The Securities and Exchange Board of India (SEBI) board is expected to clear a package of major reforms covering share buybacks, alternative investment funds, bond distribution and mutual fund liquidity at its June 19 meeting, according to reports from NDTV Profit and The Economic Times. The measures aim to boost market efficiency, ease compliance burdens and widen investor participation while tightening safeguards to prevent misuse, as per sources speaking on condition of anonymity. The agenda includes the reintroduction of open-market buybacks through stock exchanges, a faster rollout mechanism for alternative investment fund (AIF) schemes, and simplified documentation for transmission of securities to legal heirs. Other proposals include allowing online bond platform providers to distribute products regulated by the International Financial Services Centres Authority (IFSCA) and 54EC capital gains tax-saving bonds. The regulator is planning to close the consultation process for faster launches of AIFs and borrowing norms for mutual funds on Friday.
The proposed revival and tightening of the stock exchange route for open-market buybacks, which was phased out in 2025 due to concerns over equitable shareholder treatment, is expected to be among the most significant items on the agenda. Under the earlier tax regime, companies bore the buyback tax while shareholders paid none, leading to uneven outcomes and objections that the price-time matching mechanism could allow a few shareholders to corner buyback benefits, leaving others without participation. However, the revised taxation framework has addressed issues of unequal shareholder participation and tax distortions that had led to the discontinuation of the route, as per SEBI's latest consultation paper. Under the new framework, public shareholders would be taxed on their actual capital gains when shares are tendered in a buyback, similar to a normal market sale. The return of open-market buybacks has been an industry demand for a long time, with the Primary Market Advisory Committee discussing the matter in detail and welcoming the proposal. Buyback volumes have significantly shrunk, with only 14 companies conducting buybacks worth ₹19,711 crore last year, compared to a record ₹55,273 crore by 50 companies in 2017, according to Prime Database.
SEBI has unveiled updated guidelines allowing Alternative Investment Funds (AIFs) to retain liquidation proceeds beyond their permissible fund life under specified circumstances. Under the new framework, AIFs or their schemes may retain liquidation proceeds beyond the liquidation or dissolution period if they have received litigation notices or regulatory demands, obtained consent from at least 75% of investors by value for retaining funds against anticipated liabilities, or need to meet residual winding-up related operational expenses. The regulator has introduced an 'Inoperative Fund' framework for wound-up funds with residual obligations, with funds prohibited from making new investments, launching new schemes or charging management fees. Retained monies can only be invested in instruments permitted under the AIF Regulations. SEBI has clarified that litigation-related communications include notices from tax authorities, regulators, law enforcement agencies, courts, investors or counterparties that could lead to tax, legal or regulatory liabilities, even if such liabilities have not yet crystallised. The framework, which comes into force immediately, has also been extended to Venture Capital Funds registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996. The move follows amendments to the Sebi (Alternative Investment Funds) Regulations on April 18 aimed at providing operational flexibility to AIFs during the winding-up process and surrender of registration. The Standard Setting Forum of AIFs (SFA), in consultation with SEBI, will formulate implementation standards for standardizing the operational heads under which funds can be retained.
SEBI has introduced an 'Inoperative Fund' status for AIFs that have completed the liquidation of all investments but continue to hold retained proceeds or remain registered pending the outcome of litigation. "An AIF having one or more schemes with retained monies and intending to surrender its registration may apply for obtaining the 'Inoperative Fund' status," SEBI stated in its circular. Such funds will be prohibited from making new investments, launching new schemes or charging management fees. SEBI has exempted Inoperative Funds from several compliance requirements, including quarterly and annual activity reports, compliance test reports, performance benchmarking disclosures, audits of private placement memorandum (PPM) terms, and certain certification requirements for key investment personnel. Where funds are retained against anticipated liabilities, managers must disclose the amount proposed to be retained and the expected duration while seeking investor approval. If the retention is for residual operational expenses, the period cannot exceed three years from the end of the permissible fund life. The regulator has also mandated annual reporting on retained monies and outstanding liabilities by AIFs retaining funds and those classified as Inoperative Funds. The report must be filed with SEBI and investors within 30 days of the end of each financial year. A scheme that has not retained any fund beyond the permissible fund life, but intending to continue with the registration solely in anticipation of a favourable outcome of a pending litigation, can also apply for obtaining the 'Inoperative Fund' tag. Once all liabilities have been settled and the retained proceeds distributed to investors, the relevant scheme will be wound up in accordance with AIF regulations.
SEBI is likely to lower entry barriers for bond platform providers and enable wider product offerings, a move that could deepen retail participation in fixed income markets. By streamlining rules for these platforms, the regulator aims to expand access to debt instruments beyond institutional investors. The proposed reforms collectively signal SEBI's intent to balance market development with investor protection, with the bond distribution ecosystem changes representing a significant step toward democratizing access to fixed income investments.
The market regulator is also weighing a relaxation of rules governing intraday borrowing by mutual funds, after asset managers highlighted operational challenges in implementing a stricter framework that was to be introduced earlier this year. In a consultation paper issued on May 13, SEBI proposed allowing mutual funds to use intraday bank borrowings not only for redemption payouts but also for trade settlements, foreign exchange obligations, mark-to-market requirements on derivative positions, and other cash-management needs. Last month, the regulator proposed asset management companies be allowed to avail intraday borrowing lines for trade settlements, foreign exchange transactions, derivative-related obligations and repayment of existing borrowings, in addition to redemption and unitholder payout requirements. This marks a shift from the current framework, under which SEBI had carved out intraday borrowing solely to bridge timing gaps between redemption payouts and guaranteed receivables from entities such as the government, the RBI and clearing corporations. The change is intended to give funds greater flexibility in managing short-term liquidity needs, particularly during periods of elevated redemption pressure, with the proposal following SEBI's decision in March permitting mutual funds to borrow from banks intraday to bridge timing mismatches.
