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SEBI has allowed venture capital funds registered before AIF regulations came into picture to migrate to the existing regulation by becoming migrated venture capital funds.
These funds were registered under SEBI Venture Capital Funds Regulations, 1996. These funds will now have an option to migrate to SEBI AIF Regulations 2012.
Experts believe that the move will held old VC funds to liquidate their illiquid assets as the SEBI AIF regulations allows extension to deal with such assets.
The regulator has also issued guidelines for the eligibility criteria, investment, subscription and listing for these migrated funds.
Eligibility criteria
- The fund applying for migration must have a certificate of registration as venture capital fund under SEBI Regulations (Venture Capital Funds), 1996
- The applicant cannot have any complaint pending regarding the non-receipt of funds for any of its illiquid assets
- All schemes by the applicant must have a minimum investment of Rs. 5 lakh from each investor
- Each scheme of the applicant must have a minimum commitment amount of Rs. 5 crore
Regulations regarding subscription & subscription agreement
- A migrated venture capital fund cannot issue advertisements or documents to invite offers from investors for the purchase of its units
- A migrated VCF can only receive funds through private placement of its units
- The migrated fund has to issue a placement memorandum which has details of the terms and conditions based on which funds are raised, details of trustees & directors of the fund, tax implications for the investors, details of entitlement of the fund’s units, period of maturity, details of the fund manager or AMC and fees paid to them, details about distribution of profit, details about the performance of the fund and investment strategy of the fund. The fund is required to share this memorandum with SEBI
Regulations regarding investment by the migrated VCF
- The migrated VCF can invest a maximum 25% of its corpus in a single undertaking
- The migrated fund can invest in foreign companies following the regulations issued by SEBI and RBI
- The migrated fund cannot invest in associated companies
- At least 66.67% of the funds have to be invested in unlisted equity or equity related instruments
- A maximum of 33.33% of funds can be invested by subscription to the IPO of a venture capital undertaking, debt or debt instruments of the companies in whose equity instruments the fund has already invested, preferential allotment of equity shares with a lock-in of one year, equity shares or instruments of a financially weak company which has lost more than 50% of its net worth at the beginning of the previous financial year and special investment vehicles created by the VCF to promote investment
- The migrated VCF can enter in an agreement with a merchant bank to get subscribers for its unsubscribed portion of the issue or to receive or deliver securities
Regulations regarding new schemes & tenure
- A migrated VCF cannot launch any new scheme
- A migrated VCF can extend its tenure up to a maximum of two years subject to the approval of a minimum two-thirds of the unit holders
- In the absence of consent of two-thirds of unit holders, the scheme will be wound up
- If the assets of a scheme are illiquid after the end of its tenure under old regulations, then such assets can get additional liquidation period after becoming migrated VCFs
Regulations regarding listing & maintenance of records
- Migrated VCFs cannot list their units on a recognised stock exchange till three years from the date of issuance of its units
- The migrated VCFs have to maintain their records till a period of 8 years after the end of their tenure