Update: SEBI Extends Timeline for AIFs to Hold Investments in Demat Form

The Securities and Exchange Board of India (“SEBI”) vide Circular no. SEBI/HO/AFD/PoD-1/P/CIR/2025/17 dated 14 February 2025 (“Circular”) has extended the timeline for Alternative Investment Funds (“AIFs”) to hold investments in dematerialised form from 31 January 2025 to 31 October 2025, with immediate effect. As per the Circular any investment made by an AIF on or after 1 July 2025 shall be held in dematerialised form only.

The investments made by an AIF prior to 1 July 2025, are exempted from the requirement of holding shares in demat form, except in two cases:

• Investee company of the AIF has been mandated under applicable law to hold its shares in dematerialised form or
• AIF, alone or jointly with other SEBI-registered entities, has control i.e. direct or indirect interest of more than 50% in the investee Company.

Exemptions apply to AIF schemes with a tenure ending on or before October 31, 2025, and those already in an extended tenure as of 14 February  2025.

The trustee or sponsor of AIFs must ensure compliance with these requirements in the Compliance Test Report prepared by the Manager, as defined in and in accordance with the Master Circular for AIFs dated 7 May 2024. The Circular aims to regulate investment practices while protecting investor interests.