The New Architecture Of Investor Fairness: SEBI's Overhaul Of Pro-Rata And Pari Passu Rights In AIFs

I. Introduction

The Securities and Exchange Board of India (SEBI) has initiated a decisive restructuring of investor-treatment norms within the Alternative Investment Fund (AIF) framework, culminating most recently in the release of its November 2025 Draft Circular. This draft is the most consequential update to the fairness regime that seeks to resolve operational ambiguities that surfaced after the November 2024 amendments and the December 2024 circular and proposes a unified methodology for administering pro-rata and pari passu rights across AIF schemes. With this development, SEBI has made clear that the fairness architecture of AIFs is no longer a matter of commercial discretion but a regulatory priority that will shape fund administration going forward.

For years, the AIF market operated with wide variations in how investors were treated within the same scheme. Priority distribution structures, customised side letters, selective participation mechanisms, and differentiated unit classes were common features. While these arrangements were primarily commercially driven, they created uneven economic exposure and inconsistent governance rights among investors who were seemingly part of the same pooled vehicle. This scattered approach diluted the principle of equal treatment, led to distortions in allocation and distribution outcomes, and ultimately highlighted the absence of a uniform, regulator-driven fairness standard.

SEBI's recent intervention replaces this scattered landscape with a uniform standard that positions fairness as a mandatory structural requirement, not a negotiated choice. The framework rests on two core pillars that form the structural backbone of investor equality. Firstly, the Pro-Rata Rights ensure that investment participation and distribution proceeds must be directly linked to an investor's commitment or undrawn commitment, based on a single, consistent methodology applied across the entire scheme. Secondly, Pari Passu Rights ensure that no investor receives preferential sequencing of returns unless a differential right fits within SEBI's defined criteria. While the detailed contours of these principles are unpacked later in the article, their combined effect is clear: commercial engineering that previously created asymmetry is now subordinate to a uniform regulatory standard.

Collectively, these reforms establish a consolidated fairness framework that replaces commercially driven variability with a uniform and regulation-anchored standard. The regime compels AIFs to adopt institutional rigor in every stage of the fund lifecycle, encompassing commitment structuring, capital deployment processes, drawdown methodology, excuse and exclusion treatment, distribution architecture, governance arrangements, and the administration of differential rights. The resulting operating model demands consistency, transparency, and verifiable alignment across all investors within a scheme.

This article traces the evolution of SEBI's fairness framework and examines how pro-rata and pari passu principles have been converted into binding operational standards for AIFs. It analyses the key amendments and circulars issued by the regulator and assesses how each intervention alters the mechanics of capital calls, allocations, distributions and investor rights. The sections that follow set out the regulatory architecture that now governs investor fairness across India's alternative investment landscape.

II. The Regulatory Path for Standardising Pro-Rata and Pari Passu Rights in AIFs

SEBI's journey towards a uniform fairness regime has been shaped by a sequence of deliberate regulatory interventions. Each step was taken in response to clear market distortions and aided the AIF ecosystem move closer to a system where regulation, not discretion, determines how investors are treated.

2012: Early Framework-Flexibility Without Rules

The AIF Regulations, introduced in 2012, set up a framework that granted wide contractual freedom for structuring investor rights. This level of flexibility was appropriate for a nascent industry but led to significant variations in how schemes allocated economic and governance rights. As time went on, fund documents included models for priority distribution, investor-specific side letters, selective participation arrangements, and differentiated classes of units. While permissible within the regulatory framework then in force, these structures produced divergent economic outcomes among investors participating in the same scheme and diluted the expectation that pooled vehicles should operate on broadly consistent terms.

2022: The Standstill and the First Structural Correction

SEBI's first correction step came through its circular SEBI/HO/AFD-1/PoD/P/CIR/2022/157 dated 23 November 2022, which directed AIFs operating priority distribution models to cease accepting new commitments and to refrain from making further investments. This standstill captured the regulator's increasing concern regarding the senior–junior distribution structures which were producing disproportionate economic outcomes within the pooled investment vehicles.

November 2024: Codifying Pro-Rata and Pari Passu Rights

A definitive shift in the regulatory approach occurred with the introduction of the Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2024, notified on 18 November 2024. These amendments formally incorporated fairness into the statutory framework by prescribing uniform economic and governance treatment across investors in a scheme.

