Sebi moves to widen participation on Social Stock Exchange

The Securities and Exchange Board of India (Sebi) has proposed sweeping changes to India’s Social Stock Exchange framework, including sharply lowering the minimum investment in social impact funds (SIFs) and easing fund-raising norms for not-for-profit organizations (NPOs) with an aim to broaden participation and improve capital access.

In a consultation paper issued on Monday, the market regulator recommended reducing the minimum investment by individual investors in SIFs from ₹2 lakh to just ₹1,000, a dramatic cut intended to bring small investors into the social finance ecosystem.

Social impact funds, a sub-category of alternative investment funds, are permitted to invest exclusively in securities issued by not-for-profit organizations listed or registered on the Social Stock Exchange. The exchange, operationalized in FY23, is a regulated platform within the stock exchanges that enables non-profits and social enterprises to raise funds for projects with measurable social impact.

In its paper, Sebi said it seeks to align the minimum investment threshold under the alternative investment funds regulations with the minimum application size for zero coupon zero principal instruments (ZCZPs), prescribed under the Issue of Capital and Disclosure Requirements Regulations.

The minimum application size for ZCZPs was reduced to ₹1,000 in March 2025 to improve investor participation. Lowering the SIF investment threshold, Sebi said, could help channel retail capital into social projects through professionally managed funds.

Social impact funds have seen limited traction from issuers while investments are concentrated among high-net-worth individuals, bringing Sebi's proposal to question.

“Only 1% of the AIF space want to issue social impact funds. For the existing SIFs, there is only interest from big ticket investments. Reducing the minimum investment limit may also open doors to exploitation," said Ranjit Jha, chief executive officer at Rurash Financials.

The consultation paper also proposes easing regulatory constraints for not-for-profit organizations seeking to raise funds through the exchange. At present, an NPO can remain registered on the exchange for a maximum of two years without raising funds. Sebi has proposed extending this period to three years, subject to approval by the exchange.

The regulator said the extension is meant to address practical challenges faced by NPOs, such as delays in income tax registrations and other statutory clearances, which often slow down fund-raising plans.

Another key proposal relates to the minimum subscription requirement for ZCZP issuances by non-profits. Currently, issuances must achieve at least 75% subscription to be considered successful. Sebi has proposed lowering this threshold to 50% for projects where costs and outcomes can be structured and implemented on a clearly identifiable per-unit basis.

The regulator said such flexibility would allow projects to proceed even with partial subscriptions, provided the funds raised can be meaningfully deployed without diluting the stated social objectives.

Sebi's proposals follow a review in consultation with the Social Stock Exchange's advisory committee to strengthen the relatively nascent framework.