In a move that will ensure better global returns to Indian
investment funds, greater exposure to the international market
practices and increased indirect benefits to the domestic market,
SEBI has by a circular dated October 1, 2015, amended an earlier
circular dated August 9, 2007, thereby increasing the percentage of
permissible investments by venture capital funds ("VCFs")
which were registered under the now repealed SEBI (Venture Capital
Fund) Regulations, 1996 ("VCF Regulations"), in foreign
companies whose shares are not listed on any of the recognized
stock exchanges in India or abroad ("Offshore Venture Capital
Undertakings"), from 10% (ten percent) to 25%
(twenty five percent) of their investible funds.
The SEBI (VCF) Regulations, 1996 were replaced by the SEBI
(Alternative Investment Funds) Regulations, 2012
The RBI had, by its circulars dated April 30, 2007 and May 4,
2007 ("Earlier Circulars") permitted investment by VCFs
in equity and equity-linked instruments of off-shore venture
capital undertakings, subject to an overall limit of US$
500,000,000 (United States Dollars Five hundred million)
and SEBI regulations issued in this regard. Vide a circular dated
December 9, 2014, RBI permitted alternative investment funds
("AIFs"), registered under and regulated by the AIF
Regulations, 2012 to make such investments as prescribed under the
Earlier Circulars. Under the abovementioned SEBI circular of
October 1, 2015, AIFs can now invest up to 25% (twenty five
percent) of their investible funds in Offshore Venture Capital
The overall limit of US$ 500,000,000 (United States Dollars
Five hundred million) is a combined limit for AIFs registered
under the AIF Regulations and VCFs registered under the VCF
Regulations. Prior approval of SEBI is required for all such
investments and the allocation of investment limits is done by
SEBI, on a 'first come-first serve' basis, depending on the
availability in the overall limit. A time limit of 6 (six) months
from the date of approval from SEBI is give, for making the
Some of the conditions prescribed under the October 1, 2015 SEBI
circular, for making investments in Offshore Venture Capital
1. The Offshore Venture Capital Undertakings shall have an
Indian connection, such as a company which has a front office
overseas, while back office operations are in India;
2. The AIF / VCF shall not invest in a joint venture / wholly
owned subsidiary while making overseas investments;
3. The AIF / VCF shall adhere to regulations under the Foreign
Exchange Management Act, 2000 and other guidelines specified by RBI
from time to time with respect to any structure which involves
foreign direct investment under overseas direct investment
4. The AIF / VCF shall comply with all requirements under RBI
guidelines on opening of branches / subsidiaries / joint venture /
undertaking investment abroad by non- banking financial companies,
where more than 50% (fifty percent) of the funds of the AIF / VCF
has been contributed by a single NBFC.
This is a welcome move, given the high incidence of Indian
entrepreneurs establishing their businesses outside India, with
back end operations and branches in India. By allowing a higher
quantum of the funds of VCFs and AIFs to be invested in overseas
concerns of this nature, there is likely to be a positive spillover
effect within the country.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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