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The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a ‘green channel’ framework, termed the Garuda mechanism, to accelerate the registration and launch of Alternative Investment Funds (AIFs). Under this proposal, certain categories of AIFs would be permitted to launch schemes and deploy capital immediately upon the acknowledgement of their placement memorandum, bypassing the traditional, lengthy review process. The move aims to facilitate ease of doing business for sophisticated investors while shifting the burden of compliance and due diligence onto merchant bankers and investment managers. This regulatory shift is expected to significantly reduce the time-to-market for private equity and venture capital funds operating within the Indian financial ecosystem.
The Securities and Exchange Board of India has proposed a fast-track clearance framework for Alternative Investment Funds (AIFs) to streamline the deployment of capital and enhance operational efficiency for institutional investors. In a consultation paper released earlier this week, the capital markets regulator introduced the ‘Garuda’ mechanism, which was designed to allow eligible AIF schemes to commence operations immediately after filing their placement memorandum. This proposal marks a significant departure from the existing regulatory regime, where funds often face a waiting period of several months for SEBI to review and issue observations on their offer documents before capital can be legally drawn down. Advertisement
According to the regulator, the proposed green channel will initially be available to Category I and Category II AIFs that cater to sophisticated investors. Under the Garuda mechanism, once a fund manager files the necessary documentation along with a certification from a registered merchant banker, the SEBI system will generate an automated acknowledgement. This receipt will serve as the regulatory clearance required to launch the scheme. The regulator noted that the objective is to simplify the fundraising process for experienced market participants who possess the expertise to evaluate investment risks without extensive preliminary regulatory intervention.
To ensure market integrity under this accelerated process, SEBI has proposed a robust post-facto monitoring system. While the initial vetting is bypassed, the responsibility for ensuring that the placement memorandum complies with all AIF regulations will rest entirely with the investment manager and the appointed merchant banker. The regulator stated that any material non-compliance discovered during subsequent reviews would lead to strict enforcement actions, including the potential freezing of the fund’s activities or the rescinding of its registration. This shift toward a disclosure-based regime mirrors global standards found in developed financial markets, where the emphasis is placed on professional accountability rather than pre-clearance hurdles.
The consultation paper also highlights the growing scale of the AIF industry in India, which has seen substantial growth in commitments over the past three fiscal years. By reducing the time-to-market, the regulator intends to help fund managers capitalise on investment opportunities in a more agile manner. Market participants have previously raised concerns regarding the bottleneck in scheme approvals, which often impacted the closing of time-sensitive transactions in the private equity and real estate sectors.
In addition to the fast-track rollout, the proposal includes provisions for the digitisation of the entire filing process to further minimise physical documentation. SEBI has invited stakeholders, including fund managers, legal consultants, and institutional investors, to submit their comments on the proposed framework by the end of the current month. If implemented, the Garuda mechanism is expected to significantly lower the administrative burden on the regulator while fostering a more mature investment climate for high-net-worth individuals and institutional entities
Source - SEBI
5th Jun, 2025
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