The Securities and Exchange Board of India (SEBI) has announced a revised regulatory framework for Angel Funds under the Alternative Investment Funds (AIF) Regulations, 2012. The changes, notified on September 9, 2025, aim to improve ease of doing business, reduce risks, and provide operational clarity for such funds.

As per the circular, Angel Funds can now raise money only from Accredited Investors. Funds registered after the circular must on-board only Accredited Investors, while existing funds have until September 8, 2026, to comply. These funds cannot offer opportunities to more than 200 non-Accredited Investors during the transition. At least five Accredited Investors must be on-boarded before declaring the first close, which should occur within 12 months of SEBI’s communication.

Investments must be made directly by Angel Funds, without launching schemes. Term sheet filings with SEBI have been discontinued, though records must be maintained. Follow-on investments in existing portfolio companies are permitted, capped at ₹25 crore per company. Such investments must be proportionate to original contributions. A one-year lock-in will apply, reduced to six months in cases of third-party sales.

The framework also permits overseas investments subject to Reserve Bank of India and SEBI guidelines. Managers must disclose a fixed allocation methodology in their Private Placement Memoranda, effective October 15, 2025. Investor rights and distributions will remain strictly pro-rata, except where carried interest applies.

Further, Angel Funds will now be treated as Category I AIFs in their own right. They must undergo annual audits if investments exceed ₹100 crore and report valuation and cash flow data to benchmarking agencies. These requirements apply from FY 2025-26 onwards.

SEBI said the circular takes effect immediately, with trustees and sponsors responsible for compliance oversight.