SEBI’s GARUDA Green Channel: India's Proposed Architecture for AIF Scheme Launches

[Suryansh is a student at West Bengal National University of Juridical Sciences.]

India's alternative investment fund (AIF) regulatory framework i.e. the regime governing pooled investment vehicles such as private equity funds, venture capital funds, and hedge funds registered under the Securities and Exchange Board of India (SEBI) (Alternative Investment Funds) Regulations 2012 has long imposed a mandatory pre-launch filing process that has become increasingly difficult to sustain as the industry grows. Before April 2026, an AIF seeking to launch a new scheme was required under Regulation 12 to file its placement memorandum (PPM - the fund’s constitutional offering document) with SEBI through a SEBI-registered merchant banker (MB) at least 30 days prior to launch. SEBI retained the right to issue comments, which the MB was obliged to incorporate before the scheme could launch. The process did not end at day 30 as the penultimate pre-launch step required SEBI to formally take the revised PPM on record before permitting launch. This final step created entirely unpredictable delays with no statutory time limit, effectively giving SEBI an open-ended window to defer any scheme launch indefinitely.

The Commercial Cost

The commercial consequence was quantifiable. As at 31 March 2026, 183 scheme applications - 124 first schemes and 59 new schemes - remained pending with SEBI. Against a backdrop of 135% growth in registered AIFs between March 2021 and March 2026 (from 732 to 1,849 funds), and projected annual applications of approximately 1,514 schemes by FY 2026–27, the pre-launch review model had ceased to be operationally viable at any meaningful level of scrutiny.

Phase 1: A Circular-Level Interim Fix

The SEBI circular dated 30 April 2026 (Fast-Track Circular) addressed this bottleneck immediately. For all non-large value fund (LVF) schemes - comprising regular schemes (Categories I, II, and III), AI-only schemes (funds restricted to accredited investors, a class of financially sophisticated investors), and angel funds - the Fast-Track Circular eliminated the mandatory SEBI comment incorporation requirement as a precondition to launch. An AIF can now launch a new scheme 30 calendar days after filing, unless SEBI specifically advises otherwise. For a first scheme, the trigger is the later of the date of grant of SEBI registration or 30 calendar days from filing.

The Fast-Track Circular is, however, an operational fix within the existing statutory framework of Regulation 12. GARUDA - the Green-Channel: AIF Rollout Upon Document Acknowledgement mechanism proposed in SEBI's Consultation Paper dated 11 May 2026 - is the statutory complement: it proposes to amend Regulations 12 and 19D directly, embedding the new regime in the Regulations directly.

What GARUDA Proposes

The consultation paper advances four concrete proposals. Proposal 1 addresses regular schemes. The proposed amendment to Regulation 12(2) would reduce the pre-launch waiting period from 30 calendar days to 10 working days or approximately two calendar weeks. The MB due diligence certificate is retained. For first schemes, launch would become permissible from the date of grant of SEBI registration or 10 working days after filing, whichever is later.

Proposals 2, 3, and 4 deal with AI-only schemes and angel funds, and are more structurally radical. Proposal 2 removes the MB filing requirement entirely for these categories, replacing it with a joint undertaking from the Chief Executive Officer and Compliance Officer of the Manager, following the format established under the LVF Guidelines Circular of 24 June 2022. Proposal 3 goes further: AI-only schemes would be permitted to launch immediately upon filing, with no waiting period whatsoever. The first scheme of an AI-only AIF could launch from the very date of grant of SEBI registration. Proposal 4 extends comparable treatment to angel funds - which now raise capital exclusively from accredited investors following a recent regulatory amendment - permitting immediate circulation of the PPM from the date of SEBI registration, and proposes the complete deletion of Regulations 19D(4) and (5), which had mandated the MB filing and SEBI comment incorporation requirements for angel funds.

One textual amendment in the consultation paper's Annexure A deserves separate attention. The proposed amended Regulation 12(3) would insert the phrase 'at any stage' into SEBI's power to issue comments, so that compliance obligations extend to comments 'provided by the Board, at any stage.' The implications of this formulation are addressed below.

