The Securities and Exchange Board of India (SEBI) has announced new modalities for the migration of Venture Capital Funds (VCFs) registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996, to the SEBI (Alternative Investment Funds) Regulations, 2012. The move is aimed at providing greater flexibility to VCFs, particularly in dealing with unliquidated investments after their tenure expires. The circular, issued on August 19, 2024, details the conditions and procedures for VCFs seeking to migrate to the AIF framework.

The key highlight is the introduction of the "Migrated Venture Capital Fund" category under the AIF Regulations. This allows VCFs to seamlessly transition to the AIF regime while retaining their existing investments and investor base. The migration process involves submitting an application to SEBI along with specific information about the VCF and its schemes.

The circular outlines different conditions for VCFs based on the status of their schemes' liquidation periods. VCFs with schemes whose liquidation periods have not expired have until July 19, 2025, to migrate. The tenure of these schemes post-migration will either remain the same as disclosed in their Private Placement Memorandum (PPM) or be determined with the approval of 75% of investors by value.

For VCFs with at least one scheme that has not been wound up after its liquidation period, the migration deadline is also July 19, 2025, provided there are no pending investor complaints. These schemes are granted a one-time additional liquidation period of one year from the notification date.

The circular also addresses VCFs that choose not to migrate. Those with schemes whose liquidation periods haven't expired will face enhanced regulatory reporting in line with AIFs. VCFs with expired schemes will be subject to regulatory action. Additionally, VCFs that have wound up all their schemes or haven't made any investments must surrender their registration by March 31, 2025.

The applicability of various provisions of the SEBI Master Circular for AIFs and other circulars to Migrated VCFs is also clarified in the circular. It details which chapters and provisions are applicable and which are not.

In essence, the SEBI circular provides a clear pathway for VCFs to transition to the AIF framework, offering them benefits such as extended liquidation periods and access to a wider range of investment opportunities. It also streamlines the regulatory landscape for VCFs and AIFs, ensuring greater transparency and investor protection.

Access the circular, read here.