At its 213th board meeting held in Mumbai on March 23, 2026, Securities and Exchange Board of India (“SEBI”) approved a series of significant regulatory measures aimed at enhancing ease of doing business, strengthening governance standards, improving operational efficiency, and broadening investor participation. The reforms reflect a continued shift towards a more facilitative and principle-based regulatory framework, while maintaining appropriate oversight.

Enhancing Flexibility for Alternative Investment Funds (AIFs)

SEBI has introduced important changes to address practical challenges faced by Alternative Investment Funds during the winding-up phase. Under the earlier regime, AIFs were required to distribute proceeds and achieve a Nil bank account balance prior to surrendering registration, which often proved impractical in the presence of unresolved obligations. The revised framework permits retention of liquidation proceeds beyond the tenure of the fund in specified scenarios, including pending litigation, tax liabilities, or residual operational expenses; introduces an investor consent mechanism requiring approval from at least 75% of investors (by value) for retention of funds against anticipated liabilities from litigation or tax demand; mandates substantiation of retained amounts through invoices or prior-yearcomparables, subject to a maximum retention period of three years; and establishes the concept of “inoperative funds,” allowing such AIFs to operate with reduced compliance requirements, including suspension of periodic filings, Private Placement Memorandum (PPM) updates, and performance benchmarking.

Improving Capital Efficiency for Foreign Portfolio Investors (FPIs)

SEBI has approved the introduction of a net settlement mechanism for FPIs in the cash market. Under this framework, FPIs will be permitted to settle funds on a net basis for outright transactions in cash market, i.e., transactions in which there is either purchase or sale transactions, but not both, in a security within a settlement cycle, while settlement of securities will continue on a gross basis between the FPI and the custodian. Statutory levies, including Securities Transaction Tax (STT) and stamp duty, will continue to apply on a delivery basis, and the framework is expected to be implemented on or before December 31, 2026.

The proposal is expected to lower funding costs for FPIs, especially on index rebalancing days when they need to buy and sell different stocks at the same time. Since only outright transactions will be netted and other types of transactions will continue to be settled on a gross basis, concerns about market impact from large FPI positions or speculative trading are addressed.

Promoting Retail Participation in Social Impact Investments of Alternative Investment Fund (AIF)

To facilitate wider participation in socially oriented investment products, SEBI has reduced the minimum investment threshold for Social Impact Funds (SIFs) from ₹2 lakhs to ₹1,000 and aligned this threshold with the minimum application size prescribed for Zero Coupon Zero Principal instrumentsunder SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

This measure is expected to increase the retail participation in impact-driven investment avenues.

Strengthening the InvIT and REIT Framework

SEBI has introduced a set of amendments to address operational constraints and enhance flexibility for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).

InvITs will be allowed to continue holding investments in SPVs even after the conclusion or termination of the concession agreement. However, they must either exit the investment or add a new infrastructure project to that SPV within one year. This one-year period will start after whichever happens last: completion of the concession agreement or resolution of any pending claims or litigation, or completion of the defect liability period. Any time taken to obtain required regulatory approvals for exiting the investment will not be counted in this one-year period.

Additionally, the framework has been expanded to provide greater operational and investment flexibility, including: expanding permissible investment avenues by allowing investments in a broader range of liquid mutual fund schemes with specified credit parameters; enabling privately listed InvITs to invest up to 10% of their asset value in under-construction (greenfield) infrastructure projects; and permitting InvITs with leverage between 49% and 70% to undertake borrowings for capital expenditure, major maintenance, and refinancing of existing debt, subject to prescribed conditions.

Rationalizing the “Fit and Proper Person” Criteria

SEBI has undertaken a review of the “fit and proper person” criteria applicable to intermediaries. The revised framework clarifies that the mere pendency of criminal complaints or FIRs filed by SEBI or a charge sheet concerning economic offences, will not result in automatic disqualification and will instead be assessed on a case-by-case basis; expands disqualification triggers to include convictions for economic offences and violations under securities laws; removes certain rule-based disqualifications such as initiation of winding-up proceedings while retaining provisions relating to confirmed orders; introduces enhanced disclosure obligations requiring intermediaries to report specified events within prescribed timelines; provides for a reasonable opportunity of being heard prior to any adverse determination; and rationalizes timelines for consideration of registration applications in cases involving show cause notices.

Strengthening Governance and Conflict of Interest Framework

Pursuant to the recommendations of a High-Level Committee, SEBI has approved several measures aimed at strengthening its internal governance framework. These include extending investment restrictions to the Chairman and Whole-Time Members (WTMs) which are currently applicable to employees; requiring liquidation, freezing, or restructuring of existing investments in equity and equity related instruments, other than permitted investments upon assumption of office; mandating initial, periodic, and event-based disclosures of assets, liabilities, trading activities and financial interests; establishing an Office of Ethics and Compliance (OEC) for oversight of conflict-of-interest matters; implementing digital systems for monitoring disclosures and enabling whistleblower reportingfor reporting actual, potential, or perceived conflicts of interest; requiring disclosure of negotiations/ agreement for future employment; extending investment restrictions to spouse and dependent family members (except investments in unlisted securities, ESOPs acquired as part of the pay package and use of discretionary Portfolio Management Services); standardizing the definition of “family” for disclosure purposes; providing for partial public disclosure of immovable assets while maintaining detailed disclosures internally; and formalizing a structured recusal framework.

SEBI Board Meeting (March 23, 2026): Key Regulatory Developments