The board of Securities and Exchange Board of India (SEBI) undertook different key decisions at the board meeting on August 06, 2021, regarding the amendments and frameworks related to Accredited Investors, mutual fund (MF) regulations, Alternate Investment Fund (AIF) and others.
List of Approved Amendments and frameworks:
- Introduced Framework for Accredited Investors
- Amendment to SEBI (Mutual Funds) Regulations, 1996
- Relaxed the Limit of Sweat Equity Norms on New-age Tech Companies
- A shift from ‘Promoter’ to ‘controlling shareholders’
- Amendment to SAST Regulations
- Amendment to SEBI (AIF) Regulations, 2012
- Relaxed the lock-in period for promoters’ investments
About Approve Amendments and Frameworks in brief:
-Introduced Framework for Accredited Investors:
SEBI (Securities and Exchange Board of India) board has introduced the concept of ‘Accredited investors’ (AI) in the Indian securities market to open up a new channel for raising funds.
Who are Accredited Investors?
i.A class of investors who are well informed or well advised about investment products are defined as AI/ Qualified Investors/Professional Investors.
ii.Individuals, Hindu Undivided Family (HUFs), Family Trusts, Sole Proprietorships, Partnership Firms, Trusts, and Body Corporates are eligible to become AI (based on financial parameters).
Framework for Accredited Investors:
a.Eligibility:
i.Criterias for Individuals, HUFs, Family Trusts and sole proprietorships to get accredited as AI are as follows.
- They need to have an annual income of at least Rs 2 Crore (or)
- Net Worth of at least Rs 7.5 Crore (out of which at least Rs 3.75 Crore is in the form of financial assets) (or)
- Annual Income of at least Rs 1 Crore along with Net Worth of at least Rs 5 Crore (out of which at least Rs 2.5 Crore is in the form of financial assets).
ii.Trusts (other than family trusts) Assets under Management and Corporates should have net worth of at least Rs 50 Crore.
iii.In the case of a partnership firm, under the Indian Partnership Act, 1932, each partner independently needs to meet the ‘AI criteria for Individuals’.
b.Accreditation Agencies:
i.One or more subsidiaries of a recognized Stock Exchange or depositories or any other institution, which meet the following eligibility criteria will be specified as an ‘Accreditation Agency’ by SEBI to grant accreditation status and issue Accreditation Certificate to AI.
ii.Eligibility Criteria: They need to have – a minimum 20 years of presence in the Indian securities market, Investor Service Centers (ISCs) in at least 20 cities, and a minimum net worth of Rs 200 crores.
c.Process of Accreditation: The investor who is willing to become an AI needs to apply to the Accreditation Agencies to get the certificate of AI. The agencies will grant certificates based on the financial information preceding years (with validity ranging from 1to 2 years).
- Central and State Governments (govts), Developmental Agencies, Funds set up by govt, Category I Foreign Portfolio Investors (FPI), Sovereign Wealth Funds, Multilateral Agencies (e.g. Asian Development Bank, World Bank, etc.), etc, will be considered as AI without obtaining a certificate of accreditation.
d.Proposals with respect to Alternative Investment Funds (AIFs):
i.Minimum investment: Currently, investors (other than employees or directors of the Alternative Investment Fund (AIF) or employees or directors of the Manager) are required to have a minimum investment of Rs 1 crore in an AIF.
- Now SEBI has enabled the AIs to invest less than Rs 1 crore in the AIF.
ii.Large value fund for AI: It is an AIF or scheme of an AIF where each investor invests above Rs 70 crore are now enabled to avail relaxation from regulatory requirements.
- Currently, Category I and II AIFs are allowed to up to 25 percent of their investable funds in a single investee company, whereas Category III with 10 percent.
- Now, the large value funds for AI of Category I and II are allowed to invest up to 50 percent of the investable funds in a single investee company and AI Fund, whereas Category III are enabled to invest up to 20 percent.
e.Other Benefits to AIs:
i.AIs with a minimum investment of Rs 10 Crores with a registered PMS (Portfolio Managers) provider are allowed to avail relaxation from requirements related to investment in unlisted securities.
ii.AI who are clients of Investment Advisers (IA) are enabled to determine the limits and modes of fees payable to IAs.
