Sebi allows higher overseas investment by AIFs, VCs

Market regulator Sebi has allowed Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) to invest up to 25 per cent of their funds in foreign companies having 'Indian connection'.

Among others, such entities would include companies having a front office overseas, but backoffice operations in India.

At present, India-based VC funds are permitted to invest up to 10 per cent of their investible funds in Offshore Venture Capital Undertakings with Indian connection, which has now been increased to 25 per cent.

For AIFs, there were no specific norms in place with regard to the quantum of such investments.

Issuing new norms, Sebi said AIFs can invest in equity and equity-linked instruments of offshore venture capital undertakings with Indian connection, subject to an overall limit of $500 million (combined limit for AIFs and VC Funds registered with Sebi).

The regulator has put necessary safeguards for the investors by requiring greater disclosures about the associates and managers of the AIF.

The norms follow Sebi receiving representations from the industry that there has been a major shift of Indian entrepreneurs outside India.

Earlier, a draft was issued in this regard. Many Indian entrepreneurs have been setting up their headquarters outside India with back-end operations and/or research and developments being undertaken in India.

Therefore, a need was felt to allow higher overseas investment by VCFs more than existing 10 per cent limit. It was felt that such investments would provide opportunities to the funds to generate better returns globally and getting exposure to the international markets practices, among others.