Registration of Venture Capital/Angel Fund under AIF Regulations

SEBI (Alternative Investment Funds) Regulations, 2012

Definition as per SEBI―Alternative  Investment  Fund, AIF Regulations 2012, means  any  fund  established  or  incorporated  in India in the form of a trust or a company or a limited  liability  partnership  or  a body corporate which, is a privately   pooled investment vehicle which collects funds from investors, whether  Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and (ii) is not covered under the  Securities and Exchange Board of  India (Mutual Funds)   Regulations,   1996,   Securities and Exchange Board of India (Collective   Investment   Schemes)   Regulations,   1999   or   any   other regulations of the Board to regulate fund management activities:

Provided that the following shall not be considered as Alternative  Investment Fund for the purpose of these regulations –

1. Family  trusts  set  up  for  the  benefit  of   relatives‘  as  defined  under Companies Act, 1956;
2. ESOP  Trusts  set  up  under  the  Securities  and  Exchange  Board  of  India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999 or as permitted under Companies Act, 1956;
3. Employee  welfare  trusts  or  gratuity  trusts  set  up  for  the  benefit  of employees;
4. Holding  companies‘  within  the  meaning  of  Section  4  of  the  Companies Act, 1956;
5. Other special purpose vehicles not established by fund managers, including securitization trusts, regulated under a specific regulatory framework;
6. Funds  managed  by  securitization  company  or  reconstruction  company which is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
7. Any such pool of funds  which is directly regulated by  any other regulator in India;

Registration Compulsory after commencement of the Act:

Within the period of six months from the commencement of the Act all the existing fund failing within this definition required to get apply for the registration of the same. This period can be extended for the further period up to a maximum of twelve months from the date of commencement of the act provided that existing schemes will be allowed to complete their agreed tenure, such funds shall not raise any fresh monies other than commitments already made till registration is granted.

Exemption to the Investment firms:

1. Existing funds, which do not propose to accept any fresh commitments after commencement of these regulations shall not be required to obtain registration under these regulations subject to submission of information on their activities to the Board in the manner as may be specified.
2. If such existing funds are not able to comply with conditions specified, they may apply for exemption to the SEBI from strict compliance with these regulations and the SEBI upon examination may provide such exemptions or issue such instructions as may be deemed appropriate.
3. Venture Capital Fund (VC) registered with SEBI Act shall continue to be regulated by the said regulation till the existing fund wound up and not launch any new scheme after notification. The existing fund will not increase target corpus of the fund or Scheme. The VC may seek re-registration subject to the approval of 2/3 of the investor’s value of their investments. See how to register as a venture capital fund.

No entity or person will act as an Alternative Investment Fund unless it has obtained a certificate of registration from the Board, any person or entity fails to make application
for grant of a certificate within the period specified therein shall cease to carry on any activity as an Alternative Investment Fund.

CATEGORIES UNDER AIF

The person or entity can seek registration under following categories:

A. Category I Alternative Investment Fund, which invests in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other Alternative Investment Funds as may be specified;

Explanation
─ For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as ―venture capital company or ―venture capital fund as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961

B. Category II Alternative Investment Fund‖ which does not fall in Category I and III and which does not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in these regulations

Explanation
─ For the purpose of this clause, Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator shall be included.

C. Category III Alternative Investment Fund‖ which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

Explanation
─ For the purpose of this clause, Alternative Investment Funds such as hedge funds or funds which trade with a view to make short-term returns or such other funds which are open-ended and for which no specific incentives or concessions are given by the government or any other Regulator shall be included.

