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In its latest amendment to AIF regulations, SEBI has specified that Cat II AIFs can now invest in listed debt securities including securitized debt instruments rated ‘A’ or below by a credit agency registered with the regulator.
Until now, SEBI regulations allowed Cat II AIFs to invest only in unlisted companies directly or through investment in the units of other AIFs.
Cat II AIFs includes private debt funds and private equity funds.
While talking about the impact of this new amendment, Nishad Khanolkar, Fund Manager, The Wealth Company Asset Management said, “The regulatory shift permitting Category II AIFs to invest in listed debt securities is a timely and progressive step. It enhances the ability of fund managers to build well-rounded portfolios by blending growth with stability. Listed debt instruments, by their very nature, offer a more secure investment avenue, and this amendment could broaden the spectrum of risk-adjusted opportunities available to investors—particularly those seeking safer, yet meaningful, allocations in today’s dynamic market landscape. The regulations reinforce transparency while encouraging more structured credit strategies. While this may limit short-term flexibility for fund managers, it strengthens long-term investor confidence by ensuring accountability and reducing rollover hazards. The industry may see a shift toward listed debt or hybrid structures, offering investors a clearer balance between risk and stability in an evolving market.”
Anand Shah, IPCON Investments thinks that this amendment improves flexibility in overall strategy for Cat II AIFs and makes higher degree of diversification possible at the portfolio level. He adds that this will enable improved liquidity management at scheme level and offer better scope for fund manager to align maturity profile of the underlying portfolio.
