SEBI Proposes GARUDA: How India’s AIF Sector Just Got A Green Channel Mechanism?

The alternative investment fund sector in India has been expanding at a rate that most people outside the financial world have not fully noticed yet. But regulators have. As of March 2026, there were 1,849 registered AIFs in India, up from just 732 in March 2021. That is a 135% jump in five years. Cumulative commitments raised by AIFs crossed Rs 15.74 lakh crore, and net investments stood at Rs 6.45 lakh crore, both growing at roughly 30% CAGR over the same period.

With that growth came a problem that was getting harder to ignore. The pipeline of applications was piling up faster than the system could process them. As of March 31, 2026, a total of 183 scheme applications were sitting pending with SEBI, 124 of them first scheme applications and 59 new scheme applications. Funds were ready to deploy capital. Investors were ready to commit. But the paperwork was slowing everything down.

SEBI’s response to this is the GARUDA framework, short for Green-Channel: AIF Rollout Upon Document Acknowledgement. Released as a consultation paper on May 11, 2026, GARUDA is not just a procedural tweak. It is a fundamental rethink of how AIF scheme launches should work in a maturing market.

What Was the Old System and Why Did It Need to Change?

To understand why GARUDA matters, we should first know what fund managers were dealing with before.

Under the earlier system, every AIF wanting to launch a new scheme had to file a Private Placement Memorandum with SEBI through a SEBI-registered Merchant Banker. That filing had to happen at least 30 days before the intended launch date. During those 30 days, SEBI would review the PPM, raise comments if needed, send those comments to the Merchant Banker, and wait for the revised version to come back before giving the go-ahead.

On paper that sounds reasonable. In practice, it created a bottleneck that grew worse as the industry scaled. More funds meant more applications. More applications meant longer queues. And longer queues meant capital sitting idle while fund managers waited for approvals on documents that Merchant Bankers had already certified as compliant.

SEBI took a first step in April 2026 by reducing the mandatory waiting period and shifting to a fast-track mechanism where funds could proceed 30 days after filing unless told otherwise. GARUDA is the second and more ambitious step, proposing to reduce that timeline further and, for certain categories of funds, eliminating the waiting period altogether.

Breaking Down the SEBI GARUDA Proposals: Three Tracks, Three Sets of Rules

The GARUDA framework is not a one-size-fits-all solution. SEBI has designed it with three distinct tracks based on the type of investors a fund caters to.

Track 1: Regular Schemes

These are AIF schemes that onboard investors based on a minimum investment of Rs 1 crore. For these funds, SEBI proposes cutting the waiting period from 30 days to just 10 working days after filing with SEBI through a Merchant Banker. For a fund launching its very first scheme, it can proceed from the date SEBI grants registration, or after 10 working days of filing, whichever comes later.

This is a meaningful reduction. Ten working days is roughly two calendar weeks, down from a full month. For fund managers trying to capitalise on market timing or close an investor commitment before it lapses, that difference is not trivial.

Track 2: Accredited Investor Only Schemes

This is where GARUDA gets significantly more progressive. AI only schemes cater exclusively to Accredited Investors, people and entities that have met SEBI’s net worth and income thresholds and gone through third-party verification. These are investors who, by definition, understand financial products, carry the sophistication to evaluate risks independently, and typically have expert advisors in their corner.

For these schemes, SEBI proposes three changes. First, fund managers can file the PPM directly with SEBI without going through a Merchant Banker. Second, the Merchant Banker’s due diligence certificate gets replaced by an undertaking from the fund’s CEO and Compliance Officer. Third, the fund can launch its first scheme the moment it receives SEBI registration, and new schemes can launch the moment the PPM is filed along with that undertaking. No waiting period at all.

Track 3: Angel Funds

Angel Funds, which can now only onboard Accredited Investors following a recent regulatory amendment, get the same treatment as AI only schemes on the filing side. Managers can file directly with SEBI without going through a Merchant Banker, and the Merchant Banker due diligence certificate is replaced by a CEO and Compliance Officer undertaking. Angel Funds can also circulate their PPM to investors for fundraising from the very day they receive SEBI registration.

