Sebi Wishes To Boost Startup Funding, Plans On Easing Rules For Angel Funds


In an attempt to provide an impetus to the early-stage startup ecosystem, markets regulator Security and Exchange Board of India (Sebi) plans to increase the maximum investment by angel funds in venture capital undertakings to Rs 10 crore from the current Rs 5 crore, as reported by India Today.


The minimum investment by an angel investor, however, will continue to be Rs 25 lakh.

Angels are investing much higher amounts to the innumerable startups across the country, such increase would provide greater opportunities to angel funds.

Further, Sebi plans to halve the minimum corpus size required for an angel fund to register with it to Rs 5 crore. The maximum period of accepting funds from an angel investor would be increased to five years from the present limit of three years. This will allow angel funds more time to identify opportunities and invest in venture capital firms.

The issue will be discussed at the board meeting of the regulatory body this week.

What are angel funds?

Angel funds are a subcategory of Alternative Investment Funds (AIFs) and they encourage entrepreneurship in the country by financing small startups at a stage when they find it difficult to obtain capital from traditional sources of finance such as banks and financial institutions.

Along with this, angel funds also offer mentorship to entrepreneurs as well as access to their own business networks.

Currently, 398 AIFs are registered with Sebi, of which 114 are registered under Category I, including eight angel funds.

In line with the Companies Act, the regulator is looking to amend Sebi (Registrars to an Issue and Share Transfer Agents) Norms and Sebi (Banker to an Issue) Regulations that will enable a registrar as well as banker to an issue to maintain records of books of accounts and documents for a minimum period of eight years after completion of the relevant transactions.

Sebi also plans to provide an option to listed companies for distribution of cash benefits – a dividend of equity and preference shares as well as interest and maturity proceeds on debt instruments – through the depositories in addition to the present system of distribution either directly by them or through the registrar to an issue and share transfer agents.

As of now, there is a restriction on listed companies availing services of depositories for distribution of cash benefits.

A recent development of angel funds and taxes

A recent news has created the uproar that startups that seek exemption from the so-called angel tax may now have to be certified by an inter-ministerial board to be eligible for tax relief.

In June 2016, the Central Board of Direct Taxes (CBDT) had assured that the companies that have been certified as startups by the Department of Industrial Policy and Promotion (DIPP) would not be taxed on investments that they have raised as a premium to their fair value.

Yet again, in February,  CBDT asserted no coercive actions would be taken against DIPP-certified startup. It also claimed that authorities would do away with all tax-related appeals raised by such startups by March 31.

However, the problem has arisen because a recent DIPP-issued kit for certified startups has not clearly mentioned if all startups would be needing to have IMB certification to be exempted from angel tax.

The confusion deepened when in spite of the CBDT giving assurance that no coercive actions would be taken to recover the outstanding tax money, startups like that of InstaLively, which has been acquired by Hike Messenger have been receiving tax notices.

Also Read: Startups Now Need To Be Certified By Ministerial Panel To Be Exempted From Tax