Under the amended regime, Regulation 20(21) of AIF Regulations lays down that investor participation in investments and receipt of distributions be strictly proportionate to their commitments, subject to limited exceptions such as excuse, exclusion, defaults, and carried-interest arrangements. In parallel, Regulation 20(22) of AIF Regulations mandates that all rights of investors remain pari passu unless a differential right satisfies SEBI's specified conditions and does not prejudice interest of other investors.

This amendment marked the point at which fairness transitioned from a negotiated commercial norm to an enforceable statutory standard governing the administration of investor rights within AIFs.

December 2024: Operational Blueprint for Pro-Rata and Pari Passu Rights

The statutory amendments of November 2024 were operationalised through SEBI circular SEBI/HO/AFD/AFD-POD-1/P/CIR/2024/175 dated 13 December 2024, which set out the practical framework for implementing pro-rata and pari passu rights across AIFs.

On the economic side, the circular affirmed that investor participation in each investment and the corresponding distributions must follow a proportionate method, subject only to defined exceptions for excuse, exclusion, defaults, and profit-sharing arrangements such as carried interest. It also permitted the issuance of junior or subordinate units but restricted this to a limited category of investors; namely, the investment manager or sponsor, multilateral and bilateral development institutions, State industrial development corporations, and specified government or sovereign entities.

On the governance side, the circular articulated the principles governing differential rights, requiring that such rights neither alter another investor's financial position nor influence scheme-level decision making beyond what the regulations permit. It mandated alignment with implementation standards to be formulated by the Standard Setting Forum for AIFs and required clear disclosure of eligibility and availability in the PPM. For existing schemes, the circular introduced a reporting and remediation mechanism for differential rights not aligned with the forthcoming SFA standards. It also provided a conditional exemption from the pari passu requirement for Large Value Funds for Accredited Investors, subject to prescribed disclosures and investor waivers.

Through this circular, SEBI established the detailed operating standards that give effect to the statutory fairness mandate, creating a coherent bridge between regulatory principles and practical fund administration.

November 2025: Solving the Operational Ambiguities

As market participants began applying the December 2024 framework, several operational ambiguities surfaced around the mechanics of implementing pro-rata and pari passu rights. In response, SEBI issued its "Draft Circular for Public Comments: Clarifications and specific modalities with respect to maintaining pro-rata rights of investors of AIFs" dated 7 November 2025, ("Draft Circular") inviting public comments until 28 November 2025. The draft proposed refinements aimed at bringing methodological uniformity across the industry, including clarity on the basis for pro-rata computation, the requirement for each scheme to adopt a single drawdown methodology, the treatment of excused and excluded investors for concentration-limit purposes, the use of time-weighted distribution mechanics, and the alignment of fairness obligations with NAV-based operations in open-ended Category III AIFs. Given the Draft Circular's significance in shaping the operational contours of the fairness regime, this article will examine its proposals and its implication in detail in the subsequent sections. Before delving deep into these proposals, let us understand the concepts of pro-rata and pari passu, which sit at the core of the fairness framework.

III. Understanding Pro-Rata and Pari Passu Rights under the AIF Framework

A. Pro-Rata: The New Anchor of Economic Participation

SEBI's November 2024 amendments mark a pivotal shift in how fairness is embedded in the architecture of Indian AIFs. What was once a negotiation-heavy, contract-driven space has been recast through pro-rata.

In the context of AIF, pro-rata is not just a basic arithmetic concept but the operative rule that governs how every investor participates in investments and distributions. Regulation 20(21) of AIF Regulations mandates that all the investors of an AIF to hold their rights on a pro-rata basis to their commitment in both investments and distribution of proceeds. In effect, SEBI has shut the door on negotiated asymmetries; rights now correspond only with commitment, nothing else.

This is a deliberate departure from the pre-amendment landscape, where many AIFs operated as layered capital pockets rather than true pooled vehicles. Large-ticket investors frequently secured differentiated drawdown rights, selective allocation in deals, or fee structures that produced superior returns relative to smaller participants. SEBI's rationale behind this amendment is that such practices had drifted beyond commercial negotiation into a territory inconsistent with the fiduciary nature of pooled funds.

Regulation 20(21) of AIF Regulations responds to that systemic drift. It ensures that every investor is subject to risk–reward trajectory proportionate to their commitment and prevents multi-class structures and selective participation rights from distorting fund economics. Proportionality now operates as a statutory rule of conduct, ensuring that economic fairness is not dependent on bargaining power.

