SEBI Introduces Co-Investment Framework Within AIFs via CIV Schemes [Read Circular]
SEBI has introduced a framework allowing Category I and II AIFs to offer co-investment opportunities to accredited investors via dedicated Co-Investment Vehicle (CIV) schemes within the AIF structure.
SEBI - TAXSCAN
SEBI - TAXSCAN
The Securities and Exchange Board of India (SEBI) issued a circular dated September 09, 2025, announcing a new regulatory framework that allows Category I and Category II Alternative Investment Funds (AIFs) to launch Co-Investment Schemes (CIV schemes) within the AIF structure itself.
Until now, co-investment by AIF investors was only allowed through the Portfolio Manager route governed by SEBI (Portfolio Managers) Regulations, 2020. SEBI has now created a parallel route that enables co-investment within the AIF structure itself, through a separately launched CIV scheme.
What is a CIV Scheme?
A CIV scheme is a separate scheme under an AIF that allows accredited investors to co-invest in a particular investee company.
The manager of the AIF can now offer co-investments either through the PMS route or the new CIV route, but not both for the same investor in the same deal.
Key Requirements for CIV Schemes
Filing:
- A Shelf Placement Memorandum must be filed with SEBI.
- It should outline the governance structure, investment terms, and regulatory framework.
Operational Conditions:
- Separate bank and demat accounts must be maintained for each CIV scheme.
- CIV scheme assets must be ring-fenced from other schemes.
Investment Limit:
An investor’s total co-investment via CIV schemes in a single company must not exceed 3 times their investment through the AIF in that company.
Exemptions:
This limit does not apply to:
- Multilateral/Bilateral Development Financial Institutions
- State Industrial Development Corporations
- Government-owned or controlled entities (e.g. sovereign wealth funds)
Participation Restrictions
The following investors cannot participate in co-investment for a specific company:
- Those excluded or excused from investing through the main AIF
- Those who have defaulted on their contribution
Investment Restrictions for CIV Schemes
A CIV scheme must not:
- Give indirect exposure to companies that the investor is not permitted to invest in directly
- Trigger regulatory disclosures that would apply if the investment was made directly
- Invest in companies that are barred from accepting investment from that specific investor
Financial and Legal Safeguards
- No borrowing or leverage is allowed for CIV schemes.
- Investors will receive returns and proceeds proportionate to their investment, except for agreed carried interest or performance fees.
- All expenses are to be shared between the main AIF and the CIV scheme in proportion to their investment.
Implementation Standards
SEBI has asked the industry’s Standard Setting Forum for AIFs (SFA) to issue implementation standards.
These standards will be published on the websites of:
- Indian Venture and Alternate Capital Association (IVCA)
- PE VC CFO Association
- Trustee Association of India
The AIF’s Compliance Test Report (CTR) must now include compliance with this new CIV framework. The trustee or sponsor of the AIF must ensure this requirement is fulfilled.
The circular is effective immediately from September 09, 2025.
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