Securities and Exchange Board of India (Sebi) has proposed to increase investable limits of Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) into foreign companies that have an ‘Indian connection’ with an aim to prevent Indian entrepreneurs shifting their businesses to foreign countries.
The capital markets regulator on Friday floated a consultation paper, allowing AIFs and VCFs to invest up to 25% of their investable funds. At present, India-based VCFs are allowed to invest up to 10% of their corpus in Offshore Venture Capital Undertakings with Indian connection, while AIFs have no specified quantum of their investments.
“Sebi has received representations from the industry that there has been a major shift of Indian entrepreneurs outside India. Many Indian entrepreneurs have been setting up their headquarters outside India with back end operations and/ or research and developments being undertaken in India. There is a need to allow higher overseas investment by VCFs,” stated Sebi’s consultative paper.
Representations made before Sebi stated that an increase in investment would provide opportunities to the funds to generate better returns globally, in addition to generating indirect benefits to India by bringing in non-debt creating foreign capital resources, technology upgradation, skill enhancement, and new employment among other things, stated the paper.
“Sebi may be looking to help venture capital funds in India get a global flavour by investing internationally and also diversify risk”, says Harish HV, partner, Grant Thornton.
Sebi seeks public comments to receive public comments by May 7.
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