B. Pari Passu: Equal Footing in Distribution Priority

If pro-rata governs the quantum, pari passu governs the sequence. The term pari passu, stems from the maxim aequitas est quasi aequalitas and reflects the idea that fairness arises from treating equals equally. In the context of AIF, the pari passu principle requires that all investors stand on identical footing with respect to the priority of receipts. When proceeds are distributed, no investor may jump the queue, irrespective of commitment size or negotiation leverage. Every rupee distributed must follow a uniform order of priority for all investors belonging to that scheme.

Regulation 20(22) of AIF Regulations complements the proportionality mandate in 20(21) of the AIF Regulations by shutting down preferential distribution structures that had proliferated through side letters and bespoke class-level waterfalls. Before the November 2024 Amendment, it was common for investment managers to negotiate priority distributions, or structural preferences that allowed them to recover capital ahead of smaller investors. SEBI viewed these as antithetical to the core principle of a pooled fund, where risk and reward must be shared, not stratified.

Regulation 20(22) of AIF Regulations therefore standardises the sequencing of distributions. Preferential payouts are broadly prohibited unless they fall within the ambit of the exceptions provided for by the regulator. While Regulation 20(21) of AIF Regulations equalises economic proportion, Regulation 20(22) of AIF Regulations equalises the distribution queue. The design is intentional: one principle aligns the economics; the other aligns the order.

C. The Combined Effect: A Statutory Fairness Architecture

Together, Regulations 20(21) and 20(22) of AIF Regulations execute a structural reset of the AIF regime. Pro-rata eliminates the economic distortions created by selective participation and tailored structuring. Pari passu eliminates hidden preferences embedded in distribution waterfalls and recovery mechanics. This results in a structure where all investors share the same risk–reward mechanics, in the same sequence, strictly in line with their commitments. This dual construct shuts down the negotiated-privilege model that had evolved through class engineering and side letters, restoring the AIF to its intended character.

However, amending the regulations was only one part of the job. The real test lays in translating these principles into workable, uniform practices across a market that was built on varied drawdown models, legacy PPMs, side letters, and customised class structures. Recognising this, SEBI followed through with a comprehensive circular in December 2024: a blueprint that operationalises pro-rata and pari passu rights across all AIFs. It is this circular, and the practical consequences that flow from it, that the next section of this article aims to unpack.

IV. Putting Pro-Rata and Pari Passu to Work: A Close Reading of SEBI's December 2024 Circular

Before the December 2024 Circular, the November 2024 amendments had already codified pro-rata participation and pari passu treatment into the AIF Regulations as statutory principles. What the industry lacked was clarity on their practical application. Investment Managers were uncertain how these mandates translated into day-to-day operations i.e., capital call mechanics, deal allocations and the handling of legacy structures. The December 2024 Circular fills this operational vacuum. It moves the regime from principle to implementation, converting broad fairness mandates into defined, enforceable processes that now shape how an AIF must structure, allocate, distribute and document its economics. Following are the key aspects of the December 2024 Circular:

A. Pro-Rata as the Governing Rule for Contributions and Allocations

SEBI affirms that investors of an AIF shall have rights, pro-rata to their commitment to the scheme, subject only to three exceptions:

1. excuse or exclusion from an investment;
2. investor default;
3. carried interest payable to the manager or sponsor of the AIF.

This eliminates practices that allowed larger or influential investors to secure enhanced allocations or varied capital call patterns. Operationally, AIFs must recalibrate capital call mechanisms, allocation templates and deployment models to ensure that proportionality is consistently maintained across the investment cycle.

B. Junior or Subordinate Units Restricted to Defined Institutional Categories

The December 2024 Circular permits the creation of junior or subordinate units only for specific institutional investors such as the manager or sponsor, multilateral or bilateral development financial institutions, state industrial development corporations and sovereign/government-linked entities. These investors may accept reduced returns or share higher losses without breaching the pro-rata principle applicable to other participants.

C. Differential Rights Permissible Only Within SEBI's Defined Parameters

The circular allows differential rights only if they remain within SEBI's expressly stated boundaries. Such rights must not: (i) impose any liability on other investors; (ii) confer decision-making influence on non-commercial matters, except through committees permitted under Regulation 20(7) of AIF Regulations; or (iii) alter or dilute the rights that other investors hold under their agreements with the AIF or its manager. All differential rights must also be fully disclosed in the PPM. These constraints significantly narrow what can be offered to select investors and effectively prevent the use of side letters to create economic or governance advantages outside this regulated framework.

