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SEBI announces new guidelines for AIFs, VC funds

The Securities and Exchange Board of India (SEBI) on Thursday came out with new guidelines for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) for investing abroad, under which overseas investee firms won’t need to have an Indian connection.

Under the rules, AIFs can invest in securities of companies incorporated outside India. Besides, VCFs are allowed to invest in off-shore venture capital undertakings, subject to certain conditions.

One of the conditions was that such overseas investments were allowed only in companies with an Indian connection. Like, a company has a front office overseas, while having its back office operations in India.

“The requirement of the overseas investee company to have an Indian connection… has been done away with,” the SEBI said in a circular.

As per the fresh guidelines, AIFs or VCFs will be allowed to invest in an overseas investee company, incorporated in a country whose securities market regulator is a signatory to the International Organisation of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding or a signatory to the bilateral Memorandum of Understanding with SEBI.

Besides, AIFs or VCFs will not invest in an overseas investee company, incorporated in a country identified by the Financial Action Task Force (FATF) as a jurisdiction having a strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply.

Also, such entities have been prohibited from investing in a country that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address such deficiencies.

AIFs or VCFs will have to apply to SEBI for allocation of overseas investment limit in the format.

“If an AIF/VCF liquidates investment made in an overseas investee company previously, the sale proceeds received from such liquidation to the extent of investment made in the said overseas investee company shall be available to all AIFs/VCFs for reinvestment,” the regulator said.