SEBI Accelerates Fund Launches: GARUDA Mechanism Slashes Timeline for AIF Schemes, Boosting Investor Access

SEBI Accelerates Fund Launches: GARUDA Mechanism Slashes Timeline for AIF Schemes, Boosting Investor Access​

Securities and Exchange Board of India (SEBI) has significantly streamlined the launch process for Alternative Investment Funds (AIFs). The regulator introduced the Green-Channel mechanism, "GARUDA" (Green-Channel: AIF Rollout Upon Document Acknowledgement), through a new circular. This move is set to expedite fund launches, reducing mandatory waiting periods and boosting operational efficiency across the alternative investment space.

Understanding SEBI's GARUDA Mechanism for AIFs​

The new framework aims to fast-track the operationalization of various AIF schemes while maintaining regulatory rigor. For general AIF schemes, the launch timeline has been relaxed considerably. These regular schemes can now go live after 10 working days from the date they file their Private Placement Memorandum (PPM) application with SEBI, assuming no adverse advisory is given by the regulator.

However, a crucial stipulation remains for first-time launches. The inaugural scheme of any AIF must be launched only after receiving formal registration from SEBI or once the 10 working day period has elapsed, whichever occurs later. This ensures proper oversight and compliance checks are completed before market circulation begins.

Enhanced Due Diligence and Accountability Mandates​

Under the GARUDA system, while the process is streamlined, regulatory due diligence remains paramount. A registered Merchant Banker must independently verify the accuracy and adequacy of all disclosures made in the PPM. The regulator mandates that this appointed Merchant Banker cannot be an associate of the AIF, its sponsor, manager, or trustee.

SEBI has substantially increased accountability for every disclosure within the PPMs. Both the Merchant Banker and the AIF manager are held responsible for ensuring complete and accurate compliance with all applicable regulations. Any identified lapse or irregularity in disclosures could trigger regulatory action against the concerned entities involved.

Key Relaxations for Specialized Fund Categories​

The circular introduces targeted operational flexibilities, especially beneficial for specialized fund types like Angel Funds, Accredited Investor-only (AI-only) Funds, and Large Value Funds (LVFs). These relaxations aim to reduce bureaucratic friction while maintaining protective measures for investors.

AI-only Funds and LVFs benefit greatly as they are no longer required to file their PPMs through Merchant Bankers or incorporate specific SEBI comments before market launch. These funds can commence scheme launches immediately after filing the PPM with SEBI, though first schemes still require SEBI registration.

Angel Funds have also received a significant exemption from mandatory PPM filings via Merchant Bankers and incorporating SEBI observations. Such Angel Funds are permitted to circulate their PPMs to investors for fund mobilization starting from the date of receiving SEBI registration grant.

New Naming Conventions and Implementation Details​

To ensure proper identification and compliance, SEBI has introduced specific naming requirements for certain AIF schemes. All new AI-only schemes must clearly include either "AI only fund" or "AIOF" at the end of their name. Similarly, Large Value Funds must incorporate the designation "LVF" in their official nomenclature.

The application of this comprehensive framework will apply to all PPMs filed with SEBI from the date of notification of the SEBI (AIF) (Second Amendment) Regulations, 2026. These regulations represent a regulatory overhaul intended to balance accelerated fund deployment with robust market protection measures.