CIRCULAR
HO/19/34/11(2)2026-AFD-POD1/I/13764/2026 June 16, 2026
To,
All Alternative Investment Funds (AIFs)
All Venture Capital Funds (VCFs) registered under erstwhile SEBI (Venture
Capital Funds) Regulations, 1996
Sir/Madam,
Sub: Guidelines for winding up of AIFs with respect to retention of proceeds and
‘Inoperative Fund’ status
1. SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) have
been amended and notified on April 18, 2026 to provide certain flexibility to AIFs
with respect to winding up of their schemes and surrender of registration.
2. Regulation 29 of AIF Regulations states, inter-alia, the following with respect to
winding up –
2.1. Regulation 29(7) - Within the liquidation period, the assets shall be liquidated,
and the proceeds accruing to investors in the AIF or the scheme of the AIF
shall be distributed to them after satisfying all liabilities, subject to conditions
as may be specified by SEBI from time to time.
2.2. Regulation 29(10A) - An AIF may be tagged as an inoperative fund, in such
manner and subject to conditions as may be specified by SEBI from time to
time.
2.3. Regulation 29(11) - Upon winding up of the AIF, the certificate of registration
shall be surrendered to SEBI.
The conditions and modalities with respect to retention of proceeds beyond
permissible fund life, tagging as ‘Inoperative Fund’ and surrender of registration are
being specified in this circular.
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Retention of proceeds beyond permissible fund life
3. AIFs/schemes of AIFs may retain liquidation proceeds beyond the liquidation period
or dissolution period (beyond “permissible fund life”), as applicable, subject to
satisfying at least one of the following conditions –
3.1. Demonstrable receipt of a litigation notice or demand by the AIF/scheme of
AIF, which includes any official written communication from a tax authority,
regulatory authority, law enforcement agency, court of law, or from an investor
or counterparty in relation to litigation, which indicates a potential tax,
regulatory or legal liability. This shall include show-cause notices, re-
assessment notices, investigation summons, or similar communications and
shall not be restricted to crystallised demand notices;
3.2. Consent obtained from at least seventy-five percent of the investors by value
of their investment in the scheme, in cases where proceeds are proposed to
be retained on account of anticipated liabilities arising due to a
possible/probable litigation or tax demand;
3.3. Substantiation of amounts retained for meeting residual winding up related
operational expenses, through invoices, supporting documents or records of
comparable expenses incurred in previous years.
4. In cases where monies are being retained on account of anticipated liabilities as
specified in paragraph 3.2 above, the manager of AIF shall disclose the amount
being retained and estimated time period for which it is proposed to be retained to
the investors of the fund while seeking their consent for retention.
5. In cases where monies are being retained for meeting residual winding up related
operational expenses as specified in paragraph 3.3 above, the time period for such
retention shall not exceed three years from the end of permissible fund life of the
AIF/scheme of AIF. Further, the implementation standards for standardising the
operational heads under which monies may be retained, shall be formulated by
Standard Setting Forum of AIFs (‘SFA’), in consultation with SEBI.
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6. All monies retained in line with conditions at paragraph 3 above shall be invested in
accordance with Regulation 15(1)(f) of the AIF Regulations.
7. Once the liabilities are satisfied and the pending retained monies are distributed to
the investors of the fund, the scheme shall be wound up in terms of Regulation 29
of AIF Regulations.
Application for ‘Inoperative Fund’ status
8. An AIF having one or more schemes with retained monies as specified in paragraph
3 above and intending to surrender its registration, may apply for obtaining the
‘Inoperative Fund’ status. The application shall be submitted to SEBI in the format
as specified in Annexure A, by emailing to inoperativeaif@sebi.gov.in.
9. An AIF whose scheme(s) have not retained any monies beyond the permissible
fund life, but intending to continue with the registration solely in anticipation of a
favourable outcome of a pending litigation, may also apply for obtaining the
‘Inoperative Fund’ status.
10. Upon approval of the aforesaid application, the applicant AIF will be tagged as
‘Inoperative Fund’.
