INDIA Trends and Developments Contributed by: Tejesh Chitlangi, Sushreet Pattanayak, Pooja Mehta and Anita Jain, IC Universal Legal
opportunity to the fund manager to imple - ment an exit plan in an efficient manner. This addresses situations where specific invest - ments within a fund cannot be liquidated due to unfavourable market conditions. For instance, certain assets may be difficult to sell without incurring substantial losses, due to a lack of market liquidity. • Encumbrance at investee entity level – the SEBI now permits Category I and II AIFs to create encumbrances on the equity of investee entities for borrowings related to infrastructure projects. The aim is to promote greater invest - ment in the critical infrastructure sector. • Revision of eligibility – criteria the SEBI has revised the eligibility criteria for key invest - ment team members of AIFs, replacing man - datory work experience requirements with certification criteria. At least one member of the key investment team must now pass the NISM Series-XIX-C certification exam. This change lowers the regulatory threshold for first-time fund managers, making it easier for new entrants to join the industry. • Pro rata and pari passu rights for investors – recent regulatory amendments have ensured that investors in AIFs have pro rata rights in each investment and the distribution proceeds from such investment, in line with their capi - tal commitment, ensuring fairness in pooled investment vehicles. Further, these amend - ments mandate that, except as specifically permitted, the rights of all investors in an AIF must be pari passu in all respects. Fund man - agers must now ensure that any side-letter terms being offered to specific investors must be covered within the positive list of differential rights. These regulatory amendments highlight the SEBI’s commitment to enhancing investor protection, and fund managers will need to reassess their operational structures to bal - ance customisation with compliance.
• Migration of Venture Capital Funds – earlier this year, the SEBI introduced guidelines facilitating the migration of Venture Capital Funds (VCFs) registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996, to the AIF Regulations. This initiative aims to provide VCFs with flexibility in managing unliquidated investments upon the expiry of their tenure. VCFs opting for migration must apply to the SEBI. The guidelines specify conditions based on the status of VCF schemes, including provi - sions for tenure determination and additional liquidation periods. Non-migrating VCFs will be subject to enhanced regulatory reporting or potential regulatory action. This move is intended to align older funds with the current regulatory environment, ensuring better inves - tor protection and compliance with updated SEBI guidelines. • Proposed changes to the Angel Fund Regime – The SEBI has suggested raising the upper limit for investments in a single start-up from INR10 crore to INR25 crore, allowing angel funds to support more capital-intensive start- ups. Another proposal is to only allow accred - ited investors to invest through angel funds and to reduce the minimum lock-in period to six months. These changes are designed to adapt to the evolving start-up ecosystem in India, encourage greater participation by investors, and make angel funds more competitive globally while maintaining robust investor protection and regulatory oversight. Retail funds in India Some of the recent regulatory changes intro - duced with respect to the mutual funds industry include the following. • An institutional mechanism for the identifica - tion and deterrence of market abuse, includ - ing front-running and fraudulent transactions
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