SEBI's Semi-Annual Valuation Mandate for Category II AIFs
SEBI's Master Circular for Alternative Investment Funds, dated June 3, 2026, moves Category II AIFs from annual to semi-annual independent valuation of unlisted portfolio investments. Here is what fund managers, investors, and valuers need to check in their PPMs, valuer appointments, and reporting cycles.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: SEBI (Alternative Investment Funds) Regulations 2012, Regulation 23 (valuation norms), as updated by the Master Circular for Alternative Investment Funds — Effective: June 3, 2026. Source: https://www.sebi.gov.in/legal/master-circulars/jun-2026/master-circular-for-alternative-investment-funds-aifs-_101817.html. Last reviewed by CA Harun Raaj: September 2026.
SEBI's Master Circular for Alternative Investment Funds, issued on June 3, 2026, changes how Category II AIFs must value their unlisted holdings. The prior practice — an annual valuation cycle that many fund managers treated as standard — is replaced by a semi-annual requirement. This is the most operationally significant change in the circular for Category II fund managers running private equity, debt, real estate, distressed-asset, and fund-of-fund structures.
The specific circular number within SEBI's master circular series is not restated here; fund managers and their compliance advisors should refer to the official SEBI page linked above for the precise clause references before finalising any client-facing communication.
Why SEBI Moved to a Bi-Annual Cycle
Category II AIFs invest largely in unlisted equity and debt — instruments without a daily market price. Valuing these positions requires judgement, and SEBI observed that internal or once-a-year valuations created a structural conflict: a fund manager who marks up a portfolio company also benefits from the resulting higher NAV and AUM-linked fees. A semi-annual, independent valuation builds an arm's-length check into the cycle at predictable, defined intervals, giving investors a more current and more credible view of fund performance between the two windows.
What Changes Operationally
Frequency. Independent valuation must now occur at least every six months, typically aligned to September 30 and March 31 for FY-aligned funds, instead of once a year.
Valuer independence. The valuer must be independent of the fund manager. For investments in companies, the valuer should be registered under the Companies (Registered Valuers and Valuation) Rules 2017 in the relevant asset class — securities, or land and building. The fund's statutory auditor cannot also act as the independent valuer for the same period; this separation protects the credibility of both the audit and the valuation.
Investor disclosure. Valuation results go into bi-annual investor reports. Methodology and key assumptions must stay consistent period to period — any change in methodology requires Board-level disclosure to investors.
NAV movement. Because investor NAV flows directly from these valuations, a meaningful shift in a portfolio company's performance between the two annual windows will now show up as a step change in NAV. Fund managers should build an investor communication protocol around each valuation date rather than leaving investors to interpret the movement unassisted.
PPM and SEBI reporting. Funds whose Private Placement Memorandum specifies only an annual valuation cycle must update the PPM, which typically requires investor consent at the next LP meeting. The updated valuations must also flow into the fund's bi-annual SEBI report.
Old Cycle vs New Requirement
Key point: Category II AIF managers must now obtain independent valuation of unlisted portfolio investments every six months instead of annually, under SEBI's Master Circular for AIFs dated June 3, 2026.
Who Is Affected
- Category II AIF managers running active schemes — private equity, debt, real estate, distressed-asset, and fund-of-fund structures.
- Investors in Category II AIFs — HNIs and family offices who rely on NAV reports for consolidated wealth reporting will see valuations refreshed twice a year instead of once.
- Registered valuers and CA firms providing valuation and compliance support — the shift to a bi-annual cycle changes the volume and timing of engagements needed around each valuation window.
Category I and Category III AIFs operate under separate frameworks in the same master circular; this guidance addresses Category II specifically.
Compliance Checklist for Fund Managers
- List every portfolio investment that requires independent valuation, excluding cash, listed securities priced at market, and government securities.
- Appoint an independent valuer registered under the Companies (Registered Valuers and Valuation) Rules 2017 and document the independence test, including confirming the valuer is not also the fund's statutory auditor.
- Set the valuation dates in the fund's PPM if not already specified — September 30 and March 31 are the most common anchors.
- Keep valuation methodology consistent across periods (DCF, comparable company, cost method, or IPEV guidelines); any switch needs Board approval and disclosure.
- Prepare an investor communication template that explains methodology, key assumptions, and period-on-period movement ahead of each valuation date.
- Update the LPA/PPM where it currently specifies only annual valuation, and route the change through LP consent at the next meeting.
- Confirm the bi-annual SEBI report reflects the updated valuations for the relevant period.
This is a compliance operations exercise as much as a regulatory one — PPM amendments, valuer appointments, and LP consent processes all need lead time before the next valuation window. Fund managers who start the checklist now avoid a rushed sign-off close to September 30 or March 31.
I'm CA Harun Raaj, Visakhapatnam. If your Category II AIF's PPM, valuer appointments, or LP reporting need to be aligned to this new cycle, reach out to discuss your fund's specific position.
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See Also
Frequently Asked Questions
What does SEBI's June 2026 Master Circular change for Category II AIFs?
It requires independent valuation of unlisted portfolio investments at least every six months instead of annually, under Regulation 23 of the SEBI (Alternative Investment Funds) Regulations 2012 as updated by the Master Circular dated June 3, 2026.
Does this apply to close-ended Category II AIFs no longer accepting new investors?
Yes, the semi-annual valuation requirement applies to all active Category II AIF schemes regardless of fundraising status, as long as the fund holds unrealised investments.
Can the fund's statutory auditor also act as the independent valuer?
No, the same entity cannot provide both audit and valuation services for the same fund and period. A separate independent valuer, registered under the Companies (Registered Valuers and Valuation) Rules 2017, must be appointed.
What qualification must the independent valuer hold?
For investments in companies, the valuer should be registered under the Companies (Registered Valuers and Valuation) Rules 2017 in the applicable asset class — securities, or land and building.
Do we need to update our fund's PPM for this change?
If the PPM currently specifies only an annual valuation cycle, it must be updated to reflect the semi-annual cycle, which typically requires investor consent at the next LP meeting.
What are the typical valuation dates under the new cycle?
The circular does not mandate specific calendar dates, but September 30 and March 31 are the most common anchors for FY-aligned funds under the semi-annual requirement.
Does this circular affect Category I and Category III AIFs the same way?
Category I and Category III AIFs operate under separate frameworks within the same master circular; the semi-annual independent valuation requirement discussed here is specific to Category II.
What should investors expect to see change in their reporting?
Investors will receive updated NAV and valuation disclosures twice a year instead of once, with consistent methodology across periods; any methodology change must be disclosed at the Board level.
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