11. Such Inoperative Fund shall apply to SEBI for surrender of its certificate of
registration only after the liabilities are satisfied and the pending retained monies
are distributed to the investors in all its schemes.
Regulatory framework applicable to ‘Inoperative funds’
12. An AIF tagged as ‘Inoperative Fund’ shall be subject to the following conditions, with
effect from the date of obtaining the tag –
12.1. The monies retained by scheme(s) of such AIF in terms of paragraph 3 above,
shall be invested in accordance with Regulation 15(1)(f) of the AIF
Regulations;
12.2. No new scheme shall be launched under the AIF; and,
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12.3. No management fees shall be charged in respect of any of its scheme(s).
13. The regulatory requirements as specified in Annexure B shall not be applicable to
AIFs tagged as ‘Inoperative Funds’.
14. AIFs having schemes which have retained monies in terms of paragraph 3 above
and AIFs tagged as ‘Inoperative Funds’ shall submit an annual status report on
retained monies and outstanding liabilities to SEBI and to investors of the relevant
scheme(s), in the format as given at Annexure C of this circular. The report shall
be submitted on SEBI Intermediary portal within 30 calendar days from the end of
March of every financial year.
Applicability to erstwhile Venture Capital Funds
15. The aforesaid facility of retention of proceeds beyond permissible fund life and
availing Inoperative Fund status shall also be applicable to Venture Capital Funds
registered under erstwhile SEBI (Venture Capital Funds) Regulations, 1996. The
regulatory framework applicable to such VCFs tagged as ‘Inoperative Funds’ shall
be the same as applicable to AIFs, stated in para 12 to 14 above.
16. This circular shall come into force with immediate effect.
17. This circular is issued with the approval of the competent authority.
18. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 29 and
Regulation 36 of SEBI (Alternative Investment Funds) Regulations, 2012, to protect
the interests of investors in securities and to promote the development of, and to
regulate the securities market.
19. The circular is available on SEBI website at www.sebi.gov.in under the categories
"Legal  Circulars" and "Info for  Alternative Investment Funds”.
20. The SEBI Master Circular for AIFs dated June 03, 2026 has also been updated with
the provisions of this circular. The updated Master Circular for AIFs is available on
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SEBI website at www.sebi.gov.in in the path "Legal  Master Circulars" and "Info
for  Alternative Investment Funds”.
Yours faithfully,
Anshul Jagdish Goyal
Deputy General Manager
Tel no.: +91-22-26449389
anshulg@sebi.gov.in
Enclosures: As above
***
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Annexure A
Information to be submitted while filing application for ‘Inoperative Fund’ status
S. No. Particulars Details
Part A - Details of AIF
1. Name of the AIF
2. Category of the AIF
3. Registration Number of the AIF
4. Name of the trustee
5. Name of the Sponsor
6. Name of the Manager
7. No. of schemes launched under the
AIF
8. No. of schemes where proceeds
have been retained to meet liabilities
Part B - Details of schemes of AIF
(Information shall be submitted at scheme level, separately for each scheme of the AIF)
9. Name of scheme
10. Date of initial closing of the fund
(dd/mm/yyyy)
11. Date of final closing of the fund
(dd/mm/yyyy)
12. Tenure of the fund (in years, as
disclosed in PPM of the fund)
13. Extension of tenure availed, if any (in
years)
14. Dissolution period availed, if any
(from dd/mm/yyyy to dd/mm/yyyy)
15. End Date of permissible fund life
(end of liquidation period or
dissolution period as applicable in
dd/mm/yyyy format)
16. Corpus of the scheme (in INR Crore)
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S. No. Particulars Details
Cumulative investments made by
17.
the scheme (at Cost, in INR Crore)
Date of liquidation of last investment
18. of the scheme (in dd/mm/yyyy
format)
Liquidation proceeds accrued to the
19.
fund (in INR Crore)
Liquidation proceeds distributed to
20.
