What has changed?
Earlier, investors who wished to co-invest
in specific deals alongside AIFs—particularly in Category I and II funds—had to do so through parallel vehicles or side arrangements. These methods often involved additional compliance, legal and operational hurdles.
Now, SEBI has allowed co-investments to be offered within the same legal structure of the AIF, simplifying the entire process.
Why this matters for investors?
This change enables investors, especially high-net-worth individuals (HNIs), family offices, and institutional investors, to:
- Take larger positions in specific deals they believe in, without setting up separate entities.
- Access high-conviction opportunities alongside the main fund while remaining under the same governance and regulatory oversight.
- Avoid timing and operational delays that previously came with informal co-investment vehicles.
Calling the move “long-awaited and highly progressive,” Nishad Khanolkar, President and Fund Manager at Bharat Value Fund (CAT II AIF), said it brings much-needed clarity, efficiency, and scalability to how bespoke investment access is structured.
“SEBI’s enablement of co-investments directly within the AIF framework empowers investors to take more concentrated asset allocation on high-conviction ideas while staying within the regulatory envelope of the fund,” Khanolkar said.
He noted that the reform especially benefits sophisticated investors like CXOs, entrepreneurs, and family offices, who seek greater transparency, discretion, and targeted exposure to select deals—without the overhead of managing a fund themselves.
Growing importance of AIFs in India
The timing of SEBI’s move aligns with the sector’s rapid growth. The AIF industry has grown at 33% annually over the last decade and now manages over $155 billion in assets. Recognising this, SEBI is also gradually relaxing rules to accommodate rising investor interest and professionalisation in the wealth management space.
Kush Gupta, Director at SKG Investment & Advisory, called the co-investment change an “important step” that reflects SEBI’s willingness to evolve with the market.
“This will attract more investments into this asset class and provide fund managers with additional capital to seek out differentiated opportunities,” Gupta said.
Gupta also highlighted that the AIF ecosystem is maturing fast, and SEBI’s broader reforms—including advisory rights for fund managers on listed securities and simplified compliance for angel funds—signal more investor-friendly changes on the horizon.
Impact on sectors and capital markets
The structural shift is likely to:
- Accelerate capital deployment in innovation, infra-tech, consumer disruption, manufacturing, and defence,
- Strengthen alignment between fund managers and co-investors by keeping all activity within a unified framework,
- Improve India’s standing as a global destination for alternative investments.
“This development will unlock a deeper layer of capital… and enhance India’s competitiveness as an alternative investment hub globally,” Khanolkar added.
