In a consultation paper released on 9 February, the Securities and Exchange Board of India (Sebi) suggested reducing the minimum investment threshold for investors in alternative investment funds (AIFs) linked to social impact causes to ₹1,000 from ₹2 lakh. The sharp reduction is expected to allow retail investors into a segment that has so far only focused on high-ticket, sophisticated participants.
The move seeks to align the AIF regulations with the minimum application size of ₹₹1,000 for zero-coupon zero-principal instruments (ZCZP) prescribed under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, regulations.
“With lower entry thresholds, clear disclosure standards, suitability checks, and strong governance frameworks will be essential to avoid mis-selling,” said Gaurav Bhandari, chief executive at Monarch Networth Capital, a financial services firm. “If implemented carefully, the proposal can help democratize impact investing without compromising investor safeguards.”
SIFs, housed under category I AIFs, are designed to generate measurable social or environmental impact alongside financial returns. They raise capital through private placements from institutions, family offices, and philanthropic investors, and deploy it into sectors such as education, healthcare, livelihoods, and climate initiatives.
“Given the inherent risks and long-term nature of SIFs, it is equally important to strengthen disclosures, investor education, and suitability frameworks to ensure retail participation remains responsible and sustainable,” added Adheesh Kabra, co-founder and fund manager at Aarth AIF. “While wider access is welcome, SIFs are complex and illiquid. It is important that retail investors fully understand the risks before participating.”
Mis-selling concerns
Market participants are concerned that the lack of awareness about the segment can lead retail investors to not understand the nature of the product they are buying. Since SIFs are meant for noble causes, their returns are also lower than other AIF instruments.
“Retail investors are not fit for SIFs. The purpose of not-for-profit gets defeated when you open a can of worms by allowing smaller ticket sizes into the segment as SIFs can be abused,” said an asset management company (AMC) executive on the condition of anonymity.
One key risk is that SIFs could be confused with zero-coupon bonds, which not-for-profit organizations also use to raise money.
ZCZP instruments are issued directly by not-for-profit organizations listed on the Social Stock Exchange, while SIFs are pooled funds under the AIF framework that may invest in such instruments. If both become available at a minimum investment of ₹1,000, industry executives warn that first-time retail investors may not clearly understand the difference, raising the chances of mis-selling.
“Environmental, social, and governance (ESG) and impact investing are buzzwords. When entities approach people using such words, in a haste to collect funds, they may make statements that are misleading. There has to be more sensitization to ensure that zero-coupon bonds are not sold like other retail investment units,” said Sidharth Kumar, senior associate at law firm BTG Advaya.
“People are not familiar with the concept of zero-coupon bonds. Some examination similar to the National Institute of Securities Markets (NISM) exam for distributors of mutual funds should be applied to not-for-profit organizations selling social impact bonds,” Kumar added.
A welcome move
The proposal to reduce minimum investment limits in SIFs has been widely welcomed by the industry as it raises hopes for growth in a segment that has not picked up so far. SIFs have raised ₹743 crore as of December 2025, accounting for 1.3% of the total capital raised under category I AIFs, according to Sebi data. Total investments by SIFs stood at ₹664 crore in the same period, or 0.1% of overall AIF investments.
“Historically, the higher ticket size limited participation largely to institutions and ultra-high networth investors. Lowering the threshold can help channel more domestic capital into socially relevant sectors such as education, healthcare, livelihoods, and climate initiatives, while also building awareness of impact-oriented investing among retail investors,” said Bhandari.
Beyond the investment threshold, Sebi’s draft paper also proposed easing regulatory constraints for not-for-profit organizations. It has suggested extending the period an NPO can remain registered on the Social Stock Exchange without raising funds from two years to three, subject to approval by stock exchanges.
The regulator said the proposed extension is intended to ease operational bottlenecks faced by not-for-profit organizations, including delays in securing income tax registrations and other statutory approvals that frequently hold up fundraising efforts.
It also proposed lowering the minimum subscription requirement for ZCZP issuances from 75% to 50% for projects where costs and outcomes can be structured on a clearly identifiable per-unit basis. The added flexibility is expected to enable projects to move forward even if subscriptions fall short, as long as the capital mobilized can be effectively utilized without compromising the stated social objectives.
The proposals follow a review conducted in consultation with the Social Stock Exchange’s advisory committee to strengthen the relatively nascent framework.
