AIF Valuation Guidelines India: SEBI Regulation 23(2) Complete Guide [2026]

Most Alternative Investment Fund managers in India are overpaying for valuation by one full cycle every year. SEBI Regulation 23(2) explicitly allows Category I and Category II AIFs to conduct valuations annually rather than semi-annually, provided 75% of investors by value give their consent. For a mid-sized fund, that single change saves between Rs. 6 and 12 lakh per year and it is fully compliant.

This guide covers everything you need to act on this provision correctly in 2026: the current regulatory framework, the September 2024 independent valuer eligibility changes, the December 2025 IPEV Guidelines update effective from April 2026, the February 2026 NAV depository reporting mandate, and a step-by-step process to secure LP consent and update your PPM without triggering a material change event.

Key Takeaways

• SEBI Regulation 23(2) of the SEBI (Alternative Investment Funds) Regulations, 2012 allows Category I and Category II AIFs to shift from semi-annual to annual valuations with documented consent from 75% of investors by committed capital value. 

• Category III AIFs (hedge funds and long-short equity strategies) cannot use this exemption and remain subject to the default semi-annual independent valuation requirement. 

• As per SEBI Circular No. SEBI/HO/AFD/PoD-1/P/CIR/2024/123 dated September 19, 2024, independent valuers for AIFs must now be IBBI-registered valuer entities whose authorized persons hold ICAI, ICSI, ICMAI, or CFA Institute membership. 

• The IPEV Guidelines, December 2025 edition, supersedes the December 2022 edition and applies to all AIF valuation reports for periods beginning April 1, 2026 (FY 2026-27 onwards). 

• As per SEBI Circular No. HO/19/34/11(8)2025-AFD-POD1/I/4335/2026 dated February 6, 2026, all AIFs must now report unit NAVs to depositories (NSDL and CDSL) through their Registrar and Transfer Agents. 

• Switching to annual valuations does not constitute a “material change” under Paragraph 22.2.2 of the AIF Master Circular, as amended September 2024, provided it is disclosed to investors. 

• India had 1,849 registered AIFs with cumulative commitments of Rs. 15.74 lakh crore as of March 2026, making compliance accuracy more commercially critical than ever. 

• My Valuation provides end-to-end AIF valuation support, from portfolio assessment and IPEV-aligned methodology documentation to independent valuation sign-off by an IBBI-registered valuer.  

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The Myth That Is Costing AIF Managers Money

Most fund managers believe SEBI mandates semi-annual valuations for all AIFs, with no exceptions. That assumption is wrong, and it is expensive.

The confusion comes from a surface-level reading of Regulation 23(1), which requires Category I and II AIFs to value investments through an independent valuer “at such intervals as may be specified by the Board.” The default minimum is semi-annual. But Regulation 23(2) creates a specific exemption that most practitioners never act on.

The practical consequence: many Category I private equity funds, Category II debt funds, and infrastructure AIFs pay for two valuation cycles annually when one cycle, done well, satisfies every regulatory, investor, and audit requirement.

What SEBI Regulation 23(2) Actually Says

Regulation 23(2) of the SEBI (Alternative Investment Funds) Regulations, 2012, states:

“The manager of a Category I or Category II Alternative Investment Fund may, subject to consent of seventy-five per cent of the investors by value, conduct valuation of investments on an annual basis.”

The four elements that determine whether your fund qualifies are as follows.

• Applicable AIF category: Only Category I and Category II AIFs can use this provision. Category III funds (structured funds, long-short strategies, complex derivatives) remain on semi-annual or more frequent cycles.
  
• Consent threshold: 75% of investors calculated by committed capital, not by headcount. A fund with five LPs where the top two hold 75% of commitments needs consent from only those two.
  
• Valuation frequency: Annual, meaning once per financial year, not once per calendar year.
  
• Independent valuer: Still mandatory. The exemption removes one valuation cycle, not the independence requirement.
  

This provision has been part of the AIF Regulations since 2012 and was reaffirmed in the AIF Master Circular (May 2024). No subsequent circular has diluted or reversed it.

Critical Regulatory Updates: 2024 to 2026

The baseline Regulation 23(2) provision is unchanged, but the surrounding compliance architecture has been significantly updated in the last 18 months. Every AIF manager operating in 2026 needs to understand these four changes before finalizing their valuation framework.

September 2024: Independent Valuer Eligibility Revised

SEBI Circular No. SEBI/HO/AFD/PoD-1/P/CIR/2024/123 dated September 19, 2024, resolved a long-standing industry ambiguity about who can serve as an independent valuer for AIF portfolios.

