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SEBI AIF Winding-Up Guidelines 2026: Key Compliance Updates

Author : corpzo india | Published On : 18 Jul 2026

Introduction

Guidelines for winding up of AIFs  SEBI Master Circular for AIFs, June 2026

Securities and Exchange Board of India (SEBI) issued its latest master circular on 3rd June 2026 which was last updated on 16th June 2026, providing “guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status”.

SEBI master circular for AIFs updates from time to time for smooth working and regulation of Alternative Investment Funds (AIFs)

This article refers to the latest updates in circulars in April, May and June 2026.

1. Timeline for declaration of First close of schemes of AIFs (Validity of PPM) 30th April 2026

First clause of this topic is updated by SEBI on 30th April 2026 as given in SEBI Master Circular for AIFs.

Under which it was explained that the first close of a scheme should be declared in 12 months from the date when the AIF become able to launch its schemes.

2. Guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status. (3rd June 2026)

This is a complete and new chapter added by SEBI in the latest SEBI Master Circular for AIFs. These guidelines for winding up of AIFs are particularly created to solve problem which AIFs face during wind up.

Regulation 29

Before this update, Regulation 29 asked the AIFs to liquidate assets, retention of proceeds and surrender registration etc which is practically not easy to produce all these documents.

Some amount of money is necessary to be hold even after end of AIFs because so many AIFs are surrounded with tax disputes, regulatory investigations etc.

Retention of proceeds beyond permissible fund life.

Permissible Fund Life means the time till the scheme is allowed to be in nature with its original life, extended time allowed by investors and liquidation period.

Before the latest update, All the assets of an AIF were sold after permissible fund life and all the investors were paid and the scheme wound up.

But now, the retention of proceeds beyond permissible fund life is allowed if it satisfies minimum one of the three conditions given in the latest SEBI Master circular for AIFs, June 2026.

  1. If any litigation notice, reassessment notice, show cause notice received by the AIF or if ED starts investigation or any investor files a legal claim, then that AIF can hold some amount of money “beyond permissible fund life” for upcoming liability if any.
  2. If the AIF or its manager expects some kind of tax demand or Investor claims or regulatory claims then also the AIF can hold some amount of money only after the consent of 75% Investor by the value of Investment by telling them the amount AIF needs to hold beyond permissible fund life.
  3. AIF also can hold some amount of money “beyond permissible fund life” for the fund expenses like Audit fees, legal fees, Tax expenses or compliance expenses etc. However, the manager or the concerned official needs to show evidence of the expense done by the fund or by any official of the AIF (For ex. Invoices).

After satisfying at least one of these three conditions given by the SEBI Master Circular for AIFs, Fund life can be increased for maximum three more years. After completing these three years, the money held by AIF shall be distributed among investors, After which the scheme wind up.

Application for ‘Inoperative Fund’ status

This is the most important subtopic introduced by the Guidelines for winding up of AIFs.

As the general life of AIF is completed and it is not operational, so SEBI says that the AIF is not completely working beyond permissible fund life, It can only hold money as some tax or investor related issues are pending, that’s why named it as “Inoperative Fund”, a fund which can not be operated under AIF and can only be used for the issues responsible for AIFs’ beyond permissible fund life.

AIFs which hold money due to litigation issue, tax issue or operational liability can apply for Inoperative Fund Status.

Or

AIFs which did not hold any money but held registration because some litigation is pending, they can also apply of Inoperative Fund Status.

The Inoperative Fund can surrender its registration after the settlement of liabilities and distribution of money to the investors.

Regulatory framework applicable to ‘Inoperative funds’

If any AIF becomes “Inoperative Fund”, there will be certain restrictions imposed on it.

  1. The money retained by the AIF will not be used or any other considerable investments.
  2. Any new scheme cannot be launched by the AIF as it already wound up.
  3. Any Management fees will not be charged for any scheme as the AIF wound up.

After becoming Inoperative Funds, Regulatory requirements given in Annexure 22 of SEBI Master Circular for AIFs are not applicable to the concerned AIFs.

Those AIFs which have retained the capital and also became “Inoperative Funds” have to submit the annual status report of money and liabilities on SEBI Intermediary Portal within 30 days from end of March of every financial year.

Applicability to erstwhile Venture Capital Funds (Old Venture Capital Funds)

The latest SEBI Master Circular for AIFs provides way to the Old Venture Capital Funds to retain the money beyond the permissible time and to gain the inoperative fund status just same as given to AIFs by this circular.

These VCFs should be registered under Old SEBI (Venture Capital Funds) Regulations, 1996.

Conclusion

This latest SEBI Master circular for AIFs provided the conditions for an AIF to gain the “Inoperative Funds Status” and the conditions & Restrictions provided to the Inoperative Funds. Under this master circular, Concept of retention beyond permissible life also been given to the AIFs.

SEBI Master Circular for AIFs also provided the chance to gain Inoperative funds status to the Venture Capital Funds registered under Old SEBI (Venture Capital Funds) Regulations, 1996.