Large Value Funds (LVFs): SEBI’s 2025 Reforms and Their Impact on Institutional Capital

Large Value Funds (“LVFs”) were introduced by SEBI as a specialised sub-category within the Alternative Investment Fund (“AIF”) framework to cater exclusively to highly sophisticated investors capable of making informed investment decisions and absorbing substantial financial risk. Since their introduction in August 2021, LVFs have remained a niche but steadily growing segment of India’s private capital ecosystem.

Recent consultations and reform proposals issued by SEBI signal a clear regulatory intent to liberalise the LVF framework, reduce friction in fund operations, and facilitate deeper participation by domestic institutional investors.

Key Takeaways

• LVFs are designed exclusively for Accredited Investors with high financial sophistication and risk-bearing capacity.
• SEBI has adopted a lighter regulatory framework for LVFs, recognising that investor protection concerns are lower in this segment.
• Significant exemptions apply, including relaxed PPM requirements, higher investment concentration limits, and flexibility in investor rights.
• Proposed reforms aim to deepen domestic participation, particularly by reducing the minimum investment threshold and removing the investor cap.
• Core governance safeguards remain intact, ensuring accountability of fund managers and compliance officers despite regulatory relaxations.

What Are Large Value Funds (LVFs)?

LVFs are AIFs or schemes of an AIF in which every investor (other than the Manager, Sponsor, or their employees or directors) is an Accredited Investor (“AI”), and each such investor makes a minimum investment at the prescribed threshold per scheme.

Under the current framework:

• Minimum investment per accredited investor: INR 70 crore (now proposed and partially implemented at lower levels)
• Eligible investors: Domestic and foreign accredited investors
• Investment focus: Large-ticket investments, typically in unlisted securities, often with an eye on future exit avenues like public listings

Market Snapshot (as of 30 June 2025)

• Number of LVF schemes: 62
• Total commitments raised: INR 1,34,752 crore
• Funds raised: INR 60,788 crore
• Investments made: INR 58,963 crore

These figures reflect increasing institutional confidence in LVFs as a flexible vehicle for concentrated, high-value investments.

Accredited Investors: The Foundation of the LVF Framework

The LVF regime is premised on the assumption that Accredited Investors possess the financial sophistication and risk-bearing capacity necessary to operate with reduced regulatory safeguards.

Under the SEBI AIF Master Circular dated 7 May 2024, accredited investors must furnish an undertaking confirming:

1. Consent to avail benefits under the AI framework
2. Adequate knowledge and financial capacity to understand the product and risks
3. Awareness of reduced regulatory oversight compared to retail products
4. Ability to bear potential financial losses

This heightened investor standard, which assumes familiarity with complex investment agreements, underpins SEBI’s differentiated regulatory approach to LVFs.

Existing Regulatory Relaxations Available to LVFs

Recognising investors’ sophistication, SEBI has already granted several exemptions under the SEBI (AIF) Regulations, 2012.

Key Relaxations

• PPM filing: No requirement to file PPM through a Merchant Banker
• Scheme launch: Schemes may be launched upon intimation to SEBI without waiting for regulatory comments
• Investment concentration limits:

                                   1. Category I & II LVFs: up to 50% in a single investee company

                                   2. Category III LVFs: up to 20% in a single investee company

• Tenure extension: Extension permitted up to five years (instead of two)
• Investor rights: Exemption from maintaining pari-passu rights, subject to disclosures and consent

Industry Concerns and the Ease of Doing Business Review

To further rationalise the AIF framework, SEBI constituted an Ease of Doing Business Working Group (EoDB WG). The Working Group identified key structural challenges within the LVF regime:

1. High Minimum Investment Threshold

The INR 70 crore threshold restricts participation largely to global funds, effectively excluding many domestic institutional investors with internal diversification limits.

2. Regulatory Inconsistency

LVFs under AIF Regulations require significantly higher minimum investments compared to Large Value PMS structures, which allow INR 10 crore investments with full exposure to unlisted securities.

3. Limited Insurance Participation

Insurance companies, a key source of long-term domestic capital that often has a growing focus on ESG criteria, face exposure limits that make INR 70 crore commitments per fund commercially impractical.

Key Recommendations by EoDB Working Group and AIPAC

Based on stakeholder consultations, the EoDB Working Group and SEBI’s Alternative Investment Policy Advisory Committee (AIPAC) recommended several reforms.

1. Reduction in Minimum Investment Threshold

• Proposal to reduce the per-investor minimum from INR 70 crore to INR 25 crore
• Objective: Broaden domestic participation without diluting investor sophistication

2. Exemption from NISM Certification

LVFs with only accredited investors may be exempt from mandatory NISM certification requirements for the key investment team

3. PPM-Related Exemptions

• Exemption from:

                               1. SEBI-prescribed standard PPM template

                               2. Annual audit of PPM terms

• No requirement for individual investor waivers due to existing AI undertakings

4. Investment Committee Liability Relaxation

• Exemption of Investment Committee members from liability under Regulation 20(8)
• Responsibility for investment decisions to vest solely with the AIF, its Manager, and KMPs

5. Removal of Investor Cap

Proposal to remove the existing 1,000-investor cap for LVF schemes

6. Transition of Existing AIFs

Existing AIF schemes may convert into LVFs provided:

• All investors are accredited
• Each investor meets the minimum LVF investment threshold

Consolidated Exemptions and Relaxations for LVFs

I. Major Regulatory Exemptions

• Exemption from standard PPM format and annual PPM audit
• Investment Committee liability relaxation without investor waivers
• NISM certification exemption for key investment personnel
• Removal of maximum investor limit per scheme

II. Operational and Structural Flexibilities

• Reduced minimum investment threshold (INR 25 crore)
• Simplified scheme launch without pre-launch SEBI review
• Enhanced investment concentration limits
• Flexibility in trustee arrangements
• Exemption from pari-passu investor rights, subject to disclosures

III. Core Compliance Safeguards Retained

• Mandatory accredited investor status
• CEO and Compliance Officer undertakings on PPM accuracy
• Scheme naming requirement (“LVF” / “AI-Only Fund”)
• Timely regulatory intimations to SEBI and depositories
• Mandatory appointment of a dedicated Compliance Officer, a role that is part of the essential strategic financial leadershipfor such complex funds.

Implications for Key Stakeholders

• Domestic institutional investors: Gain access to concentrated private capital strategies at viable ticket sizes
• Insurance companies: Can now deploy long-term capital within internal exposure limits
• Fund managers: Benefit from lower compliance costs, faster launches, and broader fundraising potential
• Compliance teams: Experience reduced procedural burden while retaining accountability standards

Conclusion

The LVF framework reflects SEBI’s calibrated regulatory philosophy, lowering procedural and structural barriers where investor sophistication, including the ability to perform sophisticated valuation analysis, is demonstrably high, while retaining essential governance and accountability safeguards. By easing investment thresholds, rationalising compliance requirements, and aligning regulatory treatment across comparable products, SEBI is positioning LVFs as a powerful vehicle for deploying large-ticket private capital, including during corporate restructuring events.

As domestic institutional participation deepens and regulatory clarity improves, LVFs are poised to play a pivotal role in India’s evolving alternative investment landscape.