The wait is finally over. On September 8, 2025, Securities Exchange Board of India (“SEBI”) notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025 introducing a co-investment scheme (“CIV scheme”) framework under the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) through introduction of Regulation 17A. Further, pursuant to its powers under Regulation 17A(7), SEBI issued circular dated September 9, 2025 prescribing operational and other conditions in relation to co-investments (“CIV Circular”). Below is a summary of the scope, conditions and other features of CIV Scheme framework under the AIF Regulations read with the CIV Circular.

1. Choice of framework for offering co-investments: The CIV Scheme framework is in addition to the co-investment framework permissible under SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”). Hence, a manager can, depending on eligibility conditions being satisfied, can chose to offer co-investments to its investors under the AIF Regulations and/or the PMS route. Each of these routes has its own structural, regulatory, tax and deal making pros-n-cons that need to be suitably considered by the manager.
2. Eligible AIFs: CIV Schemes can be launched only by Category I and Category II Alternative Investment Funds (“AIFs”). The regulatory intent is clear, to not extend this framework to Category III AIFs. Further, Angel Funds are categorically called out as being ineligible to launch a CIV Scheme. The fee for launching a CIV Scheme is stipulated at INR 0.10 million.
3. CIV Scheme: A CIV Scheme is defined to mean a scheme of a Category I or Category II AIF, which facilitates co-investment by investors of that AIF in unlisted securities of an investee company where such AIF is making an investment or has invested. Thus, investors could coinvest in subsequent rounds of funding being raised by the investee company. A CIV Scheme has to be investment specific. In other words, separate CIV Scheme must be launched for each co-investment. Accordingly, a CIV Scheme can be wound up post exit from that co-investment.
4. Eligible investors: Only accredited investors of the eligible AIF shall be eligible to invest in a CIV Scheme. Further, it would be pertinent to note that an investor’s exposure to an investee company, across all CIV Schemes that participate in such investment, is capped at 3 (three) times their contribution in the amount invested in such investee company by the AIF. This cap does not apply to specified investors (being sovereign, sub-sovereign, quasi sovereign, sovereign linked entities). Lastly, an accredited investor that has been excused / excluded or has defaulted in making its capital contributions for investment in a particular investee company, cannot make a co-investment in such investee company through the CIV Scheme.
5. Eligible investments: CIV Scheme can be set up only for investing in unlisted securities of investee companies of the eligible AIFs. Further, a CIV Scheme cannot invest in units of other AIFs.
6. Shelf placement memorandum: The manager must file a shelf placement memorandum (“Shelf PPM”) through a merchant banker for each CIV Scheme as per the prescribed template, disclosing, inter alia, the principal terms (such as classes of units, allocation methodology, expenses, distribution), conflicts of interest that maybe envisaged due to additional investment through the CIV Scheme, and governance structure applicable to the co-investment. It must be borne in mind that the Shelf PPM has to be filed prior to the co-investment opportunity being offered to the investors.
7. Terms of co-investment: The terms of co-investment shall not be more favorable than the terms of investment by the AIF in the investee company. Further, the timing of exit from the co-investment needs to be identical to the exit by the AIF from such investee company.
8. Anti-abuse obligations: In order to ensure that the CIV Scheme is set only for bona fide purposes and the framework is not misused, some further guidance may be issued through engagement with the Standard Setting Forum. In the meantime, the CIV Circular casts an obligation on the manager to ensure that the CIV Scheme is not used for any direct or indirect abuse i.e. whether investment or receipt of funds is prohibited for the co-investor or investee company, respectively. The CIV Circular also prohibits a CIV Scheme from investing in an investee company where such an investment would have necessitated additional regulatory disclosure had the co-investor(s) invested directly.
9. Other conditions:
   • every CIV Scheme must have a separate bank account and securities accounts, and its assets must be ring fenced from those of any other scheme.
   • a CIV Scheme cannot borrow or otherwise employ leverage, directly or indirectly.
   • investors of a CIV Scheme shall have rights in the investment and distribution, pro rata to their contribution to the CIV Scheme, other than for purposes of carry sharing with sponsor and manager (including its employees, directors, partners).
   • expenses with respect to co-investment are to be apportioned between the AIF and the CIV Scheme in the ratio of their investments in the investee company.
   • compliance with the CIV Circular has to be reported by manager to the trustee and sponsor as part of the annual compliance test report (CTR).
10. Exemptions: As per Regulation 17A(10), the following provisions shall not apply to a CIV Scheme:

To conclude, CIV Scheme framework is indeed a positive outcome of the engagement between SEBI and the AIF industry. A robust and flexible co-investment framework empowers a fund manager to access larger investment opportunities, manage risks, bring in efficiencies / relationships, etc.. For investee companies, it provides an easier access to institutional capital and swift financial closure for large projects / expansions. Fund managers now have multiple ways (CIV Scheme under AIF Regulations, Special Scheme (SPV) co-investment framework under IFSCA’s Fund Management Regulations and co-investment framework under the PMS route) to structure their co-investments and potentially achieve superior risk-adjusted returns in high growth companies or sectors as well as in new age companies, innovation / tech driven sectors or other nuanced opportunities.