New Delhi, June 17 -- Alternative Investment Funds (AIFs) are urging the market regulator to roll back rules requiring investors to be treated strictly on a pro-rata basis, arguing that the framework undermines fee arrangements negotiated by investors, complicates fund operations and could deter large investors critical to private-market fundraising.

Several industry representations have been submitted to the Securities and Exchange Board of India (Sebi) seeking a reversal of the rules introduced nearly two years ago, according to three people familiar with the matter.

"It's an impossible ask because Sebi's prescription goes against how an AIF works," said the one of the three people cited, requesting anonymity. "We are actively discuss...