Under the updated framework, an eligible independent valuer must be a Registered Valuer Entity registered with the Insolvency and Bankruptcy Board of India (IBBI). The individual authorized to sign valuation reports on behalf of that entity must hold membership in one of the following: ICAI (Institute of Chartered Accountants of India), ICSI (Institute of Company Secretaries of India), ICMAI (Institute of Cost Accountants of India), or the CFA Institute.

This is directly relevant to any fund reviewing its valuer appointment. If your current independent valuer is an individual (not an entity-level IBBI registrant), or if their authorized signatory does not hold one of the above qualifications, your valuation reports may not satisfy the updated criteria. Review your engagement letter against these requirements before your next valuation cycle.

The same circular also extended the deadline for submitting audited valuation data to performance benchmarking agencies from six months to seven months, meaning the annual submission window now closes by October 31 each year rather than September 30.

December 2025: IPEV Guidelines Updated, Effective April 2026

The IPEV Board published a new edition of its valuation guidelines in December 2025, which supersedes the December 2022 edition. As per the SEBI AIF Master Circular, the endorsed valuation standard for unlisted and thinly traded securities is the IPEV Guidelines framework (endorsed by IVCA as India’s Country Partner for IPEV). The December 2025 edition is effective for quarterly reporting periods beginning on or after April 1, 2026, meaning it applies to all FY 2026-27 valuation reports.

The 2025 update preserves the established fair value framework and core techniques but introduces additional guidance on complex capital structures, hybrid instruments, and secondary market transactions. AIF managers should confirm with their appointed valuers that reports prepared from April 2026 onwards reference the December 2025 edition, particularly for portfolios with convertible instruments, CCDs, or CCPS structures.

February 2026: NAV Depository Reporting Mandate

SEBI Circular No. HO/19/34/11(8)2025-AFD-POD1/I/4335/2026 dated February 6, 2026, introduced a new obligation: all AIFs must now report the unit value (NAV of each scheme) to depositories, specifically NSDL and CDSL, through their Registrar and Transfer Agents.

This is a separate obligation from valuation itself, but it is directly tied to it. Your independent valuation feeds the NAV calculation, which then flows to depositories. Since all new AIF investments from July 1, 2025 onwards are required to be in dematerialized form under Regulation 10(aa) of the AIF Regulations, the depository is now the central record of unit holdings. Inconsistency between your valuation-derived NAV and the depository-reported unit value will be flagged.

March 2026: Annual Activity Report Replaces Heavy Quarterly Reporting

The SEBI Circular dated March 4, 2026 introduced an Annual Activity Report (AAR) that replaces the previously heavy quarterly reporting for the March quarter. Fund managers now submit a detailed AAR annually and a lighter Quarterly Activity Report (QAR) for the remaining three periods.

This is not a valuation requirement per se, but it matters because the AAR includes a PPM compliance audit component. Your PPM must accurately reflect your current valuation frequency (annual or semi-annual), your appointed independent valuer, and the methodology being used. Discrepancies between what your PPM states and what your valuation reports show will surface during the AAR review.

How AIF Valuation Frequency Differs Across Categories

The table below summarizes how SEBI’s valuation requirements apply across all three AIF categories as of 2026.

AIF Valuation Frequency: Category I vs Category II vs Category III

Criteria	Category I AIF	Category II AIF	Category III AIF
Examples	Venture Capital, Angel Funds, SME Funds, Infrastructure Funds	Private Equity, Debt Funds, Distressed Asset Funds	Hedge Funds, Long-Short Equity, Complex Strategy Funds
Default Valuation Frequency	Semi-annual (at minimum)	Semi-annual (at minimum)	Semi-annual (at minimum)
Annual Valuation Option (Reg. 23(2))	Yes, with 75% LP consent by value	Yes, with 75% LP consent by value	No, not eligible
Valuation Standard (FY 2026-27 onwards)	IPEV December 2025 edition	IPEV December 2025 edition	IPEV December 2025 edition
Independent Valuer Required	Yes (IBBI-registered entity + qualified signatory)	Yes (IBBI-registered entity + qualified signatory)	Yes (IBBI-registered entity + qualified signatory)
NAV Depository Reporting	Mandatory (Feb 2026 circular)	Mandatory (Feb 2026 circular)	Mandatory (Feb 2026 circular)
Typical Portfolio Type	Startup equity, early-stage, SME loans	PE equity, structured debt, credit	Publicly traded, derivatives, complex instruments
Best Suited for Annual Valuation	Infrastructure and SME sub-categories with stable assets	PE and debt funds with long-gestation assets	Not applicable

Key Insight: The annual valuation option under Regulation 23(2) is only available to Category I and II funds with stable, long-term portfolios. If your fund invests in early-stage startups with frequent new funding rounds, semi-annual valuations remain the appropriate frequency regardless of the exemption.

