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SEBI Introduces Key Reforms in Securities Market Regulation

Strategic Insights

— 2 min read

The Securities and Exchange Board of India ("SEBI") has introduced a series of reforms aimed at enhancing transparency and investor protection in the securities market. The updates, announced in the October edition of the Legalaxy newsletter, include amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

The reforms introduce a new framework for co-investment schemes by Alternative Investment Funds ("AIFs"), allowing for the launch of a separate co-investment scheme ("CIV scheme") for accredited investors. The CIV scheme must invest in only one investee company and maintain a distinct bank and demat account, with assets ring-fenced to avoid co-mingling with other schemes. The framework also sets out conditions for co-investment, including the need for a shelf placement memorandum and compliance with applicable regulatory requirements.

Further, the SEBI has revised the regulatory framework for angel funds, classifying them as category I AIFs and permitting them to raise capital exclusively from accredited investors. Angel funds are required to invest directly in startups, with a minimum investment of INR 10 lakh and a maximum of INR 25 crores in any single investee company. Follow-on investments are permitted, subject to specific conditions, and angel fund investors are entitled to pro-rata rights in both investments and returns.

The reforms also include amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, aimed at enhancing transparency and disclosure in the securities market.

Key Takeaways:

  • SEBI has introduced a new framework for co-investment schemes by Alternative Investment Funds ("AIFs"), allowing for the launch of a separate co-investment scheme ("CIV scheme") for accredited investors.
  • The CIV scheme must invest in only one investee company and maintain a distinct bank and demat account, with assets ring-fenced to avoid co-mingling with other schemes.
  • The framework also sets out conditions for co-investment, including the need for a shelf placement memorandum and compliance with applicable regulatory requirements.
  • SEBI has revised the regulatory framework for angel funds, classifying them as category I AIFs and permitting them to raise capital exclusively from accredited investors.
  • Angel funds are required to invest directly in startups, with a minimum investment of INR 10 lakh and a maximum of INR 25 crores in any single investee company.
  • Follow-on investments are permitted, subject to specific conditions, and angel fund investors are entitled to pro-rata rights in both investments and returns.
  • The reforms also include amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, aimed at enhancing transparency and disclosure in the securities market.

Statistics:

  • INR 10 lakh: Minimum investment required for angel funds in any single investee company.
  • INR 25 crores: Maximum investment permitted for angel funds in any single investee company.
  • 0.5%: Continuing interest required to be maintained by sponsors and managers of angel funds in the fund amount, amounting to at least INR 50,000, whichever is higher.

Sources:

  • SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025 [PDF]
  • SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2025 [PDF]
  • Revised Angel Fund Circular [PDF]

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