How to get registered as an Alternative Investment Fund

1. The Applicant for grant of registration as an Alternative Investment Fund under SEBI (Alternative Investment Funds) Regulations, 2012 should make an application to SEBI in Form A as provided in the Regulations along with all the necessary documents.
2. Generally on receipt of Application, the applicant will receive a reply from SEBI within 21 working days. The time taken for registration however, depends on how fast the requirements are complied with by the applicant.
3. The applicant is advised to go through the SEBI (Alternative Investment Funds) Regulations, 2012 for checking the eligibility criteria and such other details which may help expedite the registration process.
4. The applicant must mention in the covering letter as to whether:
   1. It is registered with SEBI as a Venture Capital Fund. If yes, provide details.
   2. It has been undertaking the activities of an AIF prior to such application. If yes, provide details.
   3. It is applying for registration of a new fund.
5. As an integral part of the registration process, the applicant will submit the following
   1. Form An appropriately filled, numbered, duly signed and stamped.
   2. Application fees of Rs.1,00,000/- by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
6. The applicant shall also make an online application in terms of the guidelines as prescribed by SEBI from time to time.

Grant of Certificate of Registration

1. SEBI shall take into account requirements as specified in the Regulations for the purpose of considering grant of registration. If satisfied that the applicant fulfills the requirements as specified in the Regulations, SEBI shall approve the application and inform the applicant of the same.
2. On receipt of approval from SEBI, the applicant must pay registration fee of Rs.5,00,000/- (If applicant is not registered with SEBI as a Venture Capital Fund) / Re- registration fees (If applicant is registered with SEBI as a Venture Capital Fund) of Rs. 1,00,000/- to SEBI by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
3. On receipt of registration/ re-registration fees, SEBI will grant the applicant the certificate of registration as an Alternative Investment Fund.

Post- Registration compliance

1. Once registered, the AIF must comply with the reporting requirements as specified by SEBI from time to time.
2. The AIF must regularly check the SEBI website for any updation/ circulars/ guidelines issued from SEBI from time to time with respect to the AIF activity.
3. The AIF must intimate to SEBI any material change in the details already furnished to SEBI within a reasonable period of time.

Post- Registration compliance

1. “The applicant” means the entity seeking registration as an Alternative Investment Fund
2. Application which is incomplete or without the necessary documents/ information/declarations would not be accepted and would be treated as not filed. However, intimation to this effect will be provided to the applicant within a reasonable period of time.
3. Applications involving policy decisions or other considerations might get delayed in processing and in getting registration approvals.Venture capital fund registration gives your aspirations & ideas wings to make your venture work. Venture Capital is a kind of private equity capital offered by outside investors to new businesses. Thus, to foster this process, Muds Management is there to assist you through the in’s & out’s of venture capital fund registration. Contact us for more details
4. Documents/annexure submitted along with the application need to be numbered and duly signed.
5. In case of an Authorized signatory, please submit an authorization letter from the Directors/Trustees/Designated Partners of the Fund.
6. The application in Form A, application fees along with all the necessary information as enumerated above will be addressed to

The Deputy General Manager,

Division of Funds-1,

Investment Management Department, Securities and Exchange Board of India (SEBI), SEBI Bhavan,

Plot No. C4-A, “G’ Block,

Bandra Kurla Complex, Bandra (East), Mumbai – 400051

RECENT AMENDMENT IN THE AIF FUND:

Securities Exchange Board of India (“SEBI”) in its Board Meeting on 23rd November 2016 has approved the following amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 with respect to ‘Angel Funds’. Broadly the proposed amendments are as follows:

1. The upper limit for number of angel investors in a scheme is increased from 49 to 200.
2. The definition of start-up for Angel Funds investments will be similar to the DIPP definition as given in the DIPP start-up policy. Accordingly, Angel Funds will be allowed to invest in start-ups incorporated within five years.
3. The requirements of minimum investment amount by an Angel Fund in any venture capital undertaking is reduced from 50 lakhs to 25 lakhs.
4. The lock-in requirements of investment made by Angel Funds in the venture capital undertaking is reduced from 3 years to 1 year.
5. Angel Funds are allowed to invest in overseas venture capital undertakings upto 25% of their investible corpus in line with other AIFs.

The above proposed amendments will come into effect upon necessary amendments in the SEBI (Alternative Investment Funds) Regulations, 2012.

 

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