SEBI Board Meeting: Regulator Allowed AIFs to Invest in Debt Securities

India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has relaxed regulations for foreign investors, alternative investment funds (AIFs), and registered investment advisors (RIAs) in response to the growing trading volumes in the cash equity market.

Change in AIF Regulation

The regulator has eased the rules for Category II AIFs, allowing them to invest in listed debt securities with a credit rating of ‘A’ or lower. In a statement released after a meeting with its Board, SEBI said, “Investments by Category II AIFs in listed debt securities rated ‘A’ or below will be treated similarly to investments in unlisted securities to meet the minimum investment conditions in unlisted securities.”

This change follows a proposal in a consultation paper issued on February 7, 2025, aimed at addressing the shrinking pool of unlisted securities due to revisions in the Listing Obligations and Disclosure Requirements (LODR) Rules. Category II AIFs are primarily focused on unlisted securities, with a requirement to invest over 50% of their funds in such assets. However, the LODR amendment reduced the number of available unlisted debt securities. As a result, SEBI proposed allowing these funds to allocate a larger portion of their investments to listed debt securities with a higher risk profile, rated ‘A’ or below.

Conclusion

SEBI approved changes permitting Category II AIFs to invest a larger share of their assets in listed debt securities with a credit rating of ‘A’ or lower. Registered Investment Advisors (RIAs) are also now allowed to collect up to one year’s fees in advance, lifting the previous three-month limit.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.