SEBI Revises Angel Fund Regulations: Accredited Investors Made Mandatory, Investment Capped at Rs. 25 Crore [Read Circular]

Accredited Investors Now Mandatory

• SEBI has made it mandatory for Angel Funds to raise money only from Accredited Investors.
• New Angel Funds registered after the date of this circular must onboard only Accredited Investors from the beginning.
• Angel Funds that are already registered with SEBI have been given a transition period until September 8, 2026, to comply with this requirement. During this time, they are allowed to have up to 200 non-accredited investors but must stop accepting contributions from them after the deadline.

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Limit on Investment and Follow-on Rules

To prevent overexposure to a single company, SEBI has now capped the total investment that an Angel Fund can make in a single investee company at Rs. 25 crore. This includes both initial and follow-on investments.

Follow-on investments (i.e., additional investments in the same company) are allowed only if:

• The post-investment shareholding of the Angel Fund does not exceed its previous shareholding, and
• The same group of investors who participated in the earlier round are involved again, in proportion to their previous contributions.
• If an investor does not wish to participate in the follow-on round, their portion can be offered to the remaining investors of the same fund.

Lock-in Period for Investments

Investments made by Angel Funds will now be subject to a mandatory lock-in period:

• A one-year lock-in applies to most exits.
• A shorter lock-in of six months is allowed if the fund exits by selling to a third party (not including a buyback by the company or purchase by its promoters).

No More Investment Schemes

Under the new rules, Angel Funds can no longer launch separate schemes to attract or pool money for investments. All investments must now be made directly by the fund.

Although term sheets no longer need to be filed with SEBI, Angel Funds must maintain proper internal records, including details of investors who participated and the amount they contributed.

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Clarity on Overseas Investments

SEBI has clarified how Angel Funds can invest in companies based outside India. Such overseas investments are allowed, but they must follow the conditions already specified in SEBI’s AIF Master Circular and guidelines from the Reserve Bank of India (RBI).

A key point is that the 25% limit on overseas investment will now be calculated based on the total investment (at cost) held by the fund at the time of applying for overseas investment approval.

Fair and Transparent Allocation of Investment Opportunities

SEBI has introduced a rule that requires every Angel Fund to define and disclose a fixed method for allocating investment opportunities among investors.

This method must be included in the Private Placement Memorandum (PPM) of the fund. Fund managers are not allowed to use discretion to decide allocation on a case-by-case basis.

From October 15, 2025, all Angel Funds must follow this rule. Investors are to receive profits and returns in proportion to their investment, except where performance-based incentives (like carried interest) are shared with fund managers or sponsors.

Audit, Benchmarking, and Reporting

Two new compliance requirements are introduced:

1. Annual audit of PPM compliance is required if a fund has invested over Rs. 100 crore.
2. Angel Funds must report investment-wise valuations and cash flows to benchmarking agencies. When sharing past performance in any material, the fund must also share the benchmark comparison.

These rules will apply from the financial year 2025-26.

Reclassification and Compliance Monitoring

All Angel Funds will now be treated as a separate category (Category I AIF – Angel Funds), not a sub-category under venture capital funds.

SEBI has clarified that where any investment limit is linked to corpus or investable funds, it will now be calculated based on actual investments made (at cost). The Compliance Test Report must now include confirmation that the fund has followed all provisions of this new circular.

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