D. SFA's Positive List as the Authoritative Framework for Differential Rights

SEBI mandates the Standard Setting Forum for AIFs (SFA) to publish a positive list of differential rights that may be offered by AIFs. In furtherance, the SFA on 28 January 2025 released a clear, final list of implementation standards setting out the specific types of differential rights that AIFs are allowed to offer. These include customised management fee structures, different hurdle rates, varied carry arrangements, preferential co-investment options, additional reporting access, committee participation rights, MFN protections, and certain specified representations and warranties. Any differential right that falls outside this list is not permitted. With this move, the SFA has removed the earlier interpretive grey areas and put in place a consistent framework for the entire industry.

E. Transition Requirements for Existing Schemes

The Circular sets out a clear transition framework for schemes whose PPMs were filed with SEBI on or after March 1, 2020. Managers are required to identify all differential rights currently offered to investors and assess them against the SFA's forthcoming implementation standards. Rights that fall outside those standards must be reported to SEBI, and any right that affects or prejudices other investors must be withdrawn.

Schemes that do not provide pro-rata rights in accordance with Regulation 20(21) of AIF Regulations are barred from accepting fresh commitments or making new investments. SEBI recognises that this operational freeze may, in some cases, trigger breaches of investment concentration limits; such breaches will not be treated as regulatory non-compliance.

Large Value Funds retain the ability to depart from pari passu treatment, but only where the deviation is clearly disclosed in the PPM and supported by written undertakings from accredited investors at the time of onboarding.

F. A Unified Operational Baseline for AIFs

The circular establishes a coherent operating standard for fairness across all AIFs. Pro-rata treatment now governs how capital is drawn and deployed; pari passu dictates the order in which returns are shared; and differential rights are limited to those expressly permitted under SEBI's framework and the SFA's implementation standards. Existing arrangements must be brought into alignment with this regime. In effect, the circular functions as the practical rulebook for how AIFs must structure, allocate and distribute capital, ensuring that investor treatment is consistent and grounded in the principles introduced by the 2024 amendments.

V. SEBI's November 2025 Proposals: Clarifying Ambiguities in the Implementation of Pro-Rata and Pari Passu Principles in AIFs.

When AIFs started using the fairness framework that was introduced in December 2024, it became clear very quickly that using pro-rata and pari passu principles across live schemes was much harder in practice than it was in theory. There were questions about what "commitment" really meant under Regulation 20(21), how undrawn capital should be treated, and how well existing drawdown models and PPM terms could work with the new rules. These uncertainties made it possible for funds to apply the rules differently, which was a problem for both managers and trustees.

To fill in these gaps and make sure that the rules are followed in the same way everywhere, SEBI released the Draft Circular on November 7, 2025, and asked for public comments on it. The Draft Circular suggests a number of changes that would help make sure that important terms are used consistently, that drawdown mechanics are consistent, and that the fairness framework's operational integrity is stronger than it was in 2024. The section below examines each of these proposals in detail.

Proposal 1, 2 & 3: Resolving "Commitment" Issues

A persistent confusion that emerged after the 2024 amendments revolved around the interpretation of the phrase "commitment to the scheme". Does it mean the original commitment an investor commits at inception? Or does it refer to what remains undrawn after accounting for management fees and prior investments? This confusion carried real financial consequences that could tilt the playing field in unexpected ways.

The draft circular proposed to resolve this by offering clarity through choice. It states that fund managers can now opt for either drawdown methodology, but the selection must be disclosed upfront in the Private Placement Memorandum (PPM) and cannot be altered during the scheme's tenure. Now, to understand how the two methodologies function, one based on "Total Commitment" and the other on "Undrawn Commitment", the following example offers a clear illustration.

Method A: Drawdown Based on Total Commitment

Under this approach, capital calls are calculated as a percentage of the investor's original commitment, regardless of how much has already been drawn. The mathematics here are predictable and easy to model. If you as an investor has committed ₹2 crore and the fund issues a 20% drawdown notice, you contribute ₹40 lakh, year after year, until your commitment is exhausted.

Method B: Drawdown Based on Undrawn Commitment

This methodology recalculates each drawdown against the remaining undrawn balance. After accounting for management fees and previous investments, the 20% applies to what's left. The contributions diminish with each round, creating a tapering effect that accelerates capital depletion for some investors while others retain more dry powder.

