SEBI’s “GARUDA”: The AIF Fast-Track Overhaul
INTRODUCTION:
SEBI’s regulatory framework for Alternative Investment Funds (“AIFs“) is undergoing a structural shift. Through a sequence of measures in April and May 2026, the securities market regulator has moved decisively from a model of pre-launch substantive review to one of trustbased registration with post-facto, risk-led scrutiny. The objective is to compress launch timelines and accelerate capital deployment in an industry that has more than doubled in size over the last five years.
On April 30, 2026, SEBI introduced a Phase 1 fast-track mechanism that allowed Regular schemes, Accredited Investor only schemes (“AI-only schemes”), and Angel Funds to launch and solicit funds 30 days after filing their application, provided the regulator did not advise otherwise. This measure relied on a due-diligence certificate from the Merchant Banker and declarations from the AIF Manager and Sponsor to bypass the traditional lengthy review process.
Building on this foundation, SEBI proposed the ‘Green-Channel: AIF Rollout Upon Document Acknowledgement’ (“GARUDA”) mechanism on May 11, 2026, to further compress scheme launch timelines. Under this proposal, there are significant changes to the timeline for filing the Private Placement Memorandum (“PPM”) for Regular schemes along with changes to Merchant Banker’s responsibilities in AI-only schemes and Angel Funds. This transition underscores SEBI’s objective to streamline the scheme launch process while maintaining oversight through risk-based post-facto scrutiny. SEBI has invited public comments on the consultation paper until June 1, 2026.
THE PROPOSAL
- Regular Schemes:
1.1 Given that SEBI’s substantive review of PPM disclosures has been limited under the Phase 1 procedure (with reliance placed on Merchant Banker due diligence in lieu of clause-by-clause SEBI review), the consultation paper proposes that the 30-day waiting period between PPM filing and scheme launch may be further compressed.
1.2 Accordingly, the proposal deems it appropriate that AIFs be allowed to launch their Regular schemes 10 working days after filing the PPM with SEBI through a Merchant Banker unless otherwise advised. For the first scheme of a newly-registered AIF, launch is permitted on the date of grant of SEBI registration or 10 working days after filing the PPM with SEBI, whichever is later. - AI-only Schemes and Angel Funds:
2.1 Accredited Investor (“AI”) schemes of AIF are those in which each investor is an Accredited Investor (i.e., individuals or non-individuals meeting prescribed thresholds of annual income, net worth, or a combination of the two, and accredited by a SEBI-recognised accreditation agency), with no minimum investment amount prescribed;
2.2 Angel Funds are a sub-category of Venture Capital Fund under Category I AIF, which raise capital from Angel Investors through the issue of units and invest only in DPIIT-recognised start-ups that are not promoted or sponsored by or related to an industrial group whose group turnover exceeds INR 300 crore (Indian Rupees Three Hundred Crore);
2.3 AIs are presumed capable of independently evaluating complex products and the associated risk factors. Given this level of sophistication, investments by AIs are not subject to the same regulatory oversight as those by non-accredited investors. Accordingly, SEBI has extended operational relaxations to AI-only schemes and Angel Funds;
2.4 In an AI-only scheme or an Angel Fund, the Manager of the AIF will file the PPM directly with SEBI instead of filing it through a Merchant Banker.
2.5 Furthermore, the requirement of filing a Merchant Banker due-diligence certificate has now been replaced with an undertaking by the Chief Executive Officer (CEO) of the Manager of the AIF (or person holding equivalent role) and the compliance officer of the Manager of the AIF.
BOMBAY JURIS’ ANALYSIS:
The GARUDA mechanism represents a fundamental shift in the regulatory oversight of AIFs. By restructuring the scheme launch process, SEBI has effectively institutionalised a “deemed approval” model, signalling a strategic retreat from comprehensive pre-launch due diligence. Under the preceding framework, SEBI reviewed every PPM and provided comments that Merchant Bankers were required to incorporate prior to launch. In contrast, GARUDA’s short 10-working-day window for Regular schemes has effectively dispensed with SEBI’s substantive pre-launch review, creating a potential regulatory vacuum where schemes may enter the market without independent regulatory verification of their disclosures. While this facilitates rapid capital deployment, it places an immense burden on post-facto scrutiny, where any discovery of irregularities or lapses only occurs after the scheme is operational and investor capital is already at risk.
This systemic trade-off is most acute in the treatment of AI-only schemes and Angel Funds. For these categories, the requirement for an independent, third-party Merchant Banker is entirely extinguished. This removal of independent gatekeeping means that the accuracy and legal compliance of disclosure documents rest solely on the internal standards of the AIF Manager, without external verification prior to the immediate launch of the scheme. Consequently, the regulatory deterrent shifts from prevention to punishment, assuming that the sophistication of the investor base is a sufficient substitute for independent regulatory verification, a premise that weakens the traditional “gatekeeping” rigour of the AIF ecosystem.
CONCLUSION:
The GARUDA proposal is a coherent next step in SEBI’s ease-of-doing-business agenda, but it recalibrates a foundational feature of the AIF regulatory architecture by substituting ex-ante substantive review with post-facto, risk-based scrutiny. The success of this trade-off will depend almost entirely on the credibility of SEBI’s post-facto surveillance regime, the deterrent effect of enforcement under the SEBI Act, and the willingness of AIF Managers to internalise the heightened compliance responsibility now placed on them. The concerns are sharpest for AI-only schemes and Angel Funds, where independent third-party gatekeeping has been entirely extinguished. Stakeholders, particularly AIF Managers, Merchant Bankers, and institutional investors, should engage substantively with the consultation paper before the June 1, 2026 deadline, with a clear-eyed view of both the operational efficiencies the framework offers and the structural risks it introduces.
Disclaimer: This update is meant for dissemination of information only and should not be construed as legal advice or opinion.
