The Securities and Exchange Board of India (Sebi) has issued a clarification regarding the compliance requirements for asset management companies (AMCs) managing alternative investment funds (AIFs). According to Sebi, each AIF scheme must independently meet stringent diversification criteria, which mandates at least 20 investors with no single investor holding more than 25% of the fund's corpus. This compliance assessment is to be conducted at the scheme level rather than at the overall fund level. Sebi's guidance, provided in an informal letter to UTI Alternatives, indicates that AIFs qualify as pooled assets under mutual fund regulations, thus triggering these requirements. Furthermore, the clarification restricts the flexibility of master-feeder fund structures, stating that both master and feeder funds must meet the broad-based requirement independently. Additionally, Sebi has denied extending certain exemptions available to foreign portfolio investors (FPIs) to domestic entities such as banks and insurance companies, emphasizing that these entities operate under separate regulatory frameworks. This stricter regulatory approach aims to ensure that AMCs cannot bypass investor diversification norms through complex structures.