Sep 20, 2013

SEBI notifies amendments in the AIF Regulations 2012

Share on

SEBI notifies amendments in the AIF Regulations 2012

Considering the importance of the experience and capital that the Angel Investors bring to start-ups and understanding their significance for new entrepreneurs, SEBI has brought a major addition to the SEBI (Alternative Investment Funds) Regulations, 2012 by recognizing Angel Funds as a sub category of Venture Capital Funds (VCFs) under Category – I Alternative Investment Funds (AIFs).

It is understood that investments made by the Angel Investors intrinsically carry a huge risk by virtue of being invested in new ventures that are yet to face the test of time. Therefore, SEBI through the amendment in AIF Regulations notified on 16th September 2013, has separately provided for a complete regulatory framework which would govern such funds and bring due protection to investors constituting their pool.

The provisions with regard to Angel Funds have been included in these Regulations by adding a new chapter III – A, the highlights of which are as follows:

Angel Fund has been introduced as a sub-category of Venture Capital Fund under Category I – Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions prescribed in Chapter III – A.


An angel investor is one who proposes to invest in Angel Funds and satisfies any one of the following conditions:

1. An Individual AND a) Has net tangible assets of at least Rs. 2 Crores excluding the value of his principal residence
b) Has an experience of either:

  • early stage investment; or
  • as a serial entrepreneur; or
  • 10 years as a senior management professional
2. A Body Corporate AND Has a net worth of at least Rs. 10 Crores
3. An AIF AND Is registered under:

  1. SEBI (Alternative Investment Funds) Regulations, 2012;
  2. SEBI (Venture Capital Funds) Regulations, 1996


Angel Funds

Other AIFs

Raising of funds

Issue of units only to angel investors

Issue of units to any investor

Mode of raising funds

Private Placement by issue of information memorandum or a placement memorandum by whatever name called


At least Rs. 10 Crores

At least Rs. 20 Crores

Investment by one Investor

At least Rs. 25 Lakhs from any particular angel investor receivable over a span of a maximum of 3 years

At least Rs. 1 Crore (Rs. 25 Lakhs if the investor is employee/ director of the AIF or its Manager)



Angel Funds

Other AIFs

Filing of placement memorandum with SEBI

At least 10 days prior to the launch of scheme

At least 30 days prior to the launch of the scheme

Scheme Fee

Payment of scheme fees not applicable to schemes launched by Angel Funds

Rs 1 Lakh

Registration Fee

Rs. 2 Lakhs

Rs. 5 Lakhs

Content of scheme memorandum

All material information about the investments proposed under such scheme

SEBI’s comments

Communicated by the Board before the launch of the Scheme and the same shall be incorporated in the memorandum before the launch

No: of investors in a scheme

Not more than 49 angel investors

Not more than 1000 investors




Avenue for Investments

An angel fund shall invest only in venture capital undertakings which:

  • Have been incorporated only during the 3 years preceding the date of investment
  • Have a turnover of less than Rs. 25 Crores
  • Are not promoted/ sponsored by or related to an industrial group whose group turnover exceeds Rs. 300 Crores
  • Are not companies having family connection with any of the angel investors investing in the company

Amount of Investment

The investment by an angel fund in any venture capital undertaking shall not be less than Rs. 50 lakhs and shall not exceed Rs. 5 Crores

Lock – In Period

3 years in the investee company

Restrictions on investments

An Angel Fund shall not invest:

  1. In associates
  2. More than 25% of the total investments in all it schemes in one venture capital undertaking (compliance to this requirements has to be ensured at the end of its tenure)
  3. In units of other Category – I AIFs of same sub category
  4. In securities of companies incorporated outside India

Departure from conditions applicable on VCFs

All the additional investment conditions imposed on VCFs apart from general investment conditions for AIFs shall not be applicable despite the fact that Angel Fund is a sub category of VCF.



Angel Fund

Other AIFs

Continuing Interest in the Fund by Manager or Sponsor

Not less than 2.5 % of the corpus

Not less than 2.5 % of the corpus



Rs. 50 Lakhs

Rs. 5 Crores

Whichever is lower

Whichever is lower (Corresponding values are 5% and Rs. 10 Crores in case of Category III AIF)

Apart from this, the following obligations have been imposed:

  1. On the Manager: To obtain an undertaking from every Angel Investor investing in the fund, confirming his approval for such an investment prior to making such investment.
  2. On the Sponsor: To ensure that the angel investors continuingly satisfy the conditions that makes them eligible as an angel investor.


Units of angel funds shall not be listed on any recognized stock exchange whereas units of other AIFs may be listed after final close of the fund or the scheme.


Any AIF already registered under these regulations but which has not made any investments can apply for conversion of its category if it wishes to operate as an Angel Fund.

The Board apart from bringing provisions with respect to Angel Funds has also brought along some other amendments in the AIF Regulations, 2012, a brief of which is given below:

  1. Clarification with respect to registration of existing funds with characteristics of: Any existing funds which do not propose to accept any fresh commitments after commencement of the AIF Regulations will not be required to obtain registration under the regulations subject to submission of information on their activities to the Board in a specified manner.
  2. Grant of In – Principle Approval: Where the applicant is a trust whose trust deed has not yet been duly registered under the Registration Act, 1908 or is a Limited Liability Partnership but the deed has not yet been submitted to the registrar, but the applicant complies with all the other eligibility criteria, then the Board may grant to it an in-principle approval for registration under the regulations.

    The applicant who receives an in principle approval:

    • Has to comply with all requirements within 6 months
    • May accept commitments from investors but shall not accept monies till the certificate of registration is granted.
  3. Social Venture Funds: The regulations allow social venture funds (a part of AIF category I) to accept grants, 75% of which have to be invested in unlisted securities or partnership interest of social ventures. Now a further condition has been added that the amount of grant accepted from any person shall not be less than Rs. 25 lakhs and that no profits/ gains shall accrue to the provider of such grants.
CP Comments: Impact of the amendment

The amendment brought about by SEBI, not only will provide a substantial regulatory hold over Angel Funds but will ensure that the investment is made for the designated purpose of supporting start-ups by restricting investment of funds in undertakings not more than 3 years old.

Another move that SEBI has made is mandatory diversification of risk in investment by such funds as the Board has restricted the investment by such funds in any venture capital undertaking to between Rs. 50 Lakhs and Rs. 5 Crores. Therefore, such funds will have no other option but to invest elsewhere after a cap of Rs. 5 Crore investment in a particular undertaking has been reached.

SEBI has stayed true to its solemn objective of protecting the investors by recognizing the high risk associated with angel investments and appropriately providing a regulatory framework which also takes into consideration the interest of the angel investors. As far as all the AIFs are concerned, investor approval is required only if the fund manager intends to invest in an avenue lying outside the scope of the fund’s mandate. However, the manager of an Angel Fund will have to seek undertaking from every investor contributing to the fund, confirming its approval for investment in the decided avenue before the investment is actually made. The provision actually takes away discretionary powers from the Managers and may give rise to implementation issues and with more the investors, greater will be the challenge.

These amendments are a yet another step in promoting innovation and entrepreneurship in the country by providing regulated means to channelize funds into budding businesses which hold with them the promise of becoming big employers and GDP earners for the economy.

Request a Call