,
- and ensuring timely disclosures require a structured internal setup.
This is not incidental work; it becomes part of the fund’s core operating model.
Why This Matters Beyond Compliance
These measures are not about restriction, but about making the AIF ecosystem scalable and reliable. As funds grow and LP participation becomes more diverse, confidence increasingly depends on clear and consistent processes around valuation, allocation, and reporting. Defined frameworks lower the cost of trust and support long-term, repeat capital.
At the same time, for angel funds, moving away from ad-hoc discretion toward disclosed methodologies strengthens fiduciary discipline. LPs gain clarity on how decisions are made and how capital is treated across the fund, reducing ambiguity as funds scale.
The value lies not in compliance itself, but in the institutional credibility it builds for the ecosystem.
Closing Thought
The regulatory landscape for AIFs is no longer about post-facto correction. It has become the entry condition for participating in a global capital ecosystem. Those who invested early in process, disclosure, and governance will find the path to scale more navigable.
For LPs, these frameworks reinforce confidence that capital is being managed within a defined and consistent system.
At Auxano, our approach is built on these principles. We do not view governance as a constraint on growth, but as the foundation that allows value to compound over time.
Author,
Rakesh Rana
