The Securities and Exchange Board of India (SEBI) recently released the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2021. A summary of some of the changes introduced by the amendment regulations is given below along with possible impact.

Start-up has been defined to mean an entity which fulfils the criteria for start-up as specified by the Department for Promotion of Industry and Internal Trade (DPIIT) or such other policy of the Central Government issued from time to time.

Impact: This would lead to elimination of uncertainty around the scope of the term 'start-up'.

Angel funds, as a subcategory of a Venture Capital Fund under Category I AIF, are now eligible to invest in start-ups.

Impact: This amendment broadens the investment horizon of angel funds. Now, these funds can invest in an entity which, amongst others, has not crossed 10 years and whose turnover has not exceeded Rs 100 crore in any of the financial years since incorporation or registration.

The scope of the definition of Venture Capital Undertaking (VCU) has been expanded for Category I AIFs by removal of the list of restricted activities in the definition of a VCU.

Impact: This amendment should enable Category I AIFs to allocate money towards NBFCs which was earlier prohibited.