Impact of the Two Drawdown Methodologies: A Comparative Illustration

Consider a hypothetical Category II AIF, Rock Orange Fund, whose first scheme has two-unit classes i.e., Class A and Class B. Mr. X commits ₹2 crore to Class A (with 1 % management fee), while Mr. Y commits ₹7 crore to Class B (with 1% management fee). Both expect 20% annual drawdowns over three years. Under Method A, their investment trajectories remain parallel. But under Method B, the divergence becomes stark:

Mr. X: Rs. 2,00,00,000 Mr. Y: Rs. 7,00,00,000

Method A: Total Commitment Basis

Method B: Undrawn Commitment Basis

The numbers reveal an uncomfortable truth: under Method B, both investors exhaust their commitments more slowly because the 20% investment call is applied only after deducting drawdown fees. By Year 3, Mr. X retains approximately ₹98.49 lakh under Method B versus ₹74 lakh under Method A, while Mr. Y retains nearly ₹3.44 crore under Method B versus ₹2.59 crore under Method A. This is not a marginal variation, it is a systematic shift in capital deployment that directly affects an investor's ability to participate in later-stage, potentially higher-return investments.

The Exclusion Conundrum: Implications on excused investors

SEBI has issued guidelines dated April 10, 2023, permitting AIFs to excuse investors from specific investments due to conflicts of interest or regulatory restrictions. In such cases, the investor simply does not participate in that particular investment, and their share of the drawdown is reallocated among the remaining investors in line with their commitments.

The draft circular now clarifies that under Method A, if an investor is excluded from an investment, their unutilized commitment for that round cannot be recycled for future investments. The unutilized commitment must be permanently reduced for future drawdowns.

Under Method B, however, no such reduction applies. An excluded investor's undrawn commitment remains intact, available for subsequent drawdowns. This creates a strategic asymmetry: Method B offers more flexibility for funds managing diverse investor bases with varying conflict profiles, but it also means that over time, excluded investors could end up holding disproportionately large stakes in later investments.

Concentration Limits: The Hidden Constraint

The most operationally fraught requirement lies in para 4.6 of the draft Circular, which mandates that an investor's contribution ratio to a single investee company must not distort exposures in a manner that causes the fund to breach the concentration limits under Regulation 15(c) of the AIF Regulations (25% of investable funds for Category I/II AIFs; 50% for large value funds). This is not an investor-level cap, but a structural safeguard designed to prevent the drawdown methodology from creating disproportionate investor exposures that push the scheme beyond its permissible limits.

Consider an AIF with 20 investors, 19 holding Class A units with ₹1 crore commitments each and one Class B investor committing ₹20 crore, aggregating to a ₹39-crore corpus. Near the end of the commitment period, the Class A investors have only 10% undrawn capital (₹10 lakh each), while the Class B investor retains 60% (₹12 crore). If the AIF identifies a ₹10-crore investment and issues an 80% drawdown on undrawn commitments, the Class B investor alone would contribute ₹9.6 crore. This equates to 48% of their commitment, creating an outsized exposure that could, depending on the scheme's investable funds, push the fund dangerously close to its statutory concentration ceiling.

The draft Circular provides no operational relief for this mathematical inevitability. Fund managers adopting the undrawn-commitment model (Method B) must either engineer sophisticated monitoring and allocation mechanisms or avoid the methodology altogether, given the latent risk of inadvertently tripping a fund-level concentration breach.

The Transition Challenge: Realigning Existing Schemes

For existing AIFs, the draft Circular proposes that all the funds require alignment with one of the prescribed methodologies i.e., commitment-based or undrawn-commitment-based may continue to operate with their already chosen methodology for the remainder of fund's tenure. Schemes who are using any other methodology must align with one of the two prescribed approaches for all drawdown notices issued after the circular becomes effective

In addition, SEBI also clarifies that amending a PPM to adopt a compliant methodology does not constitute a "Material Change" requiring investor consent. However, managers must make an explicit disclosure to investors, who must be offered the option to stop contributing to future investments. If an investor chooses not to participate going forward, any resulting breach of minimum investment requirements or limits tied to corpus or investable funds will not be treated as non-compliance. SEBI's approach reflects practical regulatory design: it avoids the disruption of reopening existing fund documents while still insisting on full disclosure and preserving investor choice.

