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SEBI signals more flexibility for angel and venture funds investing in startups

The Securities and Exchange Board of India (SEBI) proposes to remove certain restrictions and provide regulatory flexibility for venture capital and angel funds investing in startups. As per SEBI's AIF Regulations, venture capital funds are those that invest in "in new products, new services, technology or intellectual property right based activities or a new business model." These Cateogory I AIFs also receive tax benefits and incentives from the government since they "are generally perceived to have positive spillover effects on economy," it said. The board of the markets regulator on Thursday approved to amend regulations for Alternative Investment Funds (AIFs), bringing in five changes to the  regulations, impacting venture capital funds and angel funds in particular: Introduce the definition of 'startups' as specified Government's into the AIF regulations for angel funds Allowed venture funds to invest in sectors that were earlier restricted Provide clarity on scope of responsibilities of managers and members of Investment Committees Prescribe a Code of Conduct to be followed by all AIFs, their management and investment committees. Allow AIFs, including Fund of Funds, to invest in units of other AIFs and directly in securities of investee companies. Last week, the Finance Ministry amended the AIF regulations allowing provident, superannuation, and gratuity funds to invest up to 5% of their corpus in units issued by AIFs, including venture capital funds. This would attract some long-term institutional capital for all AIFs Incentives for angel and venture funds Category I AIFs are infrastructure funds, SME funds, venture capital funds,…

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