the investors (in INR Crore)
Date of payment of last tranche of
21. proceeds to investors (aside from
proceeds retained) (in INR Crore)
Liquidation proceeds retained by the
22.
fund (in INR Crore)
Winding up of the fund on account of a) Tenure of the fund as mentioned in
- PPM is over; or,
b) Opinion of trustee that the fund be
wound up in the interest of the
23. investors
c) Resolution for winding up, by
seventy five percent of the investors
by value of their investment in the
fund
Amounts retained/’Inoperative fund’ a) Pending litigation or tax / regulatory
status sought on account of - demand (Demonstrable
Receipt/Official communication to
be enclosed)
24.
b) Anticipated litigation or tax demand
(Document recording the details of
investor consent obtained to be
enclosed)
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S. No. Particulars Details
c) Residual operational expenses
(Supporting invoices / comparable
expense statement from previous
years to be enclosed)
d) No retained monies; continuing with
registration solely in anticipation of
favourable litigation outcome
(Supporting documents in form of
notices/official communication to be
enclosed)
Expected timeline for resolution and
distribution of any pending retained
25.
amount to investors (End date in
form of dd/mm/yyyy)
Proposed instruments for investment
26.
of retained monies
Details of pending enforcement
27.
actions
Part C - Undertaking to be submitted by the Manager of the AIF
1. The information supplied in this application for obtaining Inoperative Fund for
[Name of AIF], including the attachment sheets, is complete and true. The
Manager of the AIF [Name of AIF] has exercised due diligence with respect to the
claims made in this application.
2. The scheme(s) [Names of scheme(s)] of the AIF has completed its investment
activity and all the assets/investments of the scheme(s) have been liquidated.
3. The monies retained are solely on account of [specify applicable ground(s):
pending litigation/tax demand | anticipated litigation/tax demand with investor
consent | residual operational expenses | anticipation of favourable litigation
outcome], and supporting documentation is enclosed.
4. No new scheme shall be launched and no management fees shall be charged
from the investors from the date of obtaining Inoperative Fund status.
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S. No. Particulars Details
5. The retained monies shall be invested only in accordance with Regulation 15(f) of
the AIF Regulations.
6. An annual status report shall be submitted to SEBI and to the investors of the
relevant scheme(s) until all liabilities are resolved and a NIL bank balance is
achieved.
7. The retention proceeds pending after meeting the liabilities and any proceeds
received pursuant to a favourable litigation outcome, shall be distributed to the
investors of the fund in accordance with terms of its PPM.
For and on behalf of [Name of Manager], manager of [Name of AIF]
Authorized signatory
Part D - Undertaking to be submitted by the Trustee / Board of Directors/
Designated Partners of the AIF (as applicable depending on the form of AIF)
We, [Name of entity], trustee/Board of Directors/Designated Partners of the AIF, have
reviewed the circumstances of [Name of the AIF] and we are satisfied that the application
for ‘Inoperative Fund’ status is bona fide in nature and the amounts retained, if any, are
solely on account of the ground(s) specified in the application.
For and on behalf of [Name of Entity], trustee/Board of Directors/Designated Partners
of [Name of AIF]
Authorized signatory
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Annexure B
Exemption from certain regulatory requirements for Inoperative Fund
S. No. Regulatory requirements Effective date of non-applicability
1. Limited Quarterly Activity Report and Limited Quarterly Activity Report - From
Annual Activity Report the quarter subsequent to the quarter in
(Para 21.1 under Chapter 21 of SEBI which the AIF is tagged as Inoperative
Master Circular for AIFs dated June Fund
03, 2026 (‘AIF Master Circular’)) Annual Activity Report - From the
Financial Year subsequent to the
Financial Year in which the AIF is tagged
as Inoperative Fund
2. Audit of terms of PPM
(Para 21.3 under Chapter 21 of AIF
Master Circular)
3. Intimation of changes in PPM
(Para 21.4 under Chapter 21 of AIF
Master Circular)
From the Financial Year subsequent to
4. Compliance Test Report (CTR)
the Financial Year in which the AIF is
(Para 21.2 under Chapter 21 of AIF
tagged as Inoperative Fund.
