India, as a developing economy, is well prepared to receive investments. Moreover, many corporations have left China in search of alternative business investments due to public discontent over the Chinese government’s pandemic containment policies. As a result, it is fair to say that the pandemic has offered India a perfect chance to attract foreign investment. It should be emphasised that this has manifested in certain ways since FDI equity investments in the economy increased by 168 per cent in the last quarter.
SEBI has scaled up its investment accommodation strategy to make the investment environment more accommodating. The Securities and Exchange Board of India recently approved certain accommodating amendments to the rules during a meeting. These rules were put in place to make it easier for alternative investment funds to operate in the economy. It’s worth noting that the SEBI’s regulations would make it easier for Alternative Investment Funds to comply. On the other hand, by allowing for greater ease of compliance, such regulations will encourage investment flexibility, resulting in increased investment and streamlined regulatory processes.
Comparing the recent announcement to the previous archaic regulations, it is important to keep in mind that, under SEBI’s amendments to the Alternative Investment Funds Regulations 2012, Venture Capital Funds will be required to invest at least 75% of their investable funds.
However, SEBI has allowed certain exemptions to alternative investment funds as part of a partial relief package. These exemptions apply to the investment committee. In addition, it should be noted that AIF members of an investment committee will no longer be held accountable for any investment decisions under the new rules.
As previously stated, compliance will be made flexible because members of the committee will not be held accountable for the AIF investments’ compliance. Instead, this will be about the governing documents, regulatory regulations, and other laws that apply. This will significantly reduce the burden on AIF investments, which are expected to see inflows in the coming months.
As a result of the recent amendments, existing investment restrictions in Venture Capital Funds’ investable funds will be happily lifted. According to the updated rules, Social Venture Funds that result in a grant of a minimum $25 lakh, which is required for Category I AIFs, are no longer applicable.
However, such exemptions are subject to certain conditions. For example, the AIF rule exemption is now conditional on capital commitment, according to recent revisions. As stated previously, the rule stipulates that a suitable waiver accompanies each investor’s capital commitment of at least 70 crores.
However, the exclusions are confined to an AIF in which each investor, other than the sponsor, directors, management, and staff of the AIF or employees, has effectively and firmly committed to investing not less than 70 crores. This is what places certain conditions on investments, which might be an obstacle to investment promotion. Second, the waiver for the AIF has been provided regarding compliance with the clauses mentioned above and is effective in the manner stated by the board. As a result, even with investment promotion, certain conditions have been placed.
Yet, it should be remembered that such investment promotion is done in stages. SEBI passed two modifications in October 2020 that changed the AIF regulations. This served as a proposal and regulation for members of the investment committee to share responsibilities. The investment manager was to share these tasks. This has been done to improve the system’s efficiency and accountability, as only fund managers were previously held accountable for investment decisions.
Hence, it is reasonable to conclude that such an amendment created an accommodating possibility for equal accountability for members of the investment committee and investment managers concerning AIF investment decisions.
AIF will also comply with the regulations as a result of this shared accountability. This will also make compliance with the private placement memoranda and applicable law more manageable.
Examining the newer regulations, the newer AIF fund, a privately pooled investment vehicle that emphatically and effectively collects funds from foreign or Indian investors and is established or incorporated in India, will invest following a defined investment policy. This will effectively benefit its investors, and it can thus be argued that such amendments have resulted in the safeguarding of investors’ rights, which will once again foster confidence and call for increased investment inflows into the economy.
According to SEBI data, such regulations caused AIFs to see an increase in commitments totaling 82,228 crores in the financial year 2021. Family offices, institutions, and high-net-worth individuals have all made such investments.
The Amendment Regulations can be seen as a move toward more lenient regulatory regimes for skilled investors, putting India in line with other global financial centers. It’s a welcome move. Furthermore, SEBI’s proposed amendments appear to give Investment Managers additional flexibility in making investment decisions.