India’s capital market regulator, the Securities and Exchange Board of India (SEBI), is planning to make regulations easier for venture capital (VC) and private equity (PE) funds. These funds have emerged as significant sources of risk capital for businesses often overlooked by public markets and banks.
What Happened? As reported by ET, last week, SEBI announced a “comprehensive review” of regulations to “simplify, ease and reduce the cost of compliance” for these alternative investment funds (AIFs) in an email to about 20 fund officials and senior professionals.
SEBI has requested suggestions to lessen the regulatory burden on the funds, which many believe has led to excessive regulation.
Various reasons prompt companies to seek equity from AIFs. They might not be generating sufficient profits to attract investors, making strategic decisions to postpone listing, or needing a fresh equity injection due to excessive leverage. The number of local AIFs in India has grown to around 1,000 due to risk-averse banks and primary equity market fluctuations, investing over ₹1.3 lakh crores in the past two years.
Some industry insiders believe that SEBI has implemented new rules to prevent sector instability, while also recognising the need to lighten the compliance load for AIFs, which have become a steady finance source for many businesses.
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Tejesh Chitlangi, senior partner at IC Universal Legal, highlighted that SEBI’s recent consultation papers address issues like valuation, demat of AIF units, carry-forward of unliquidated investments, and payment methods of distribution commissions. However, he also emphasized that more simplification is required, especially regarding repetitive compliance requirements, to cut timelines and costs.
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