SEBI Notifies Amendments to Alternative Investment Funds Regulations, 2012 [Read Notification]

These amendments introduce necessary changes to the SEBI (Alternative Investment Funds) Regulations, 2012, focusing on co-investment structures, angel funds..etc.

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The amendment introduces and modifies key definitions:

• Co-investment is now defined as investments by managers, sponsors, or investors of Category I or II AIFs in unlisted securities of companies where the fund invests.
• A new definition of “Co-investment Scheme” has been added, covering schemes that allow such co-investments.
• The concept of a “Shelf Placement Memorandum” has also been introduced, to be filed by AIFs for launching co-investment schemes.

A new Regulation 17A lays down conditions for co-investment by Category I and II AIFs:

• Co-investment must be made either through a co-investment scheme or a Co-investment Portfolio Manager.
• A shelf placement memorandum must be filed with SEBI before offering such schemes.
• Each co-investment scheme must invest in only one investee company and cannot invest in other AIF units.
• Only accredited investors are eligible to participate.
• The terms of co-investment cannot be more favourable than those of the AIF, and exits must be simultaneous with the fund’s exit.
• Such schemes must be wound up upon exit.

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Changes have been introduced for Angel Funds:

• Angel funds shall raise money only from accredited investors by issuing units. Key management personnel of the fund or its manager may also invest.
• The requirement of minimum investment thresholds for angel investors has been removed.
• Angel funds must onboard at least five accredited investors before the first close.
• A new requirement mandates filing a placement memorandum with SEBI through a merchant banker, with comments incorporated before circulation.
• Angel funds are restricted from launching multiple schemes; they can only raise funds directly.
• Investments can be made only in startups not promoted by large corporate groups (with turnover above ₹300 crore).
• Each investment must involve at least two accredited investors, with restrictions on related-party contributions.

Other important amendments include:

• Angel funds may make follow-on investments in their existing investee companies even after they cease to qualify as startups, subject to SEBI conditions.
• Managers must disclose investment opportunities to all angel investors and follow a defined allocation methodology.
• Investors’ rights and proceeds distribution will be strictly on a pro-rata basis.
• The definition of “related party” has been aligned with SEBI (LODR) Regulations, 2015.
• AIF managers are prohibited from providing advisory services outside co-investment schemes or portfolio managers.

The amendment also revises fee structures and filing requirements:

• A ₹1,00,000 fee is prescribed for filing a shelf placement memorandum for co-investment schemes.
• A similar fee applies for refiling an angel fund placement memorandum under Regulation 19D(7).
• Angel funds must comply with refiling requirements if they fail to declare their first close in time.

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