Sebi allows higher overseas investments by AIFs, VCs

Markets regulator Sebi has allowed Alternative Investment Funds and Venture Capital Funds to invest up to 25 <g data-gr-id="25">per cent</g> of their investible funds in foreign companies having 'Indian connection'.

Among others, such entities would include companies having a front office overseas, but back office operations in India. At present, India-based VC funds are permitted to invest up to 10 <g data-gr-id="26">per cent</g> of their investible funds in Offshore Venture Capital Undertakings with <g data-gr-id="36">Indian</g> connection, which has now been increased to 25 per cent. For AIFs, there were no specific guidelines in place with regard to the quantum of such investments.

Issuing new guidelines, Sebi said that AIFs can invest in equity and equity-linked instruments of offshore venture capital undertakings with Indian connection, subject to an overall limit of $500 million (combined limit for AIFs and VC Funds registered with Sebi). The regulator has put necessary safeguards for the investors by requiring greater disclosures about the associates and managers of the AIF. The norms follow Sebi receiving representations from the industry that there has been a major shift of Indian entrepreneurs outside India. Earlier, a draft was issued in this regard. Many Indian entrepreneurs have been setting up their headquarters outside India with back-end operations and/or research and developments being undertaken in India. Therefore, a need was felt to allow higher overseas investment by VCFs more than existing 10 per cent limit.

It was felt that such investments would provide opportunities to the funds to generate better returns globally and getting exposure to the international markets practices, among others. As such investments are required to have an Indian connection, it is anticipated that they will generate indirect benefits to India through bringing in resources, technology upgradation, skill enhancement, new <g data-gr-id="32">employment</g> and spillovers, among others, Sebi said.

The Securities and Exchange Board of India (Sebi) said that VCs and AIFs planning to make investments in offshore venture capital undertakings will have to submit their proposal for investment to the markets regulator for its prior approval. In case of AIFs, Sebi said that no separate permission from RBI is necessary in this regard. VCFs and AIFs will not invest in joint venture/wholly owned <g data-gr-id="40">subsidiary,</g> while making overseas investments. These funds will have to "adhere to FEMA Regulations and other guidelines specified by RBI from time to time with respect to any structure which involves Foreign Direct Investment (FDI) under Overseas Direct Investment (ODI) route." With regard to AIFs, Sebi said <g data-gr-id="38">allocation</g> of investment limits would be done on 'first come first serve' basis, depending on the availability in the overall limit of $500 million.