SEBI new rules–AIF and VCF

  • August 19, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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SEBI new rules–AIF and VCF

Subject: Economy

Why in the news?

SEBI eases norms on alternate investment funds (AIFs) and venture capital funds (VCFs)  investments in overseas firms

Details:

  • Earlier, it was mandated that AIFs and VCFs raising funds in India should invest in only those companies globally that have connection to India or at least a back-office in the country.
  • Now, they can now invest in any company they want across the world–
    • Invest in an overseas investee company, which is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding or a signatory to the bilateral pact with Sebi.
    • Further, AIFs or VCFs will sell the investment in overseas investee companies only to the entities eligible to make overseas investments.
    • AIFs or VCFs will have to file an application and furnish the divestment details of the overseas investments before Sebi for allocation of overseas investment limit in the format.
    • All the overseas investments sold/divested by them till date, will also be reported to Sebi within 30 days.
    • However, AIFs and VCFs still cannot invest in:
      • Companies incorporated in countries that do not follow global money laundering norms,
      • Companies incorporated in countries don’t have bilateral MoU with SEBI or
      • Jurisdictions which are blacklisted or face restrictions by FATF

Concept:

Alternate Investment Funds (AIFs)  

  • AIFs are funds for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy,
  • It is a vehicle which invests in non traditional assets- like real estate, infrastructure, venture capital etc..
  • Private equity or venture capital, hedge funds, real property, commodities, and tangible assets are all examples of alternative investments.
  • It is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

Venture Capital Funds (VCFs) 

VCF is an AIF which invests primarily in unlisted securities of startups, early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model.

The International Organization of Securities Commissions (IOSCO)

  • Founded: April 1983
  • Headquarters: Madrid, Spain
  • IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation. 
  • It is the international organization that brings together the world’s securities regulators, covering more than 95% of the world’s securities markets, and is the global standard setter for the securities sector.
  • It works closely with the G20 (Group of Twenty) and the Financial Stability Board (FSB) in setting up the standards for strengthening the securities markets.
  • The IOSCO Objectives and Principles of Securities Regulation have been endorsed by FSB as one of the key standards for sound financial systems.
  • IOSCO’s enforcement role extends to matters of interpretation of International Financial Reporting Standards (IFRS), where IOSCO maintains a (confidential) database of enforcement actions taken by member agencies.
    • IFRS is an accounting standard that has been issued by the International Accounting Standards Board (IASB) with the objective of providing a common accounting language to increase transparency in the presentation of financial information.
  • Objectives:
    • To cooperate in developing, implementing and promoting adherence to internationally recognized and consistent standards of regulation, oversight and enforcement in order to protect investors, maintain fair, efficient and transparent markets, and seek to address systemic risks;
    • To enhance investor protection and promote investor confidence in the integrity of securities markets, through strengthened information exchange and cooperation in enforcement against misconduct and in supervision of markets and market intermediaries; and
    • To exchange information at both global and regional levels on their respective experiences in order to assist the development of markets, strengthen market infrastructure and implement appropriate regulation.
economy SEBI new rules–AIF and VCF