The underlying logic across all three tracks is the same: place accountability on the parties closest to the fund, apply lighter oversight to investors who need it least, and reserve regulatory scrutiny for where it actually adds value.

How Accredited Investor Numbers Are Shaping This Change?

One reason SEBI feels confident enough to propose the GARUDA green channel mechanism is the growing traction of the accredited investor ecosystem.

As of April 30, 2026, the number of Accredited Investors in India stood at 2,773. That is a 327% increase in just 11 months compared to 649 AIs at the end of May 2025. The sum of par value of AIF units held by accredited investors, both certified and deemed, amounts to Rs 1,91,164 crore as of December 31, 2025, which is roughly 30% of total AIF investments.

These numbers matter because they directly support SEBI’s argument for differentiated regulation. When nearly a third of AIF capital is already coming from accredited investors who have been formally verified as financially sophisticated, it makes sense to give those funds a faster, lighter regulatory pathway. The investors in those funds do not need the same level of upfront regulatory protection as first-time investors putting Rs 1 crore into a regular scheme.

SEBI also looked at how other jurisdictions handle this. IFSCA, which regulates funds in GIFT City, started with PPM reviews and gradually moved away from them, placing reliance on applicant due diligence certificates instead. Malaysia’s Securities Commission takes a similar approach, with post-facto sample-based scrutiny rather than upfront review. The GARUDA framework brings India’s onshore AIF regulation closer to global best practices.

What Does This Mean for HNIs and Accredited Investors?

If you are an HNI or an accredited investor who has put money into AIFs or is considering doing so, the GARUDA green channel framework has direct implications for how quickly managers can act on your behalf.

Right now, one of the practical frustrations in the AIF space is timing. A fund manager identifies an opportunity, needs to launch a new scheme to capture it, and then spends weeks waiting for regulatory clearance. By the time the scheme is live and the capital is deployed, the window may have narrowed. Faster AIF scheme launches mean more nimble capital deployment, which can translate into better entry points and more responsive portfolio construction.

For accredited investors specifically, the shift to immediate launch capability is significant. It means fund managers running AI only schemes can move from idea to execution faster than ever before. That benefits investors who value speed, precision, and opportunistic positioning.

There is also a broader signal here. SEBI’s approach with GARUDA reflects a growing recognition that sophisticated investors and the funds that serve them need room to operate efficiently. Regulatory oversight is still very much present; SEBI will continue post-facto scrutiny of scheme documents on a sample basis with full liability for any irregularities. But the model is shifting from gatekeeping at the front door to monitoring once the fund is up and running. That is a more mature regulatory posture, and one that the AIF sector has been waiting for.

In Light of These Facts

Lastly, it would be better to conclude that GARUDA is good news for India’s alternative investment ecosystem. SEBI’s GARUDA AIF framework is a clear signal that India’s capital markets regulator is willing to evolve its approach as the industry matures. The AIF sector has proven itself over a decade and a half of regulation, and the numbers back that up: 135% growth in fund count, Rs 15.74 lakh crore in commitments, and an accredited investor base that is expanding rapidly.

Cutting launch timelines, removing Merchant Banker requirements for sophisticated investor funds, and shifting to accountability-led rather than pre-approval-led regulation are all moves in the right direction. Public comments on the proposals are open until June 1, 2026.

For HNIs and sophisticated investors who are already in the AIF space or looking to enter it, this is a good moment to pay close attention to how your fund managers are structured and what kind of flexibility the new framework opens up for them.

At Bonanza Wealth, we work with HNIs and investors to navigate exactly these kinds of regulatory developments and position their portfolios to benefit from them. Whether you are exploring AIF investments for the first time or looking to optimize an existing alternatives allocation, our team brings the depth of experience and research capability to help you make informed, well-timed decisions.

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