New Delhi, May 30 -- A lukewarm response from venture capital funds with active investment vehicles governed by legacy regulations to migrate to the Securities and Exchange Board of India's (SEBI) new regulatory framework has prompted the industry body to urge prompt action.
In August 2024, SEBI had directed legacy funds that are registered as Venture Capital Funds (VCFs) under the erstwhile Venture Capital Funds Regulations, 1996, to take up a one-time option to migrate into the Alternative Investment Fund (AIF) system through its migration framework. The framework allowed VCFs to transition to Migrated Venture Capital Funds, a newly introduced sub-category under Category-I AIFs.
"Despite the regulatory clarity and incentives provided under this framework-including a simplified, re-registration process, fee waivers, and tailored compliance requirements- the response to the said scheme is understood to be tepid. This low uptake is a cause for concern," Indian Venture and Alternate Capital Association (IVCA) said in a statement on Friday.
The capital markets regulator had detailed the migration process on August 19, 2024, and had set a deadline for July 19, 2025, for the applications.
The eligible entities for the migration include funds whose liquidation period had not expired and those who are still holding unliquidated investments with expired schemes. SEBI also directed the VCFs, who have wound up their schemes or made no investments, to formally surrender their registration.
Currently, venture capital and private equity funds are governed by Alternative Investment Funds (AIF) Regulations introduced in 2012 that replaced the VCF Regulations of 1996. The AIF Regulations offer a more comprehensive and flexible regulatory environment addressing limitations of VCF regulations in managing unliquidated investments, especially after the expiry of their tenure.
"This is a critical regulatory window for legacy VCFs to realign with the current AIF framework," said Rajat Tandon, President of IVCA. "We urge all concerned VCFs to evaluate this option without delay."
The migration framework introduced by SEBI not only offers operational clarity but also provides a structured path for managing residual assets and ensuring regulatory compliance, he added.
As of June 2024, SEBI's data indicated cumulative investments of Rs 3,653 crore across various sectors. Currently, there are about 164 such vehicles registered as VCFs, according to SEBI's website.
Published by HT Digital Content Services with permission from VC Circle.