When Does Annual Valuation Make Sense for Your AIF?

Annual valuations under Regulation 23(2) are well-suited for specific portfolio profiles. The exemption is a practical tool, not a blanket cost-cutting measure.

Stable portfolio companies with predictable cash flows

If your AIF holds stakes in established manufacturing businesses, regulated infrastructure projects, or mature service companies with audited financials and steady EBITDA, the valuation inputs change minimally between cycles. A Category II private equity fund holding a 35% stake in a Tier-2 city logistics company with long-term client contracts, for instance, will produce near-identical DCF outputs in June and December. One well-documented annual valuation with comprehensive assumption disclosures serves investors more usefully than two abbreviated semi-annual snapshots.

Long-gestation infrastructure and real estate assets

Category I infrastructure AIFs funding toll roads, renewable energy plants, or urban utilities see value accrue slowly through construction milestones, not volatile market events. Category II real estate AIFs holding completed commercial properties with long-term leases to creditworthy tenants have highly predictable rental yields. For these asset classes, semi-annual valuations primarily generate administrative cost with minimal informational uplift for LPs.

Funds in the middle years of their lifecycle

Annual valuations are most appropriate in years two through five of a seven or ten-year fund. Early years (new investments being made) and late years (exits approaching; LPs evaluating distributions) typically benefit from more frequent assessments.

When You Should Not Use Annual Valuations

Some funds should remain on semi-annual cycles regardless of investor consent availability.

High-growth startup portfolios: Venture capital AIFs backing Series A and B companies in fintech, SaaS, or consumer tech face rapid valuation changes from new funding rounds, business pivots, and burn rate shifts. LPs in these funds need semi-annual valuations to accurately assess portfolio performance and make informed secondary decisions.

Distressed asset and IBC-linked funds: Category II funds acquiring stressed assets through the Insolvency and Bankruptcy Code (IBC) resolution process face unpredictable recovery timelines and asset realization values. The information content of frequent valuations is directly relevant to creditor and LP decision-making.

Funds approaching exit or fundraising: If your AIF is within 12 to 18 months of its planned exit window, or if you are marketing a successor fund to LPs using current portfolio performance data, semi-annual valuations provide the granular, up-to-date evidence base that prospective investors and exiting LPs require.

Funds with complex hybrid instruments: Portfolios with significant allocations to CCDs, CCPS, warrants, or structured debt require more rigorous and frequent valuations because the instrument-level economics shift with changes in underlying equity value, interest accrual, and conversion triggers.

Unsure Whether Your AIF Portfolio Qualifies For Annual Valuations?

My Valuation’s team reviews your fund’s portfolio composition, PPM terms, and LP base to provide a compliance-backed valuation recommendation aligned with SEBI requirements. Speak with our AIF valuation specialists today.

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How to Implement Annual Valuations: The Complete 3-Step Process

Step 1: Review Your PPM and Board Approval

Begin by reviewing your existing Private Placement Memorandum. Confirm whether your PPM specifies a valuation frequency. Most PPMs drafted before 2023 either mirror the default semi-annual requirement or are silent on the question. You cannot proceed to LP consent without updating the internal policy position first.

Draft an amendment to your AIF’s valuation policy document specifying the intended shift to annual frequency. Circulate it to the fund’s investment committee or board and obtain documented approval. Include in the approval document the rationale: portfolio stability, asset class characteristics, and cost efficiency. This rationale will be referenced in the LP communication and, later, in the AAR’s PPM compliance audit.

Timeline: 2 to 3 weeks.

Step 2: Secure 75% LP Consent by Committed Capital

The threshold is 75% of investors by value of capital commitments, not by headcount.

How to calculate it:

Assume your fund has total commitments of Rs. 150 crore across eight LPs. If your three largest LPs hold Rs. 115 crore (approximately 77% of total commitments); their consent alone crosses the 75% threshold. The five smaller LPs holding Rs. 35 crore could dissent entirely, and the threshold would still be met.

Consent collection process:

Send formal written communication to all LPs explaining Regulation 23(2), the proposed change, and its compliance basis. Include a cost-benefit summary (see cost savings table below). Set a 30-day response deadline. Your PPM should already specify how non-responses are treated. The industry standard treats non-responses as abstentions, not as dissents. If 75% of responding investors by value consent, you proceed.