Proposal 4: Open-Ended Category III: A Parallel Universe

SEBI acknowledges that open-ended Category III AIFs operate on a structure fundamentally different from closed-ended Category I, II and III funds. These schemes issue and redeem units at net asset value, and investor participation is determined through subscriptions and redemptions rather than capital calls. In such a framework, applying pro-rata drawdown mechanics has no operational relevance. The draft circular therefore exempts open-ended Category III schemes from the drawdown methodology requirements. For these funds, proportionality is ensured through unit issuance and redemption at NAV, making the drawdown framework unnecessary.

The exemption, however, is not absolute. Where an open-ended Category III AIF invests primarily in unlisted securities, the draft circular requires full compliance with the drawdown methodology rules. This carve-in reflects a policy judgment: once a fund's strategy depends on unlisted exposures, the risks and cash-flow characteristics mirror those of closed-ended vehicles, and SEBI expects the same discipline in capital deployment.

Proposal 5: Protecting Legacy Waterfalls for Pre–December 2024 Investments

SEBI's draft circular introduces a measured approach for handling distributions from investments made before the December 13, 2024, cut-off. While the 2024 amendments mandate pro-rata rights going forward, SEBI reaffirms that legacy deals will not be disturbed. For AIFs that adopted priority distribution models but do not fall within the limited exemptions under the December 2024 circular, the prohibition on accepting fresh commitments or making new investments continues to apply. However, the draft circular draws a clear boundary: proceeds from investments executed on or before December 13, 2024, may continue to be distributed according to the distribution waterfall and fund documents originally agreed with investors. The approach avoids retroactive interference in settled commercial terms while ensuring that all future deployments conform to the uniform fairness regime.

Proposal 6: Currency, Carried Interest, and the Devil in Details

Two additional clarifications deserve mention. First, SEBI requires that all investor commitments be recorded in Indian Rupees, irrespective of the investor's domicile or the currency in which commitments were originally made. This creates a single valuation baseline for calculating drawdowns and eliminates variability arising from currency movements.

Second, the draft Circular broadens the category of persons exempt from the pro-rata distribution requirement. In addition to the manager and sponsor, the exemption now extends to employees, directors and partners of the AIF. Carried interest or additional return earned by these persons remains outside the scope of the pro-rata rules, preserving performance based compensation structures.

The Unanswered Questions

Despite its comprehensiveness, the draft Circular leaves critical issues unresolved. The implementation standards to be developed by the Standard Setting Forum for AIFs, in consultation with SEBI, will presumably address these gaps. But until then, fund managers operate with guidance that is clear in principle yet murky in edge cases.

What happens when an AIF uses Method B and multiple investors hit concentration limits simultaneously? How should trustees verify compliance when the calculations require real-time tracking of undrawn commitments across multiple classes? And perhaps most fundamentally, can a system truly achieve fairness when the fee structures themselves create inherent inequalities in capital deployment?

VI. The Larger Question: Protection or Constraint?

SEBI's draft Circular reflects a deliberate attempt to balance between investor protection and operational flexibility. By offering two methodologies rather than mandating one, the regulator acknowledges that AIFs operate in diverse contexts with varying investor profiles. Yet the restrictions on exclusions, concentration limits, and disclosure requirements reflect a clear priority: transparency and proportionality over managerial discretion.

The real test will come not in the rules themselves but in their application and implementation. Will fund administrators develop systems sophisticated enough to handle Method B's compounding complexity? Will investors truly understand the implications of drawdown methodologies before committing capital? And will the promise of pro-rata fairness hold up when confronted with the mathematical realities of differentiated fee structures?

Perhaps the one point is evident: SEBI has clarified the mathematics of fairness, but fairness itself remains an evolving concept in a market where capital size, fee negotiation, and timing continue to matter. The draft Circular brings order to chaos, but it cannot eliminate the fundamental tension between equal treatment and unequal circumstances. With the public-comment window now closed, the onus shifts to SEBI to assess whether the industry's feedback warrants recalibration or whether the draft proposals, as framed, appropriately balance investor protection with commercial flexibility. Whether this trajectory is viewed as prudent regulation or excessive prescription remains contingent on one's position across the capital table. What is unequivocal, however, is that India's AIF industry must now prepare to operate within a regime where the rules are unambiguous, even if the eventual market outcomes remain uncertain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.