SEBI (Securities and Exchange Board of India), the regulatory authority on issues pertaining to the market in India, has announced that it will be doubling the investment cap for Venture Capital Funds (VCFs) and Alternative Investment Funds (AIFs). The new limit with be at $1.5 billion, up 100% from the current value of $750 million.
This is the first time that the value has been increased, after it had been set at $750 million for investments overseas, which hourbour an Indian connection, back in 2018. Originally, the cap had been set at $500 million, way back in 2015, when the authority had allowed these funds to invest a maximum of 25% overseas.
Venture Capital and Alternative Investment Funds are welcoming the move, saying that the previous cap was becoming a “bottleneck” of sorts to their overseas investment business, especially in the face of the growing industry. They further added that the new increase in the limit will allow them to make better investments, and in turn, bring back stronger returns to the country, all the while boosting the growth of the AIF industry.
As of December 2020, the AIF industry sat at a valuation of around ₹4.42 trillion, having seen an average compounded growth rate of 491% from December 2012 till then.
The decision to raise the investment limit to $1.5 billion was taken in collaboration with the Reserve Bank of India, and was announced through a circular issued by the market regulator. This comes after the Indian Venture Capital Associatio (IVCA) wrote to the Sebi, requesting an increase in the investment cap. Siddarth Pai, IVCA’s co-chair of Regulatory Affairs, expressed his views on the request, saying, “In a highly globalised world, asset diversification in terms of geographies adds a significant alpha to a fund manager’s performance. In view of this, Sebi allows Indian AIFs to invest up to 25% of their investable corpus overseas.”
As per the current guidelines on overseas investments, in case VCFs and AIFs utilize their overseas investment limits, the same must be relayed to the market watchdog in not more than 5 working days. Additionally, the validity period for utilising the overseas limits stands at 6 months, and should it expire without complete utilisation of the limit, the same too, has to be intimated to Sebi within 2 working days.
For the unversed, Alternative Investment Funds, or AIFs, refer to Funds that have been established or are incorporated in India, and which indulge in obtaining Funds from investors, both in the country and abroad, to fuel a private investment pool. This pool is then utilised to make investments within defined policies, so that maximum benefits can be reaped by the investors.
Venture Capital Funds, or VCFs, on the other hand, are quite similar, and yet a bit different. These too, are pooled investment funds, which make use of the funds raised through investors, to obtain private equity stakes, be it in small and medium-sized enterprises (SMEs), or startups.
