The Securities and Exchange Board of India (SEBI) has issued a notification regarding the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2024. This amendment, detailed under notification number SEBI/LAD-NRO/GN/2024/194, introduces significant changes to the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
Overview of the Third Amendment
The amendment, enacted under the powers conferred by various sections of the SEBI Act, aims to update and refine the regulations governing Alternative Investment Funds (AIFs). The key changes include the introduction of a new category of fund—migrated venture capital funds—and specific provisions regarding their registration, reporting, and investment parameters.
Key Changes:
1. Insertion of Migrated Venture Capital Fund Definition
In regulation 2, clause (z) of the 2012 Regulations, the term "migrated venture capital fund" is introduced following "angel fund." This term is defined in the newly added Chapter III-D, marking a significant shift in the categorization and regulation of venture capital funds.
2. Registration and Transition Provisions
Regulation 3 is amended to:
Replace the re-registration requirement with a new provision for migrating venture capital funds. Existing venture capital funds must now register as migrated venture capital funds within twelve months of the amendment's notification.
Introduce a new proviso allowing SEBI to specify enhanced regulatory reporting and measures for venture capital funds opting out of migration.
3. Introduction of Chapter III-D
A new chapter, Chapter III-D, outlines the specifics for migrated venture capital funds:
Definitions for "migrated venture capital fund" and "investable funds" are provided. The chapter specifies that it applies only to migrated venture capital funds and their schemes.
Migrated venture capital funds must apply for registration as a Category I AIF – Venture Capital Fund.
Criteria include prior registration under the 1996 Venture Capital Funds Regulations, proper conduct, and a minimum investment threshold.
Specific conditions are set, including a cap on investments in single ventures and requirements for unlisted equity shares.
4. Prohibitions and Investment Restrictions
Migrated venture capital funds are prohibited from publicly inviting subscriptions or advertisements.
Investments can only be made through private placement.
Restrictions are placed on investments in associated companies and a minimum allocation to unlisted equity shares is mandated.
5. Tenure and Winding Up
The tenure of migrated venture capital funds is defined, with potential extensions up to two years subject to unit holders' approval.
Funds not liquidated by the end of their tenure may be granted additional time for liquidation, with specific conditions.
6. Regulatory and Reporting Requirements
Units of migrated venture capital funds cannot be listed on recognized stock exchanges for three years from issuance.
Funds must maintain records for eight years post-winding up.
Impact on Venture Capital Funds
These amendments are designed to streamline the regulatory framework for venture capital funds, facilitating smoother transitions and clearer guidelines for existing funds seeking to migrate. The enhanced reporting requirements and investment restrictions aim to ensure better compliance and transparency within the venture capital sector.
Conclusion
The SEBI’s third amendment to the AIF regulations marks a significant update to the regulatory landscape for venture capital funds in India. By introducing the concept of migrated venture capital funds and updating registration, reporting, and investment guidelines, SEBI aims to enhance the efficiency and effectiveness of the investment ecosystem.
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