Lawyers flag gaps, tax risks in Sebi's co-investment proposal

Co-investment vehicles would allow for pooled governance, faster execution and unified documentation

- Neha Joshi & Srushti Vaidya

The market regulator's proposal to allow co-investments within the alternative investment funds (AIF) framework—through a new co-investment vehicle (CIV)—has received broad support from fund managers. But lawyers warn of legal ambiguities, tax risks, and rigid exit conditions that could undermine its effectiveness.

The 9 May proposal by the Securities and Exchange Board of India (Sebi) seeks to replace the portfolio management services (PMS)-based co-investment route with a more streamlined approach.

Under this, CIVs will have distinct PAN, bank, and demat accounts, and be exempt from some AIF-related rules (such as sponsor commitment and diversification) when co-investing in a single company with the main AIF.