Home / Markets / Stock Markets /  SEBI amends AIF rules for flexible investment, streamlined regulatory processes

The board of Securities and Exchange Board of India (SEBI) has approved amendments to the regulations for alternative investment funds (AIFs) during the meeting held on Friday. The changes are meant to ease compliance for AIFs, provide investment flexibility and streamline regulatory processes.

As per the amendments to SEBI (Alternative Investment Funds) Regulations, 2012, Category I AIF - Venture Capital Funds (VCFs) will have to invest at least 75 per cent of 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.

The existing investment restrictions on the residual portion of investable funds of VCFs have been done away with, SEBI noted in a statement after the board meeting.

The minimum amount of grant of 25 lakh stipulated for Category I AIFs –Social Venture Funds shall not apply to grants received from accredited investors.

AIFs can also issue partly paid up units to investors to represent the portion of committed capital invested.

The regulator has also stipulated that AIFs will have to file private placement memorandum with SEBI through registered merchant bankers.

AIF refers to any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

AIFs are divided into three categories: Category I comprising angel funds, social impact funds, SME funds and infrastructure funds; Category II comprises private equity, venture capital and debt funds; and Category III funds typically invest in public markets such as hedge funds.

As per SEBI data, AIFs saw commitments worth 82,228 crore in FY21 from Institutions, family offices and high net-worth individuals. The commitments came as investors were looking to diversify their holdings and exploit opportunities from the pandemic-induced dislocations, such as rapid adoption of digital modes of business, which led to rapid expansions by tech start-ups.

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