Sebi has proposed relaxing investment norms for Category II Alternative Investment Funds (AIFs), allowing them to invest in listed debt securities with a credit rating of ‘A’ or below. This move addresses concerns from AIF industry associations regarding a decline in unlisted debt opportunities following recent amendments to Listing Obligations and Disclosure Requirements (LODR) that require all non-convertible debt securities to be listed. The consultation paper suggests that over 50% of AIFs’ investments be in unlisted or lower-rated listed securities. Public comments on the proposal are invited until February 28, reflecting the need for AIFs to manage liquidity and credit risks effectively.