The Securities and Exchanges Board of India (Sebi) has asked Alternate Investment Funds (AIFs) to not accept any fresh investments in schemes that have adopted a priority distribution model, which benefits one class of investors at the cost of others. The regulator has also prohibited such schemes from investing in a new company. According to Sebi, certain schemes of AIFs have adopted a distribution waterfall that allows disproportional sharing of losses. "It has been brought to Sebi’s attention that certain schemes of AIFs have adopted a distribution waterfall in such a way, that one class of investors (other than sponsor/manager) share loss more than pro rata to their holding in the AIF vis-à-vis other classes of investors/unitholders, since the latter has priority in distribution over the former (‘priority distribution model’)," the regulator said in a circular on Wednesday. According to the circular, while regulations prohibit disproportionate sharing of losses between AIF sponsors and other investors, there is no explicit restriction on such differentiation between different classes of investors.