To augment foreign capital inflows into alternative investment funds (AIFs), the cabinet on Wednesday approved a proposal to allow all categories of foreign investment in these funds by bringing changes to the foreign exchange regulations.
The decision would enable foreign investment in AIFs established as trust or incorporated firms or LLPs or body corporate and registered with Sebi under the Sebi (AIFs) Regulations 2012, the government said. The decision would make available more funds for start-ups, early stage ventures, social ventures, SMEs, infrastructure and other sectors that are considered high risk and have an uncertain return, it said.
While Sebi has made provisions in its norms for AIFs to collect funds from foreign investors, there was no enabling provision in the FDI policy or the Foreign Exchange Management Act. Under the RBI’s Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, only Sebi-registered foreign venture capital (VC) investors are allowed to invest in a VC fund or in a VC undertaking. The cabinet decision would change this.