The Securities and Exchange Board of India (SEBI) has issued a circular outlining the migration process for Venture Capital Funds (VCFs) registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996, to the SEBI (Alternative Investment Funds) Regulations, 2012. The amendment, effective July 20, 2024, allows these funds to transition to AIF Regulations, providing flexibility for managing unliquidated investments post-tenure. VCFs seeking migration must submit their original registration certificate and required information by July 19, 2025. The circular details conditions for schemes with both expired and unexpired liquidation periods. VCFs with unresolved investor complaints are ineligible for migration. Additionally, VCFs that choose not to migrate will face enhanced regulatory reporting or potential regulatory action. SEBI has also mandated the surrender of registration by March 31, 2025, for VCFs that have wound up all schemes or made no new investments. The circular emphasizes compliance responsibilities for VCF managers and trustees, ensuring adherence to SEBI regulations. This move aims to streamline the regulatory framework for investment funds and protect investor interests.
Securities and Exchange Board of India
Circular No. SEBI/HO/AFD/AFD-POD-1/P/CIR/2024/111 Dated: August 19, 2024
To,
All Alternative Investment Funds (AIFs)
All Venture Capital Funds registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996 (VCFs)
Sir/Madam,
Sub: Modalities for migration of Venture Capital Funds registered under erstwhile SEBI (Venture Capital Funds) Regulations, 1996 to SEBI (Alternative Investment Funds) Regulations, 2012
1. Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) have been amended and notified on July 20, 2024, to provide flexibility to Venture Capital Funds (‘VCFs’) registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”), for migrating to AIF Regulations and to, inter-alia, avail the facility of dealing with unliquidated investments of their schemes upon expiry of tenure. Copy of the aforesaid notification is available at link.
2. In terms of Regulation 19V(1) of AIF Regulations, “Migrated Venture Capital Fund” means a fund that was previously registered as a Venture Capital Fund under the VCF Regulations and subsequently registered under AIF Regulations as a sub-category of Venture Capital Fund under Category I – Alternative Investment Fund, in accordance with the provisions of Chapter III – D of AIF Regulations.
3. In terms of Regulation 19X(1) of AIF Regulations, an application for seeking registration as a Migrated Venture Capital Fund shall be made to SEBI in the manner specified by SEBI. In this regard, while applying to SEBI for migration to AIF Regulations as “Migrated VCFs”, VCFs shall submit the following:
3.1. Original certificate of registration issued under VCF Regulations. 3.2. Requisite information as per the format specified in Annexure I.
4. While opting for migration to AIF Regulations, VCFs having only schemes whose liquidation period (in terms of Regulation 24(2) of VCF Regulations) has not expired, shall be subject to the following conditions –
4.1. The facility of migration to AIF Regulations shall be available till July 19, 2025.
4.2. The tenure of scheme(s) of the Migrated VCF, upon migration, shall be determined in the following manner:
4.2.1. In case a definite tenure was disclosed in the Private Placement Memorandum (PPM) of the scheme(s) under the VCF Regulations, such scheme(s) shall continue with the same tenure upon migration.
4.2.2. In case a definite tenure was not disclosed in the PPM of the scheme(s), the residual tenure of the scheme(s) of the Migrated VCF shall be determined prior to the application for migration, with the approval of 75 percent of investors by value of their investment in the scheme(s).
5. While opting for migration to AIF Regulations, VCFs having at least one scheme which has not been wound up post expiry of its liquidation period (in terms of Regulation 24(2) of VCF Regulations), shall be subject to the following conditions –
5.1. Such VCFs may apply for registration as Migrated VCF on or before July 19, 2025, only if the VCF or any of its scheme(s) do not have any pending investor complaint with regard to non-receipt of funds / securities as on the date of the application.
5.2. In terms of Regulation 19AF(4) of AIF Regulations, a one-time additional liquidation period of one year from the date of notification of amendment to AIF Regulation i.e., period till July 19, 2025, shall be available to scheme of the migrated VCF, whose liquidation period (in terms of Regulation 24(2) of VCF Regulations) has expired and is not wound up.
5.3. If the VCF also has scheme(s) other than the scheme(s) stated in para 5.2. above, i.e., scheme(s) whose liquidation period (in terms of Regulation 24(2) of VCF Regulations) has not expired, the tenure of such scheme(s) of the Migrated VCF shall be determined as per provision at para 4.2 above upon migration.
6. Upon migration to AIF Regulations, the investors on-boarded, investments held and units issued by the VCF or scheme(s) of the VCF registered under VCF Regulations, shall be deemed to be that of the Migrated VCF or its scheme(s), under the AIF Regulations.
7. The applicability of provisions of SEBI Master Circular for AIFs (Circular No. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/39 dated May 07, 2024) and other circulars issued subsequently under AIF Regulations, to Migrated VCFs are given at Annexure II.
8. Further, with respect to VCFs registered under VCF Regulations that do not opt for migration to AIF Regulations, the following is specified –
8.1. Scheme(s) of VCFs, whose liquidation period (in terms of Regulation 24(2) of VCF Regulations) has not expired, shall be subject to enhanced regulatory reporting as may be prescribed by SEBI in line with the regulatory reporting applicable to AIFs under AIF Regulations.
8.2. VCFs having at least one scheme whose liquidation period (in terms of Regulation 24(2) of VCF Regulations) has expired shall be subject to appropriate regulatory action for continuing beyond the expiry of their original liquidation period.
9. The flexibility to opt for migration to AIF Regulations shall not be available to VCFs wherein –
9.1. All the schemes of the VCF have been wound up; and/or,
9.2. No investment has been made by schemes of the VCF which have not been wound up.
Such VCFs shall submit an application to SEBI for surrender of their registration on or before March 31, 2025, failing which appropriate action shall be initiated to cancel the certification of registration.
10. The manager, trustee and key management personnel of the VCF/Migrated VCF and manager shall be responsible for compliance with the provisions of this circular.
11. The trustee/ sponsor, as the case may be, shall ensure that the ‘Compliance Test Report’ prepared by the manager in terms of Chapter 15 of SEBI Master Circular for AIFs, includes compliance with the provisions of this circular.
12. This circular shall come to force with immediate effect.
13. This circular is issued with the approval of the competent authority.
14. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 36, Regulation 39(2) of AIF Regulations and Regulations under Chapter III D of AIF Regulations, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
15. The circular is available on SEBI website at www.sebi.gov.in under the categories “Legal framework – Circulars” and “Info for – Alternative Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Tel no.: +91-22-26449222
[email protected]
