SUMMARY

SEBI has launched the VCF Settlement Scheme 2025 to assist older enterprise capital funds (VCFs) shut their operations in an organised method

The brand new scheme affords the VCFs a strategy to settle any regulatory points which have arisen as a result of delays in winding up expired schemes that also maintain unliquidated investments

The scheme will likely be open from July 21, 2025, to January 19, 2026. Funds wishing to use should submit a settlement software by means of SEBI’s web site and pay a non-refundable charge of INR 25,000 together with 18% GST

Markets regulator Securities and Alternate Board of India (SEBI) has launched the VCF Settlement Scheme 2025 to assist older enterprise capital funds (VCFs) shut their operations in an organised method.

In 2012, SEBI notified the Different Funding Funds (AIF) Laws, which led to the repealing of VCF Laws, 1996. Nevertheless, VCFs registered underneath the VCF Laws had been allowed to be regulated underneath the repealed norms until their present schemes or funds had been wound up.

Nevertheless, plenty of VCFs had been unable to liquidate their investments through the tenure of the fund, and proceed to carry the unliquidated investments past the expiry of their tenure. To facilitate the motion of those VCFs to the AIF Laws, the markets regulator final 12 months launched a brand new round.

Underneath the round, VCFs had been offered a further interval of 1 12 months to liquidate their investments and wind up the schemes. As soon as migrated, they might enter right into a dissolution interval after acquiring approval from their buyers. The final date for making use of for such migration was set July 19, 2025.

Now, the brand new scheme affords the VCFs a strategy to settle any regulatory points which have arisen as a result of delays in winding up expired schemes that also maintain unliquidated investments.

Structured Exit Route For Legacy Funds

Underneath the scheme, solely these VCFs which have not less than one expired scheme and have already accomplished the migration to the AIF regime will likely be eligible.

The scheme will likely be open from July 21, 2025, to January 19, 2026. Funds wishing to use should submit a settlement software by means of SEBI’s web site and pay a non-refundable charge of INR 25,000 together with 18% GST.

“Upon expiry of the final date of migration, i.e. July 19, 2025, SEBI could provoke motion in opposition to such VCFs which have schemes whose liquidation interval has expired however not wound up and that proceed to carry the unliquidated investments, and haven’t availed the chance underneath the VCF Settlement Scheme, 2025,” the markets regulator mentioned in an announcement. 

This transfer is aimed toward resolving long-standing points with older funds and bringing them according to present rules in a good and well timed method. Notably, many of those legacy funds had been launched within the early 2000s or earlier than, with fund tenures of 10 to 12 years.

In 2020, SEBI directed all such funds to both wind up or migrate to the AIF regime. It later offered a structured course of for migration and, in 2024, granted a one-year extension to allow migrated funds to finish the winding-up course of. SEBI additionally launched the idea of “Migrated VCFs”, funds that had moved to the AIF framework however nonetheless held expired schemes with unliquidated belongings.

SEBI On The Transfer 

With the sharp rise within the variety of funded startups within the nation during the last decade or so, the markets regulator has been actively arising with rules for AIFs.

It just lately raised issues about funds, together with AIFs, attempting to increase their tenure with out a clear plan to liquidate belongings. Since many startups grew quickly after 2015, a lot of AIFs at the moment are both of their liquidation part or have already used up SEBI’s extension. 

The liquidation interval is a one-year window after a fund’s time period ends, throughout which the supervisor should promote any remaining belongings and return the cash to buyers (LPs). If belongings nonetheless stay, funds can enter a dissolution interval however solely with approval from 75% of LPs by worth, and this consent should be obtained through the liquidation 12 months. 

Notably, promoting unsold or unattractive belongings is hard, and previously, SEBI allowed rolling them into new schemes. Nevertheless, this induced tax and compliance points for LPs and has since been discontinued. 

To handle the problem, SEBI launched new guidelines final 12 months. If 75% LP approval is secured, fund managers should search bids for the remaining belongings and provide an exit to these LPs who don’t wish to proceed. 

If no bids are acquired, the fund can nonetheless proceed with dissolution, however the remaining belongings should be reported at a symbolic worth of INR 1 to benchmarking businesses, and this isn’t an actual loss however a strategy to maintain managers accountable.

Different SEBI initiatives within the investing area embody offering extra flexibility for buyers to co-invest with the AIFs and approving amendments to enhance Indian startup listings and promote reverse flipping to the nation.