The Sophistication-Based Hierarchy and Its Global Context

GARUDA constructs a three-tier regulatory hierarchy anchored in investor sophistication. LVFs - where each investor commits a minimum of INR 25 crore and holds accredited investor status - already operate under an immediate launch regime established by the June 2022 LVF Guidelines Circular. GARUDA proposes to extend immediate launch to AI-only schemes and angel funds, similarly restricted to Accredited Investors. Regular schemes, open to a broader investor base with a minimum ticket of INR 1 crore, would move to a compressed 10-working-day window. The principle is explicit: greater investor sophistication warrants fewer procedural requirements.

Such a seemingly radical change is not new to India. The International Financial Services Centres Authority (IFSCA) already operates a green channel under Regulation 19(2) of the IFSCA (Fund Management) Regulations 2025, permitting venture capital and non-retail schemes soliciting funds from Accredited Investors to open for subscription immediately upon filing. Malaysia's Lodge and Launch (LOLA) framework, operative under the LOLA Guidelines since 2015, permits immediate launch for products offered exclusively to sophisticated investors. Notably, GARUDA's proposed 10-working-day window for regular schemes is more aggressive than IFSCA's 21-working-day period for equivalent non-green-channel schemes.

What is Welcome

There is real merit in GARUDA's architecture. The reduction in launch timelines will directly accelerate capital deployment, and the 183 pending applications as of March 2026 quantify the commercial cost of the old regime in concrete terms. The removal of MB certification for AI-only schemes and angel funds is a rational response to investor sophistication: accredited investors are certified as possessing the financial acumen to independently evaluate complex investment products, and layering MB certification onto that process added procedural cost without a corresponding investor protection rationale. The alignment with IFSCA and the LOLA model places India within the mainstream of international practice for sophisticated-investor fund regulation. The three-tier hierarchy - LVFs, then AI-only and angel funds, then regular schemes - is internally coherent as a structural design principle, with a direct incentive for managers to migrate pools toward accredited-investor bases over time.

The Concerns

Three structural issues in GARUDA require serious acknowledgement.

The 'at any stage' formulation in proposed Regulation 12(3) is the most consequential. Under the old regime, once SEBI took the revised PPM on record, regulatory certainty was established. Under the proposed text, there is no equivalent settlement point. SEBI retains the power to issue comments at any time after launch, with no prescribed sunset clause or defined timeframe. A post-launch comment identifying a material deficiency would require the manager to amend the PPM, notify all existing investors, and potentially re-execute contribution agreements where investors are affected. The operational and legal costs of mid-life PPM amendments are substantial. The absence of a defined period within which SEBI must raise post-facto concerns presents a genuine structural gap.

The liability shift is equally significant. The pre-launch review process previously conferred a degree of implicit regulatory comfort: SEBI's taking a PPM on record, whilst not a formal approval, provided some quasi-validation. That comfort is now removed. For regular schemes, the MB and the manager bear full responsibility for accuracy and completeness. For AI-only schemes and angel funds, the CEO and Compliance Officer bear that responsibility personally under the undertaking. Paragraphs 4.3 and 6 of the Fast-Track Circular exposes 'concerned entities' - a deliberately undefined term - to regulatory action in the event of any irregularity or lapse. This formulation could encompass the AIF, the Manager, the MB, the CEO, the Compliance Officer, and potentially legal counsel involved in PPM preparation. The personal liability of the CEO and Compliance Officer under the undertaking is additive to the corporate liability of the Manager and is not a formality.

Finally, SEBI's operational capacity deserves honest scrutiny. FY 2026–27 projections indicate approximately 1,514 scheme applications per year - roughly 6 per working day. Under a 10-working-day window, SEBI must identify concerns and communicate them before the window closes; otherwise, the default-launch mechanism operates automatically. Whether the regulator has the bandwidth to conduct substantive review at that volume is not a rhetorical question. It has a direct bearing on how meaningful the 10-working-day window will be in practice, and therefore on the level of investor protection the new regime actually delivers.

One change that PPMs filed post GARUDA’s operationalisation must account for is including a clause in the The legal, regulatory and tax considerations section - mirroring existing IFSCA PPM practice - acknowledging that SEBI may, at any stage, issue comments which shall be incorporated by the manager.

GARUDA is a well-designed and largely welcome structural reform. Its concerns are real, and practitioners advising on AIF launches should not treat the new regime as risk-free simply because it is faster.