5 February 2026
SEBI's February 2026 consultation on winding up AIFs, and how closely the final rules followed it
What did SEBI's consultation paper on AIF winding up propose?
Five proposals, issued 5 February 2026. AIF schemes could retain funds beyond permissible fund life on a litigation or demand notice, 75% investor consent, or substantiated operational expenses. AIFs surrendering registration could be tagged inoperative, with rationalised compliance, no new schemes, no management fees and a three-year retention cap. Comments closed 26 February 2026.
What changed
SEBI issued a consultation paper on 5 February 2026 on flexibility for AIFs winding up a scheme or surrendering registration. Public comments closed on 26 February 2026. Draft regulatory amendments sat at Annexure A.
The five proposals
| # | Proposal |
|---|---|
| 1 | AIF schemes may retain funds beyond permissible fund life on (a) a litigation or demand notice from a tax, regulatory or law-enforcement authority, (b) consent of at least 75% of investors by value for anticipated litigation or tax liabilities, or (c) substantiated operational expenses |
| 2 | Should the specific heads of operational expense be prescribed? Comments sought on which heads |
| 3 | AIFs surrendering registration with one or more such schemes may be tagged inoperative, able to apply for surrender only once liabilities are settled and a nil bank balance reached |
| 4 | AIFs that have retained no money may also apply for inoperative status |
| 5 | The framework for inoperative funds: no PPM audit report, no Compliance Test Report, no quarterly filing; an annual status report instead; retained monies invested per regulation 15(f); no new schemes; no management fees; a three-year cap on operational-expense retention |
Why this one is worth reading after the fact
Consultation papers usually get read while the window is open and forgotten after. This one is more useful now than it was in February, because the rules it proposed exist and can be laid alongside it.
The sequence took four months and three instruments:
- 5 February 2026 — this paper, five proposals
- 16 April 2026 — the AIF (Amendment) Regulations, 2026 insert the enabling powers into regulation 29
- 16 June 2026 — the winding-up guidelines circular specifies the conditions
Read together, the proposals arrived substantially intact. The three retention conditions, the 75% consent threshold, the three-year cap on operational-expense retention, the prohibition on new schemes and the prohibition on management fees all survive into the final circular.
One drafting difference is visible. Proposal 3 conditioned surrender on liabilities being settled and a nil bank balance being achieved. The circular at paragraph 11 requires that liabilities are satisfied and pending retained monies distributed to investors across all schemes — the same idea, expressed against the fund's obligations rather than its bank statement.
Who this reaches
Anyone who needs to know why the June rules read the way they do. For a manager arguing about the boundaries of "substantiation" under paragraph 3.3 of the circular, Proposal 2 records that SEBI itself asked whether the expense heads should be prescribed and invited the industry to name them.
What is not settled
SEBI did not publish the comments received, and the paper does not tell you which of them moved anything. The implementation standards on operational-expense heads, flagged for the Standard Setting Forum in the June circular, remain outstanding.
Sources
- Consultation Paper on Flexibility to Alternative Investment Funds (AIFs) in Winding up the scheme / Surrendering the Registration — SEBI, 5 February 2026 · primary
- Consultation paper, full text with draft amendments at Annexure A, 7 pages — SEBI, 5 February 2026 · primary
Dated 5 February 2026, last checked against source 25 August 2026. The dateline is the date of the instrument this item reports, not the date the page was written. This page reports what a document says. It is information, not legal, tax or investment advice, and it is not a recommendation about any fund.