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SEBI Brings Further Clarifications On Angel Fund Investments

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The Securities and Exchanges Board of India (SEBI) has released new amendments and clarifications to Alternative Investment Funds guidelines that were earlier introduced in June of this year.

According to the gazette notification, angel investors are allowed to be registered as Alternative Investment Funds (AIFs) — a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds.

notification SEBI-001

To ensure that only genuine investments are made, SEBI has restricted investment by such funds between Rs 50 lakh and Rs 5 crore. And the angel funds should have a corpus of atleast Rs 10 crore and should invest a minimum of Rs 25 lakh, just to prevent any scams and mis-selling of schemes.

Also, the companies need to be incorporated in India, should not be older than 3 years and the funds should be invested for a minimum of 3 years to prevent any abuse of the law. The firm in which investment is being made should be unlisted, with a maximum turnover of Rs 25 crore and should not be related to groups with revenue of more than Rs 300 crore.

The fine print also says that the fund should have no connection with the firm being invested in and that no such fund should have more than 49 investors.

In addition, they cannot invest less than Rs 5 million or over Rs 5 crore in a company. Also, an angel fund cannot deploy more than 25 per cent of the total investments under all its schemes in one company. This is because the tax-man is worried that the route of angel investment may be used as a front to launder money.

Finance Minister Mr. P. Chidambaram had announced in the 2013-14 budget that “SEBI will prescribe requirements for angel investor pools by which they can be recognized as Category I AIF venture capital funds.” Under SEBI guidelines, AIFs already have sub-categories such as Venture Capital Funds, Social Funds and SME Funds.

Angel Investors are aptly called the ‘Angels’ as they provide the Entrepreneurs the much needed breakthrough, the kick start they’d need in establishing a startup company. They undertake risks in very early stage businesses. With the Angel network expanding and reaching out to every corner of the country- both rural and urban alike, the Indian Entrepreneurs are up for a new beginning. With SEBI streamlining the guidelines, it has now become easy for investors to know how much and where all they can invest. Angel Funds can tap into the retail HNI market and bring more capital supply into the early stage ecosystem.

I would like to throw open a question to entrepreneurs out there….Is SEBI doing its best to inculcate and support entrepreneurs by merely forming guidelines and norms?

Full Text of Notification

  1. […] SEBI, in recent times, has been taking steps to help startups and SMEs to acquire funds from Capital markets. In June of last year they had released amendments to SEBI Regulations that enabled listing of startups without having an IPO and also released a framework for angel investments in India. […]

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