-Amendment to SEBI (Mutual Funds) Regulations, 1996
SEBI board amended the SEBI (Mutual Funds (MF)) Regulations, 1996, and directed Asset Management Companies (AMCs) to invest 1 percent of the amount raised in the New Fund Offer (NFO) or Rs 50 lakh, whichever is less in the MF schemes based on the risk level associated with the scheme.
-Relaxed the Limit of Sweat Equity Norms on New-age Tech Companies
i.The board of SEBI has increased the overall limit of sweat equity that could be issued by new-age technology companies that are listed on the Innovators Growth Platform (IGP).
ii.Currently, the maximum yearly limit of sweat equity shares that could be issued by a company listed on IGP was at 15 percent of the existing paid-up equity share capital with an overall limit not exceeding 25 percent of the paid-up capital at any time.
- Now the board has increased the overall limit to 50 percent. The improved overall limit will be applicable for 10 years from the date of the company’s incorporation.
iii.SEBI has also approved the merging of 2 separate regulations viz, SEBI (Share Based Employee Benefits (SBEB)) Regulations, 2014, and SEBI (Issue of Sweat Equity) Regulations, 2002 into a single regulation of SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
-Shifting from ‘Promoter’ to ‘controlling shareholders’
SEBI Board approved the proposal for shifting away from the concept of the promoter in a listed entity to the concept of ‘person in control’ or ‘controlling shareholders’
- Background: In May 2021, SEBI reviewed the regulatory framework of the promoter, promoter group and group companies as per SEBI (Issue of Capital and Disclosure Requirements(ICDR)) Regulations, 2018 and gave proposals. Click here to know more
-Approved Amendment of SAST Regulations
The Board has decided to remove certain disclosure requirements for acquirers and promoters of companies relating to – acquisition/disposal of shares aggregating to 5 percent (and any change of 2 percent thereafter), annual shareholding disclosures, and creation/invocation/release of encumbrance registered in depository systems under SEBI (Substantial Acquisition of Shares and Takeovers (SAST)) Regulations.
- The board also approved the amendment of SEBI (Substantial Acquisition of Shares and Takeovers (SAST)) Regulations mainly to implement the System Driven Disclosures (SDD).
- The regulations would come into effect from April 01, 2022.
-Amendment to SEBI (AIF) Regulations, 2012
The board of SEBI has approved the amendment over SEBI (AIF) Regulations, 2012.
i.As per the amendments, the Category I AIF – Venture Capital Funds (VCFs) was directed to invest at least 75 percent of investable funds in unlisted equity-linked instruments of venture capital undertakings/companies listed on a Small and Medium Enterprises (SME) exchange.
ii.The minimum amount of grant of Rs 25 lakh for Category I AIFs –Social Venture Funds was made inapplicable for grants received from AIs.
-Relaxed the lock-in period for promoters’ investments
i.The lock-in period for promoters’ shareholding of minimum promoters’ contribution (i.e. 20 percent of post-Initial Public Offer (IPO)) was reduced from 3 years to 18 months – Only in the case of the IPO is entirely an offer for sale or where 50 percent of the issue proceeds are not meant for capital expenditure.
ii.The Lock-in period for a pre-IPO shareholding of non-promoters was reduced from 1 year to 6 months.
iii.The minimum lock-in for venture capital funds from the date of acquisition was changed from 1 year to 6 months.
Recent Related News:
In June 2021, SEBI has approved amendments to regulations related to independent directors (IDs) under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).
To protect the interest of investors in securities, the SEBI has introduced a new standardised Expected Loss (EL) based RatingScale for the Credit Rating Agencies (CRAs).
About Alternative Investment Funds:
i.AIF is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian
ii.AIFs are divided into 3 categories:
- Category I – Venture capital funds (Including angel funds), Social impact funds, SME funds and infrastructure funds
- Category II– real estate funds, private equity funds (PE funds), funds for distressed assets
- Category III – Hedge funds, Private Investment in Public Equity Funds (PIPE) Funds
About Securities and Exchange Board of India (SEBI):
Establishment – On April 12, 1992, in accordance with the SEBI Act, 1992.
Headquarters – Mumbai, Maharashtra
Chairman – Ajay Tyagi