Master Circular)
5. Reporting of information, including
scheme-wise valuation and cash flow
data to the Benchmarking Agencies
for performance benchmarking
(Chapter 22 of AIF Master Circular)
6. NISM certification requirement for Date of obtaining Inoperative Fund status
the key investment team of the fund
(Regulation 4(g)(i) of AIF
Regulations)
7. Requirement of custodian for Date of obtaining Inoperative Fund status
safekeeping of securities of AIF
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S. No. Regulatory requirements Effective date of non-applicability
(Regulation 20(11) of AIF
Regulations)
8. Periodic disclosure to investors Date of obtaining Inoperative Fund status
regarding fund investments in terms
of Regulation 22(a) of AIF
Regulations
9. Annual (Category I and II AIFs) From the Financial Year/Quarter
/Quarterly reports (Category III AIFs) subsequent to the Financial
to investors in terms of Regulation Year/Quarter in which the AIF is tagged
22(g) and 22(h) of AIF Regulations as Inoperative Fund.
10. Valuation of investments of AIFs Date of obtaining Inoperative Fund status
(Regulation 23(2) and 23(3) of AIF – The valuation shall be reported to
Regulations) investors as part of annual retention
status report and accordingly, the
updated Net Asset Value of the AIF units
shall also be reported to depositories
within 30 calendar days from the end of
March of every financial year.
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Annexure C
Format for Annual Retention Status Report
(To be submitted to SEBI and investors within 30 calendar days from the end of March
of every financial year)
Details of AIF and its scheme(s)
Information
Particulars Details
S. No.
related to
a) Name of the AIF
b) Category of the AIF
Details of
c) Registration Number
1.
AIF
d) Date of obtaining
‘Inoperative Fund’ status
(If applicable)
a) Name of the scheme(s)
b) End date of permissible
fund life (end of liquidation
period or dissolution
period as applicable in
dd/mm/yyyy format)
Details of
scheme(s) c) Reason(s) for non-winding
2. with up of scheme before end
retained of permissible fund life
monies* (Provide specific reason
for non-winding up/
retention of proceeds)
d) Amounts (i) Pending litigation or tax
retained/’Inoperative fund’ / regulatory demand
obtained on account of – (Demonstrable
Receipt/Official
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Information
Particulars Details
S. No.
related to
(Choose one of the options communication to be
given herein) enclosed)
(ii) Anticipated litigation or
tax demand (Document
recording the details of
investor consent
obtained to be
enclosed)
(iii) Residual operational
expenses (Supporting
invoices / comparable
expense statement from
previous years to be
enclosed)
(iv) No retained monies;
continuing with
registration solely in
anticipation of
favourable litigation
outcome
e) Total amount retained (in
INR)
f) Amount distributed as on
date to investors out of the
retained amount (in INR)
g) Amount retained as on
reporting date (in INR)
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Information
Particulars Details
S. No.
related to
h) Present status of the
reason(s) mentioned at
row (c) above
i) Expected timeline for
resolution (in dd/mm/yyyy)
Note - *Scheme wise information to be provided separately.
Details of investment made with monies retained in terms of regulation 15(f) of
AIF Regulations
S. Name of Name of Cost of Latest Value of Type of Provide
No. Scheme Instrumen Holding as at Holding as at Security details, if
* t/Investee the end of the the end of the [Refer Type of
Company reporting reporting Note 4] Security
[Refer Note period (Rs. Cr) period (Rs. Cr) chosen is
1] [Refer Note 2] [Refer Note 3] ‘Others'
Note 1: Each Mutual Fund Scheme, T-bill, G-sec etc. should be stated separately.
Note 2: Cost of temporary investments held as at the end of the reporting period is to
be provided
Note 3: Valuation considered for calculation of Scheme's latest NAV is to be provided.
Note 4: Liquid Mutual Fund, Other than Liquid Mutual Funds, Bank deposits, T-bills,
TREPS, CPs, CDs and Others
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