New SEBI Rules Transform AIF Sector: Equal Rights Framework and Demat Units Now Mandatory

The Securities and Exchange Board of India (SEBI) announced comprehensive regulatory reforms targeting the Alternative Investment Fund sector, aimed at establishing greater transparency and fairness across investment operations. The regulatory authority revealed that all AIFs would be required to ensure equitable treatment for investors while mandating the issuance of dematerialized units.

Equal Rights Framework Becomes Mandatory

Starting September 1, 2025, AIFs must eliminate differential rights provisions in their agreements unless unanimous written consent is obtained from all investors. The regulatory move seeks to prevent selective advantages for specific investors, particularly in co-investment arrangements or side agreements that could create regulatory arbitrage opportunities. This development aligns with broader trends in luxury real estate investment funds operating in India's tier-I cities.

Dematerialization Requirement for All AIF Units

SEBI mandated that all AIF units must be maintained in demat format, a requirement applicable to both new and existing investors. Custodians have been directed to ensure compliance for ongoing schemes by April 2026. The transition is expected to enhance transparency, facilitate real-time monitoring, and minimize disputes during transfers or redemptions. Industry experts note this move will particularly impact property fund investments in housing projects across major metropolitan areas.

Industry Adaptation and Compliance Requirements

The regulatory changes form part of SEBI's comprehensive initiative to implement stricter governance frameworks for AIFs, enhance investor protection mechanisms, and align the sector with international best practices. Industry stakeholders are expected to promptly revise fund documentation and operational systems to meet the new standards. The reforms come as real estate developers prepare for IPO activities in 2025, indicating a broader push toward financial market transparency.

With these changes, SEBI aims to strengthen the AIF ecosystem while ensuring retail and institutional investors receive equal treatment across all investment vehicles. The move is expected to boost confidence in alternative investment channels, particularly in the real estate sector where AIFs have become increasingly popular funding mechanisms.