SEBI Says Broad-Based Fund Rule Hits Individual AIF Schemes, Not Just Fund Houses

SEBI’s public stance has been that broad-based fund regulations target the composition of investors at the fund level. The regulator’s latest clarification reveals something different: the broad-based fund requirement applies to individual AIF schemes, not the consolidated fund structure.

The distinction matters for asset management companies running multiple schemes under a single AIF umbrella. Previously, AMCs could interpret the regulation as applying to their overall fund status. Under SEBI’s clarification, each scheme within an AIF must meet the broad-based fund criteria independently.

This scheme-level application significantly changes compliance calculations. A fund house with ten schemes cannot offset a concentrated scheme against nine diversified ones. Each scheme faces its own investor composition test.

The clarification addresses a regulatory gap that sophisticated fund sponsors had been exploiting. By structuring AIFs with multiple schemes, sponsors could technically comply with broad-based requirements at the fund level while maintaining concentrated investor bases in specific schemes. SEBI’s intervention closes this structural workaround.

For compliance teams, the change means more granular monitoring. Instead of tracking investor composition across an entire AIF structure, compliance officers must now verify that each scheme individually qualifies as broad-based. This multiplies the documentation and verification workload for multi-scheme AIFs.

The timing suggests that SEBI identified specific cases in which fund sponsors were gaming the previous interpretation. Regulatory clarifications typically follow enforcement discoveries rather than precede them. The regulator likely found instances where schemes within broad-based AIFs were functioning as concentrated investment vehicles.

My Boardroom Takeaway

Directors overseeing asset management companies should ensure their compliance frameworks can handle scheme-level, broad-based fund verification. The old fund-level aggregation approach may have exposed companies to regulatory risk without board awareness. Risk committees may wish to request updated compliance matrices that show how each scheme meets the broad-based requirements independently, rather than relying on consolidated fund-level reporting.