Sebi may ease AIF regulations for start-up investments

Mumbai: A committee set up by India’s stock market regulator, the Securities and Exchange Board of India (Sebi), to encourage investments in so-called alternative investment funds (AIF), which invest in start-ups and other young companies, will likely recommend a lower investment threshold for accredited investors, said two people familiar with the discussions of the group.

The people, who asked not to be identified, said the committee would also recommend anonymized disclosure norms which, while providing adequate information to potential investors, do not involve sharing details of specific exits (the sale of an investment).

The committee, headed by former Infosys chairman N.R. Narayana Murthy, is to submit its third set of recommendations by the end of April.

According to the two people cited above, the committee is likely to recommend lowering the minimum investment in AIFs by accredited investors to Rs25 lakh from the current Rs1 crore, thereby bringing investing in AIFs on a par with investing in portfolio management services (PMS).

“There was also a view that there should be no minimum investment cap for accredited investors altogether but most members were in favour of a lower cap of Rs25 lakh,” one of the two people said, adding, “However, the final figure may be different from what is being discussed and the deliberations are still on.”

An accredited investor, as proposed in its January 2016 recommendations by the committee, is one that meets criteria related to income, net worth, asset size, governance status and professional experience. The idea is to ensure the investor has the sophistication to deal with securities not registered with financial authorities.

“In some countries the eligibility to become an accredited investor is a minimum net worth at $0.5 million.

The committee may recommend a Rs2 crore net worth criteria but the final decision in this regard rests with regulators Sebi, CBDT (Central Board of Direct Taxes) and the Reserve Bank of India,” said the person cited earlier.

CBDT will offer the accreditation.

Sebi did not respond to emails and calls seeking comment.

Sebi had constituted the Alternative Investment Policy Advisory Committee (AIPAC) under the chairmanship of Murthy in March 2015. The committee submitted its first set of recommendations in January last year.

The committee’s second report, submitted late last year, followed up on several of the key recommendations made in the first round. Together, the recommendations dealt with mandatory disclosures and tax incentives.

AIFs, which comprise social impact funds, venture capital and private equity funds and hedge funds, have cumulatively raised Rs33,383.86 crore since August 2012, according to Sebi data.

Of this, almost half—Rs16,142.79 crore—was raised in the calendar year 2016 alone. AIFs invested almost Rs14,454.7 crore in the year.

According to Kotak Wealth Management’s Top Of The Pyramid 2016 report, the number of ultra-high-net-worth individuals in India is estimated to have grown to 146,600 in fiscal 2016 from around 137,100 the previous fiscal year. In 2015-16, these individuals had a combined net worth of Rs135 trillion, the report said.