Document every outreach attempt: email with read receipt, follow-up written communication, and a dated record of verbal follow-ups. Maintain this documentation for a minimum of seven years, consistent with standard SEBI record-keeping requirements.

Timeline: 4 to 6 weeks.

Step 3: Amend Your PPM and Reflect Changes in AIF Filings

Update your PPM to reflect the annual valuation frequency, the identity of your independent valuer (confirming they meet the September 2024 eligibility criteria), and the methodology being applied (reference the December 2025 IPEV edition if your portfolio contains unlisted securities).

No prior SEBI approval is required for this change. As per Paragraph 22.2.2 of the AIF Master Circular (amended September 2024), a change in valuation frequency in compliance with Regulation 23(2) does not constitute a “material change” and does not trigger the LP exit or buy-out process that material changes require. However, the change must be disclosed to all investors with both the old and new approaches specified.

File the updated PPM through SEBI’s online filing system. Ensure your NAV reporting to depositories (under the February 2026 mandate) and your next QAR submission both reflect the updated valuation cycle.

Timeline: 2 to 3 weeks.

Cost Savings: The Financial Case for Annual Valuations

For most fund managers, the financial case is straightforward. Below are indicative fee ranges based on the Indian AIF market as of 2026.

AIF Valuation Cost Comparison: Annual vs Semi-Annual

AIF Size	Semi-Annual Cost (2 cycles/year)	Annual Cost (1 cycle/year)	Annual Savings	7-Year Fund Savings
Small AIF (5 to 8 portfolio companies)	Rs. 6.5 to 7 lakh/year	Rs. 3.25 to 3.5 lakh/year	Rs. 3.25 lakh	Rs. 22.75 lakh
Mid-size AIF (10 to 15 companies)	Rs. 12 to 14 lakh/year	Rs. 6 to 7 lakh/year	Rs. 6 lakh	Rs. 42 lakh
Large AIF (20+ companies)	Rs. 20 to 24 lakh/year	Rs. 10 to 12 lakh/year	Rs. 10 lakh	Rs. 70 lakh

Takeaway: For a mid-sized Rs. 200 crore AIF with 12 portfolio companies, the Rs. 6 to 7 lakh in annual savings over a seven-year fund life amounts to Rs. 42 to 49 lakh in cumulative savings, directly improving net IRR for investors.

What Happens if Your AIF Does Not Comply with Valuation Norms?

Non-compliance with SEBI’s AIF valuation framework is not a technical oversight. It carries real consequences.

SEBI’s enforcement actions against non-compliant AIFs include formal warnings, restrictions on accepting fresh commitments or new scheme launches, and in serious cases, suspension or cancellation of AIF registration under Section 15HB of the SEBI Act, 1992. The Annual Activity Report introduced in March 2026 creates a direct audit trail between your PPM disclosures and your actual valuation practice, making systemic compliance gaps significantly easier for SEBI to identify.

Beyond regulatory penalties, LP trust is the more immediate risk. Investors who discover that the fund’s valuation reports were prepared by a valuer no longer meeting the September 2024 eligibility criteria, or that the methodology disclosed in the PPM does not match what was actually applied, have grounds to raise formal complaints with SEBI and seek independent review of NAV calculations.

Real-World Case Illustration

Consider a Category II private equity AIF with Rs. 180 crore in commitments across 11 portfolio companies. The portfolio consists of seven established manufacturing businesses with long-term customer contracts, two commercial real estate assets with 10-year leases, and two early-stage startups.

The fund manager reviews the portfolio against the Regulation 23(2) criteria. The seven manufacturing companies and two real estate assets, representing Rs. 145 crore or approximately 80% of the portfolio at cost, are appropriate for annual valuation. The two startups, representing Rs. 35 crore, need semi-annual treatment.

The fund has two options. Option 1: conduct a full portfolio valuation semi-annually at approximately Rs. 11 lakh per cycle (Rs. 22 lakh per year). Option 2: seek LP consent for an annual cycle for the stable portfolio companies and structure the engagement to highlight the startup holdings separately with semi-annual updates as part of the LP reporting package.

The fund manager chooses Option 2, secures 75% LP consent, updates the PPM, and reduces annual valuation spend by approximately Rs. 9 lakh while maintaining the reporting granularity that LP advisors require for the startup portion. This is a legitimate, compliant, and commercially rational outcome.

My Valuation has structured similar frameworks for fund managers who want cost efficiency without creating reporting gaps that regulators or LP auditors will question.

