Harshita Ayachit, National Law University, Nagpur
Harshada Gurjar, National Law University, Nagpur
ABSTRACT
India's Alternative Investment Fund (AIF) industry has experienced remarkable growth, driven by increasing investor interest and the significant role of Venture Capital Funds (VCFs) in addressing funding gaps for technology-driven businesses. VCFs have become critical intermediaries, offering early-stage companies vital capital that traditional bank credit and underdeveloped public equity markets often fail to provide. To support this sector, the Securities and Exchange Board of India (SEBI) introduced the Venture Capital Funds (VCF) Regulations in 1996, later replaced by the Alternative Investment Funds (AIF) Regulations in 2012. In 2024, SEBI introduced the AIF (Third Amendment) Regulations to provide a more robust framework for VCF migration and address the industry’s evolving needs.
These regulations bring key advancements, including structured migration mechanisms for VCFs and enhanced disclosure requirements, inspired by the G-30 Report. However, the framework faces several challenges. Ambiguities in certain provisions grant SEBI wide discretionary powers, risking potential regulatory overreach. Additionally, procedural inefficiencies, particularly in obtaining investor consent for migration and tenure extensions, present practical hurdles that hinder smooth implementation.
A major limitation is the absence of an environmental, social, and governance (ESG) framework for VCFs, despite the increasing focus on sustainable investment practices. Implementing ESG standards would enhance transparency, accountability, and investor confidence while fostering responsible investment in line with market demands. Further, simplifying procedural requirements, addressing ambiguities, and fostering stakeholder engagement are necessary to ensure efficiency and fairness under the updated framework.
This article critically analyzes the AIF (Third Amendment) Regulations, 2024, by highlighting their advancements and identifying areas for improvement. It underscores the need for targeted reforms to enhance the regulatory structure, foster innovation, and create a sustainable, resilient investment ecosystem that drives long-term growth.
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