SEBI Redefines Large Value Funds With Lower Minimums and Greater Flexibility

When the Securities and Exchange Board of India (SEBI) first created the Large Value Fund (LVF) category in 2021, the intent was clear: cater to the most sophisticated, deep-pocketed investors with bespoke alternative investment products. But the ₹70 crore minimum commitment per investor meant these funds were, in practice, an exclusive club accessible to only a tiny sliver of domestic capital. Four years later, the regulator seems ready to open the door wider, without tearing down the safeguards that make LVFs distinctive.

The latest consultation paper proposes sweeping reforms: lowering the minimum investment threshold to ₹25 crore, removing the 1,000-investor cap, easing compliance requirements like PPM templates and audits, and allowing existing AIF schemes to convert into LVFs. On the surface, these might look like technical adjustments. In reality, they could redraw the map for domestic alternative capital formation.

What SEBI is Changing and Why it Matters

The proposed reforms touch four critical levers:

1. Lowering the Minimum Ticket Size
   • From ₹70 crore to ₹25 crore.
   • Still far above the ₹1 crore entry for standard Category II AIFs, but much closer to it.
   • This aligns LVF accessibility with domestic institutional realities, particularly insurance companies and pension funds constrained by diversification limits and exposure caps.
2. Operational Flexibility
   • LVFs would no longer be bound to SEBI’s standard Private Placement Memorandum (PPM) template.
   • The requirement for NISM certification of key investment personnel would be waived for LVFs on the assumption that accredited investors have the sophistication and advisory access to assess managers independently.
3. Structural Scalability
   • The current ceiling of 1,000 investors per LVF scheme would be removed.
   • This benefits open-ended Category III LVFs and evergreen strategies that rely on continuous fundraising.
4. Conversion Path for Existing AIFs
   • Funds meeting LVF criteria could switch over with unanimous investor consent, inheriting the operational benefits and lower ticket size threshold.

Taken together, these reforms aim to address a central bottleneck: too few domestic institutions participate in alternatives, and when they do, their allocations are modest.

The Domestic Capital Gap

Globally, institutional investors such as pension funds and insurance companies often allocate up to 20% of their portfolios to alternative assets. In India, by contrast, allocations remain extremely limited, with insurance and pension capital still largely absent from the asset class. The reasons are well known: regulatory constraints, operational gaps, and a shortage of products tailored to institutional mandates.

The ₹70 crore LVF threshold compounded the problem. Even well-capitalised domestic institutions balked at committing that much to a single scheme given internal diversification rules. Family offices with appetite for alternatives often preferred offshore allocations with more flexible terms.

By reducing the LVF entry point to ₹25 crore, SEBI is widening the funnel for credible domestic players who can meet the accredited investor criteria but couldn’t justify the earlier quantum. This is not mass-market democratisation; it’s targeted access expansion for serious capital pools.

Aligning with Comparable Products

The PMS (Portfolio Management Services) market has thrived partly because its ₹50 lakh minimum makes it accessible to a wider swathe of affluent investors without straying into retail territory. SEBI’s proposed LVF threshold now sits in a comparable psychological and operational range for institutions and large family offices.

This matters because alternative investment managers increasingly compete not only with each other, but with PMS, mutual funds, and even direct debt or equity strategies for investor mindshare. An LVF at ₹25 crore can credibly pitch itself as the institutional-grade cousin to PMS, offering diversification into private equity, venture capital, infrastructure, and other illiquid assets.

Cutting the Operational Overhang

One of the most impactful aspects of the reforms is the relaxation of compliance burdens. By making these exemptions categorical for LVFs, SEBI acknowledges that accredited investors with minimum ₹25 crore commitments do not need the same prescriptive oversight as smaller-ticket participants. This aligns with global private capital norms, where high-ticket investors negotiate bespoke terms rather than adhere to rigid retail-style templates.

The Scaling Advantage: Removing the Investor Cap

The 1,000-investor limit was rarely a binding constraint at ₹70 crore per ticket. At ₹25 crore, it could have become one for successful LVFs attracting domestic institutional inflows. Removing it pre-emptively allows for scale by enabling large, diversified pools of sophisticated capital.

For evergreen strategies, especially in Category III AIFs, this is a game-changer. Managers can raise continuously without worrying about hitting a headcount ceiling, enabling smoother capital fundraising and potentially more stable fund economics.

Conversion as a Strategic Option

Allowing existing AIFs to convert into LVFs could lead to a wave of migrations. For managers running high-minimum Category II or III strategies, shifting to LVF status at ₹25 crore could unlock new investor segments, extend fund tenures, and simplify compliance.

For investors, conversions mean access to a more flexible regime without losing existing relationships or strategies they trust, provided all meet the accreditation and commitment thresholds.

Taken together, these changes loosen structural constraints and reduce procedural oversight, highlighting a deliberate move to enable scale among high-ticket, accredited investors. Having said that, every loosening of rules carries risk. The key safeguard here is that LVFs remain the domain of accredited investors, with thresholds high enough to deter unsuitable participants.

The Bigger Picture: Domestic Alternatives at Scale

If the reforms pass largely as proposed, the impact could be significant:

• Institutional participation rises: Insurance companies, pension funds, and large family offices could step in at meaningful ticket sizes.
• Economic multiplier: The Indian Venture and Alternate Capital Association (IVCA) estimates that every $10 million invested in alternatives in India generates $58 million in revenue and 270 jobs, indicating a 5.8x output multiplier.
• Capital market deepening: Larger LVF pools could back long-duration, illiquid strategies from infrastructure to late-stage venture capital, reducing reliance on foreign LPs.

This is not deregulation for its own sake. It’s a recalibration which recognises that accredited investors in high-ticket pools need flexibility more than prescriptive templates.

A Step Toward Maturity

The LVF reforms, if implemented, would signal that India’s alternative investment market is moving into a new phase, one where domestic institutional capital is not a side note but a driving force. The lowered threshold is not a dilution of standards; it’s a recognition that scale requires access.

For fund managers, this is an invitation to rethink product design. For domestic institutions, it’s a chance to match global allocation norms and capture the illiquidity premium at home. And for SEBI, it’s an opportunity to set a precedent for regulation that trusts sophistication while protecting integrity.

The real question is whether domestic capital will answer the call.