A billion-person market deserves a better fund setup

Under SEBI's AIF Regulations (2012), a Category I AIF — Venture Capital Fund invests in startups and early-stage companies. The fund is typically structured as a determinate trust (the most common form in India), managed by a separate Investment Manager entity. At least two-thirds of investable funds must be deployed in unlisted equity of venture capital undertakings.

The fund needs a minimum corpus of INR 5 crore, with the sponsor/manager committing at least 2.5% of the corpus (minimum INR 25 lakh). Each investor must commit a minimum of INR 1 crore (INR 25 lakh for employees and directors of the fund manager). Applications are filed with SEBI along with the Private Placement Memorandum, trust deed, and investment management agreement.

SEBI typically processes AIF applications in 3 to 6 months, depending on the completeness of the application and the number of query rounds. Including pre-application preparation (structuring, documentation, setting up the Investment Manager entity), total time from decision to first close is usually 6 to 12 months.

Category I AIFs enjoy pass-through tax status under Section 115UB of the Income Tax Act — income (other than business income) is not taxed at the fund level but in the hands of investors according to their own status. Long-term capital gains on unlisted securities are taxed at 12.5% for investors. Angel tax under Section 56(2)(viib) was abolished from FY 2024-25 onwards.

Yes. Both domestic and foreign investors (including NRIs and foreign institutions) can invest, subject to FEMA regulations and RBI pricing guidelines. Portfolio company investments must comply with FDI policy, including any applicable sectoral caps. The fund is also subject to FATCA/CRS reporting obligations for foreign LPs.