SEBI has issued modalities for migration of Venture Capital Funds registered under erstwhile SEBI (Venture Capital Funds) Regulations, 1996 to SEBI (Alternative Investment Funds) Regulations, 2012. This migration offers VCFs the opportunity to operate under a more modern regulatory framework and to manage their unliquidated investments effectively after the expiry of their scheme tenures. The amendments, notified on July 20, 2024, outline the procedures, requirements, and conditions for this migration process.
Definition and Application Process for Migration
A “Migrated Venture Capital Fund” is defined under Regulation 19V(1) of the AIF Regulations as a fund that was initially registered as a VCF under the VCF Regulations but subsequently re-registered as a sub-category of Venture Capital Fund under Category I of the AIF Regulations. This migration process is detailed in Chapter III-D of the AIF Regulations.
To initiate the migration, VCFs must submit an application to SEBI, including the original certificate of registration issued under the VCF Regulations and the necessary information as specified in Annexure I of the notification. The deadline for this application is July 19, 2025.
Conditions for Migration Based on Scheme Tenure
The migration conditions vary depending on the tenure status of the VCFs’ schemes:
VCFs with Unexpired Schemes: For VCFs that only have schemes where the liquidation period has not yet expired, the migration is subject to specific conditions:
The tenure of the migrated schemes will either continue as per the original disclosure in the Private Placement Memorandum (PPM) or, if no definite tenure was disclosed, will be determined before the migration application with the approval of 75% of investors by value.
VCFs with Expired Schemes: VCFs that have at least one scheme with an expired liquidation period can apply for migration only if there are no pending investor complaints regarding the non-receipt of funds or securities. These funds will receive a one-time additional liquidation period of one year from the date of the notification (until July 19, 2025). If these VCFs also manage schemes that have not yet reached their liquidation period, the tenure of those schemes will be determined as per the conditions mentioned above.
Post-Migration Considerations
Upon migration, the investments, investors, and units associated with the original VCF schemes will be deemed as those of the Migrated VCF or its schemes under the AIF Regulations. These funds will also be subject to the provisions of the SEBI Master Circular for AIFs and any other relevant SEBI circulars issued subsequently.
Non-Migrating VCFs
VCFs that choose not to migrate will face enhanced regulatory reporting requirements if their scheme liquidation periods have not yet expired. For those with schemes where the liquidation period has expired, SEBI will impose appropriate regulatory actions. VCFs that have wound up all their schemes or have not made any investments in their active schemes must surrender their registration by March 31, 2025, or face cancellation of their registration.
Compliance Responsibility
The responsibility for compliance with these regulations rests with the manager, trustee, and key management personnel of the VCF or Migrated VCF. The trustee or sponsor must ensure that the Compliance Test Report, as required by the SEBI Master Circular for AIFs, includes adherence to the provisions of this circular.
Conclusion
The SEBI amendments provide a structured pathway for VCFs to transition into the AIF regulatory framework, ensuring they can manage their investments effectively post-tenure. This migration is a critical step towards aligning older funds with current regulatory practices, offering both flexibility and enhanced oversight.
