SEBI modifies AIF guidelines to allow for more flexible investment and simplified regulatory processes

During a meeting on Friday, the Securities and Exchange Board of India (SEBI) approved amendments to the regulations for alternative investment funds (AIFs). The revisions are intended to make it easier for AIFs to comply with regulations, increase investment flexibility, and streamline regulatory processes.

According to the SEBI (Alternative Investment Funds) Regulations, 2012, Category I AIFs – Venture Capital Funds (VCFs) must invest at least 75% of their investable funds in unlisted equity shares and equity linked instruments of venture capital undertakings, or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange.

Grants received from accredited investors are exempt from the $25 lakh minimum grant requirement for Category I AIFs –Social Venture Funds.

AIFs can also sell partially paid up units to investors to represent the amount of committed capital they have invested.

AIFs must also file a private placement memorandum with SEBI through registered merchant bankers, according to the regulator. Any fund established or incorporated in India is referred to as an AIF. An AIF is a privately pooled investment vehicle that collects funds from sophisticated investors, both domestic and international, for the purpose of investing them in accordance with a defined investment policy for the benefit of its investors.

Angel funds, social impact funds, SME funds, and infrastructure funds are classified as Category I AIFs; private equity, venture capital, and debt funds are classified as Category II AIFs; and hedge funds are classified as Category III AIFs.

According to SEBI data, AIFs received 82,228 crore in commitments in FY21 from institutions, family offices, and high-net-worth individuals. Investors were trying to diversify their holdings and take advantage of opportunities arising from pandemic-related disruptions, such as the increased adoption of digital business models, which led to rapid growth of tech start-ups.

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