Evergreen / Perpetual AIF Structures — Are They Feasible Under Indian Regulations?

Global private markets have been moving toward evergreen structures for years. The question Indian fund managers keep asking is whether SEBI's AIF framework actually leaves room for one.

What "Evergreen" Actually Means Structurally

An evergreen (or perpetual) fund has no fixed termination date and no single defined investment period — it raises capital, deploys it, and recycles returns back into new investments continuously, with investors entering and exiting through periodic subscription and redemption windows rather than waiting for a fund-wide wind-down. This is a fundamentally different mechanic from the closed-end, fixed-tenure model that has been the default assumption underpinning most of India's AIF Regulations since inception.

Where the Regulations Create Genuine Friction

Category I and Category II AIFs are, by regulatory design, closed-ended with a defined tenure — this isn't a drafting default that managers can structure around, it's a specific requirement under the AIF Regulations for these categories. Category III AIFs are the one category SEBI permits to be open-ended, which is precisely why most of the evergreen-structure conversation in India centres on Category III rather than the growth and private-equity-style Category I/II funds where global evergreen products (like continuation vehicles and perpetual-capital PE structures) are most common internationally.

What's Actually Achievable Today

Within a Category III open-ended structure, an AIF Manager can build something functionally close to an evergreen vehicle — periodic subscription/redemption windows, an ongoing investment mandate without a hard termination date, and NAV-based entry/exit pricing. What it cannot replicate is the Category I/II tax pass-through treatment or the specific regulatory postures (lower leverage constraints, sector-specific incentives) available to closed-ended categories — an open-ended Category III structure trades tenure flexibility for a different, generally less favourable, tax and leverage regime.

The Continuation-Fund Route as a Partial Workaround

For managers wanting evergreen-style capital recycling within a Category I/II closed-ended structure, SEBI's 2024 framework for dissolution periods and continuation-fund mechanics (permitting a fund nearing the end of its term to roll unsold assets into a follow-on vehicle with investor consent, rather than forcing a distressed liquidation) offers a partial answer — not true perpetuity, but a mechanism to extend a fund's economic life beyond its originally stated tenure when unsold assets remain. Our companion piece on GP-led secondaries and continuation funds covers this mechanism in more depth.

Recycling Provisions as Another Partial Bridge

Recycling provisions — allowing a fund to reinvest early exit proceeds into new investments during the investment period rather than distributing them immediately — get managers part of the way to an evergreen-style capital efficiency outcome without abandoning the closed-end structure altogether. This is a narrower, already-established tool compared to a genuine perpetual structure, but it's available today without waiting for a regulatory framework that doesn't yet exist for Category I/II funds.

Where This Is Likely Headed

Global institutional appetite for evergreen private-market products is a trend SEBI is aware of, and the 2024 dissolution-period reforms suggest a regulator willing to build flexibility into the closed-end model incrementally rather than importing a wholesale open-ended structure into Category I/II. Managers with a genuine evergreen ambition should watch this space rather than assume the current Category III route is a permanent ceiling.

Structuring for What's Actually Available Today

An evergreen ambition needs to be matched against what SEBI's categories genuinely permit today — Category III open-ended, dissolution-period extensions, or recycling provisions within a closed-end fund — rather than assuming a global structure translates directly. We help managers map their capital-recycling goals against the regulatory options actually available under Indian law.

This article is for general informational purposes and does not constitute regulatory or structuring advice specific to any fund.

CA Anuj Desai