AIF AND VCF (Syllabus: GS Paper 3 - Economy)

News-CRUX-10     5th August 2023        

Context: Capital markets regulator SEBI reduced the validity period of approval given to alternative investment funds (AIFs) and venture capital funds (VCFs) for making overseas investments to four months from six months at present. 

Key Points

  • If these funds fail to make investments within this time limit, then SEBI can allocate their unutilized limits to other applicant AIFs and VCs.
  • The decision has been taken considering into account the recommendation of the Alternative Investments Policy Advisory Committee.
  • Under the rule, AIFs and VCFs have a time limit of six months from the date of prior approval from Sebi to making the allocated investments in offshore venture capital undertakings.
  • In case the applicant AIFs and VCFs does not utilize the limits allocated to them within six months then Sebi can allocate such unutilized limit to another applicant.

Alternative investment funds (AIFs)

  • As defined in Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, AIFs refer to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).
  • AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
  • Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.

Venture capital funds (VCFs)

  • According to SEBI, VCF is a fund established in the form of a trust/company including a body corporate and registered with SEBI. 
  • The VCF will have dedicated pool of capital, raised in the specified manner and invested by following regulations of SEBI.
  • The objective of the venture capital financing is to invest in high-risk projects with the anticipation of high returns
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