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Sebi mulls removing differential treatment of investor classes in AIFs

Some schemes have been found to follow a model in which one class of investors, often a junior class, shares losses beyond the ratio of its contributions than a senior class of investors

Khushboo Tiwari Mumbai

Sebi, Securities and Exchange Board of India

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3 min read Last Updated : May 24 2023 | 7:02 PM IST

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The Securities and Exchange Board of India (Sebi) is mulling doing away with the priority distribution (PD) model in Alternative Investment Funds (AIFs) and introducing in the regulation pro-rata rights (based on the ratio of their commitments) for investors.

AIFs are pooled investment vehicles but certain schemes have been observed to be following a differential distribution model where one class of investors, often a junior class, share loss more than the ratio of their contributions in comparison to the senior class of investors.

As the senior class of investors have priority in distribution over the junior class of investors, the profit distribution is done first to these investors while they are compensated for loss out of the residual capital of junior class investors.