Proposed flexibility for AIFs in winding up of Schemes and Surrender of Registration

The Securities and Exchange Board of India (“SEBI”), through its consultation paper dated February 5, 2026, has proposed amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) to introduce flexibility in the winding-up process of alternative investment funds (“AIF”) schemes and surrender of registration. The proposal seeks to permit limited retention of liquidation proceeds beyond the permissible fund life in specified circumstances, while introducing an ‘inoperative AIF’ classification to rationalise compliance requirements during the winding down phase. The objective is to balance operational practicality with investor protection.