Authority: Securities and Exchange Board of India (SEBI) - Nodal Co-ordination Cell
Order Date: July 17, 2026
Case Overview
Sundaram Alternate Assets Limited, a SEBI-registered Portfolio Manager (Registration No. INP000006271) and Investment Manager for two Alternative Investment Funds (Sundaram Alternative Investment Trust - Category III AIF Registration No. IN/AIF3/16-17/0291 and Sundaram Category II Alternative Investment Fund Registration No. IN/AIF2/17-18/0340), sought informal guidance regarding the applicability of prudential investment limits specified in Paragraph 3.4 of the Master Circular for Portfolio Managers dated July 16, 2025. The specific query concerned whether units of Alternative Investment Funds (AIFs) held with associates of the Portfolio Manager could be transferred to a separate account under Discretionary PMS or Strategy for Large Value Accredited Investors without being subject to the 30% limit on investments in securities of associates/related parties, arguing that AIF units are akin to mutual fund units which are exempt from these limits.
SEBI analyzed Regulation 24(3A) of the SEBI (Portfolio Managers) Regulations, 2020 and Paragraph 3.4 of the Master Circular, which specifies that portfolio managers may invest up to a maximum of 30% of a client's portfolio (as a percentage of assets under management) in securities of their own associates/related parties. The authority noted that Paragraph 3.4.3 explicitly states these limits apply only to direct investments in equity and debt/hybrid securities of associates/related parties and not to investments in Mutual Funds. SEBI concluded that this exemption is specifically restricted to mutual funds and does not extend to AIFs. The authority distinguished AIFs from mutual funds, noting that AIFs are privately pooled investment vehicles collecting funds from sophisticated investors under a defined investment policy, while mutual funds are established as trusts registered with SEBI for raising money through sale of units to the public. The definition of AIF in Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012 specifically excludes funds covered under the SEBI (Mutual Funds) Regulations, 1996.
Final Outcome
SEBI confirmed that investments by a portfolio manager in units of AIFs are NOT exempt from the prudential limits specified in Paragraph 3.4 of the Master Circular. The 30% limit on investments in securities of associates/related parties applies to both direct investments and to transfers of AIF units already held in the client's name to a separate account with the portfolio manager. This guidance was issued based on the representations made in the application and does not express the decision of the SEBI Board nor preclude seeking other opinions.
Topics: Portfolio Management Regulation, AIF Compliance, Investment Limits