Conclusion

AIF valuation in India is no longer a compliance checkbox. The 2024 to 2026 regulatory cycle has introduced material changes to who can sign valuation reports, which guidelines govern methodology, how NAVs are reported to depositories, and how annual activity is disclosed to SEBI. Fund managers who have not reviewed their valuation framework against these changes carry documentation risk that the Annual Activity Report’s compliance audit will surface.

SEBI Regulation 23(2) remains a valuable, underused provision for Category I and II AIFs with stable portfolios. Used correctly, it reduces costs, simplifies reporting, and does not compromise investor transparency. Used incorrectly, without proper LP consent documentation or PPM updates, it creates the same compliance gaps it was meant to avoid.

My Valuation is one of India’s trusted IBBI-registered valuation firms, led by CA Parth Shah (FCA, CPA USA, IBBI Registered Valuer under Section 247 of the Companies Act, 2013). Our team provides independent AIF portfolio valuations aligned with the IPEV December 2025 guidelines, SEBI’s September 2024 independent valuer eligibility criteria, and the latest reporting requirements under the February 2026 circular. Whether you are a Category I VC fund, a Category II PE or debt fund, or an infrastructure AIF reviewing your valuation cycle ahead of FY 2026-27, our team is ready to help. Reach out to My Valuation for a consultation on your AIF valuation framework.

Frequently Asked Questions (FAQs)

1. Is SEBI Regulation 23(2) still valid for AIF annual valuations in 2026? 

Yes. Regulation 23(2) of the SEBI (Alternative Investment Funds) Regulations, 2012 remains in force and allows Category I and II AIFs to conduct annual valuations subject to 75% LP consent by committed capital value. No subsequent SEBI circular has revoked or modified this provision, and the AIF Master Circular (May 2024, amended September 2024) reaffirms its applicability. 

2. Who qualifies as an independent valuer for AIF portfolios under the 2024 rules? 

As per SEBI Circular No. SEBI/HO/AFD/PoD-1/P/CIR/2024/123 dated September 19, 2024, the independent valuer must be a Registered Valuer Entity registered with IBBI. The individual authorized to sign valuation reports on behalf of that entity must hold membership in ICAI, ICSI, ICMAI, or the CFA Institute. Individual valuers who are not part of an IBBI-registered entity-level structure may not satisfy these updated criteria. 

3. Does switching from semi-annual to annual valuation count as a “material change” under SEBI rules? 

No. As per Paragraph 22.2.2 of the AIF Master Circular (amended September 2024), a change in valuation frequency made in compliance with Regulation 23(2) does not constitute a material change. This means it does not trigger the LP exit or consent process that material changes require. You must, however, disclose the change to all investors with both the old and new approach specified. 

4. What IPEV guidelines should AIF managers use for valuation reports in FY 2026-27? 

AIF managers should use the IPEV Guidelines, December 2025 edition, for all valuation reports covering periods from April 1, 2026 onwards. This edition supersedes the December 2022 edition and is endorsed by IVCA as India’s Country Partner for IPEV. SEBI’s AIF Master Circular endorses the IPEV Guidelines as the valuation standard for unlisted and thinly traded securities, and the endorsement runs to the framework as a living document rather than being fixed to any specific prior edition. 

5. What is the new NAV depository reporting requirement for AIFs? 

As per SEBI Circular No. HO/19/34/11(8)2025-AFD-POD1/I/4335/2026 dated February 6, 2026, all AIFs must report the unit value (NAV of each scheme) to depositories, specifically NSDL and CDSL, through their Registrar and Transfer Agents. This is separate from the valuation report itself but directly downstream of it. The requirement applies to all AIFs given that new investments from July 1, 2025 must be held in dematerialized form. 

6. How much does AIF valuation cost in India, and can annual valuation reduce it? 

Independent valuation fees in India typically range from Rs. 3.25 to 3.5 lakh per cycle for small AIFs (5 to 8 portfolio companies) to Rs. 10 to 12 lakh per cycle for large AIFs (20 or more companies). Switching to annual valuations under Regulation 23(2) halves the number of valuation cycles per year, producing annual savings of Rs. 3 to 10 lakh depending on fund size. Over a seven-year fund lifecycle, that can represent Rs. 22 to 70 lakh in aggregate savings. 

7. Can a Category III AIF use SEBI Regulation 23(2) to reduce valuation frequency? 

No. SEBI Regulation 23(2) applies only to Category I and Category II AIFs. Category III AIFs, which include hedge funds and long-short equity strategies, must adhere to the default semi-annual independent valuation requirement under Regulation 23(1) and cannot reduce frequency to annual regardless of LP consent.

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