What Happened
- The Securities and Exchange Board of India (SEBI) Board met on March 23, 2026, and approved a series of significant regulatory changes aimed at improving market efficiency and reducing compliance burdens.
- The Board approved net settlement of funds for Foreign Portfolio Investors (FPIs) — allowing them to offset payment obligations from same-day purchases against proceeds from same-day sales, rather than settling each transaction on a gross basis. Implementation deadline: December 31, 2026.
- The Board eased rules for Alternative Investment Funds (AIFs) seeking to wind up schemes and surrender their registration, introducing an "inoperative fund" framework with reduced compliance requirements.
- SEBI also approved relaxations on the minimum investment threshold for Specialised Investment Funds (SIFs) and reviewed its "fit and proper person" criteria for intermediary registration to improve procedural clarity and fairness.
- Additionally, SEBI considered recommendations from a high-level panel on conflict of interest and transparency, focused on enhanced disclosures for senior officials.
Static Topic Bridges
Foreign Portfolio Investment (FPI) in India — Settlement Norms and Regulatory Framework
Foreign Portfolio Investors are registered entities that invest in Indian capital markets — equities, bonds, and derivatives — without taking controlling stakes in companies (distinguished from FDI). India attracted FPI inflows as a key source of financial capital, but FPIs also carry risks of sudden outflows ("hot money") which can destabilise currency and markets. Until the March 2026 SEBI decision, FPIs settled all transactions on a gross basis — meaning each purchase and sale was settled independently, requiring full funds for each buy obligation even if offsetting sale proceeds were generated on the same day. The shift to net settlement of funds (while retaining gross settlement of securities) reduces funding requirements and foreign exchange slippage for FPIs, particularly during index rebalancing events where large buy-sell pairs are executed simultaneously.
- FPIs classified under SEBI (FPI) Regulations, 2019 — categorised as Category I (sovereign, multilateral agencies) and Category II (regulated funds, endowments, family offices)
- Settlement basis change: cash leg → net settlement; securities leg → continues gross settlement
- This distinction prevents concerns about speculative position-building while reducing operational costs
- Major beneficiaries: index rebalancing events (where simultaneous large buys and sells are common)
- Implementation deadline: on or before December 31, 2026
Connection to this news: The net settlement reform addresses a long-standing cost and operational friction for FPIs — one that made India's market infrastructure less efficient compared to peer emerging markets. Reducing this friction is important for retaining and attracting FPI capital.
Alternative Investment Funds (AIFs) — Regulatory Framework and Wind-Up Challenges
AIFs are privately pooled investment vehicles that collect funds from sophisticated investors for investment according to a defined strategy — distinct from mutual funds, which are open to retail investors. India's AIF framework under SEBI (AIF) Regulations, 2012 covers three categories: Category I (venture capital, social impact, infrastructure), Category II (private equity, debt funds), and Category III (hedge funds using leverage). A persistent regulatory challenge has been the wind-up of AIF schemes: liquidating illiquid assets to return capital to investors, settling tax demands, and managing litigation often takes years beyond the fund's permissible life. The March 2026 decision introduces a formal "inoperative fund" designation for AIFs attempting to surrender registration, allowing lighter compliance while wind-up proceedings continue.
- AIF regulatory framework: SEBI (Alternative Investment Funds) Regulations, 2012
- Three categories: Cat I (green, social, venture), Cat II (PE/debt), Cat III (hedge, leveraged strategies)
- Inoperative fund framework: AIFs surrendering registration tagged "inoperative" with reduced compliance load
- Conditions to retain proceeds beyond fund life: litigation notice received; 75% investor consent for anticipated tax/legal liabilities; operational expense substantiation (max 3 years beyond permissible life)
- The change reduces regulatory friction for funds that have wound down investment activity but remain legally open
Connection to this news: AIF wind-up delays have been a recurring issue in India's alternative investment ecosystem. The new framework provides legal clarity and proportionate compliance, encouraging orderly fund closure rather than regulatory limbo.
SEBI's Regulatory Role — Powers, Governance, and Investor Protection
SEBI (Securities and Exchange Board of India) was established in 1988 and given statutory powers under the SEBI Act, 1992. Its threefold mandate covers: protecting investor interests, regulating and developing the securities market, and ensuring orderly market conduct. SEBI's Board is the apex decision-making body — comprising a Chairman (appointed by the Central Government), two members from the Ministry of Finance, one from the RBI, and five independent members. SEBI's Board meetings are the primary venue for approving regulatory changes to securities law, listing norms, intermediary regulations, and market infrastructure rules. The March 2026 decisions on FPI settlement, AIF wind-up, and "fit and proper" criteria for intermediaries reflect SEBI's ongoing effort to make India's capital markets more efficient while maintaining investor safeguards.
- SEBI established: 1988 (as non-statutory body); statutory powers: 1992 (SEBI Act, 1992)
- Headquartered: Mumbai; four regional offices (New Delhi, Chennai, Kolkata, Ahmedabad)
- "Fit and Proper Person" criteria: determines eligibility of intermediaries (brokers, depositories, exchanges) to hold registration; proposed overhaul aims to improve clarity and fairness
- Conflict of interest framework: high-level panel recommended enhanced disclosures and strict handling for senior officials
- SIF (Specialised Investment Fund): new product category; minimum investment threshold relaxed in March 2026 meeting
Connection to this news: The March 2026 Board meeting represents a broad sweep of investor-friendly and market-efficiency reforms — from FPI operations to fund life cycle management — consistent with SEBI's role as India's primary capital market regulator.
Key Facts & Data
- SEBI established: 1988; statutory powers under SEBI Act, 1992
- March 23, 2026 Board decisions:
- FPI net settlement of funds approved (securities leg remains gross); deadline December 31, 2026
- AIF inoperative fund framework approved for funds surrendering registration
- Minimum investment in SIF relaxed
- "Fit and proper person" criteria overhaul under review
- Conflict of interest/transparency framework for senior officials considered
- FPI gross settlement issue: required full funds for each buy even if offset by same-day sale proceeds — now addressed
- AIF retention beyond fund life: allowed up to 3 years for operational expenses (subject to conditions)
- SEBI Board composition: Chairman + 2 Finance Ministry nominees + 1 RBI nominee + 5 independent members