Insurance firms may be allowed access to VC funds

Aug 28 2012, 00:08 IST
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SummaryDomestic institutional investors such as insurance companies, pension funds, trusts and balanced mutual funds could be allowed to allocate some portion of their corpus to Category I alternative investment funds if government accepts recommendations on an expert group set up by the the Planning Commission to promote angel investment and early stage venture capital activities in the country.

Domestic institutional investors such as insurance companies, pension funds, trusts and balanced mutual funds could be allowed to allocate some portion of their corpus to Category I alternative investment funds (angel groups, venture capital funds) if government accepts recommendations on an expert group set up by the the Planning Commission to promote angel investment and early stage venture capital activities in the country. The group submitted its report entitled “Creating a Vibrant Entrepreneurial Ecosystem in India” to the FM on Monday.

In a wide ranging recommendations, the committee headed by former revenue secretary Sunil Mitra has also recommended that banks should be encouraged to invest in the VCFs by treating these investments as “priority sector” funding without capital market exposure and provisioning norms being applicable. It has also suggested income tax breaks to individuals, on the lines of similar deductions provided in Singapore and USA, for investments made through angel groups or in early stage venture funds. Similar breaks has also been proposed for angel investors in unlisted entity where such investment is for meting seed capital of the beneficiary entity. For such investment, the individual ceiling is proposed to be kept at R5 crore and for group R10 crore.

The panel has also mandated that 5% of all PSU procurement must come from SMEs or companies backed by Category I alternate investment funds (AIFs). It has said that a a government fund-of-fund of R5000 crore corpus should be established to provide matching funds for new Category I AIFs. This type of support has been very effective in several countries such as: US SBIC, Israeli Yozma, and the Australian Innovation Investment Fund with 16 funds created, the report has said. The panel has said that venture capital investments have the capacity to generate R10 lakh crore revenue and create four crore jobs in the next decade. The panel has also suggested a National Entrepreneurship Mission (NEM) to drive the agenda of inclusive growth from entrepreneurial perspective and to boost venture capital investment .

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