Venture Capital Funds Directed to Shift to AIF Framework Before SEBI Deadline

In a significant regulatory push, the Indian Venture and Alternate Capital Association (IVCA) has advised all venture capital funds (VCs) still operating under the erstwhile SEBI Venture Capital Fund (VCF) Regulations, 1996 to migrate to the current Alternative Investment Fund (AIF) regime ahead of the deadline set by the Securities and Exchange Board of India (SEBI).

Background

The AIF Regulations, introduced in 2012, replaced the older VCF framework with a more robust and transparent regulatory structure designed to align India’s fund ecosystem with global standards. SEBI has been urging legacy VCFs to transition to the AIF structure for over a decade. However, some funds had continued to operate under the grandfathered provisions of the VCF Regulations.

To bring finality to this transition, SEBI set March 31, 2025, as the deadline for all such VCFs to either convert into AIFs or wind down their operations. As this date draws closer, the IVCA is proactively engaging with its members to ensure compliance and minimize any disruption to ongoing investments.

Regulatory Framework

Under SEBI's AIF Regulations, investment vehicles are categorized into:

Category I: Funds that invest in start-ups, early-stage ventures, social ventures, SMEs, and infrastructure.

Category II: Private equity funds and debt funds that do not undertake leverage (other than for day-to-day operational requirements).

Category III: Funds that employ diverse or complex trading strategies including hedge funds.

These regulations offer clearer guidelines, greater investor protection, and streamlined fund operations, making them more attractive for both domestic and foreign investors.

Industry Implications

The IVCA's directive is seen as a necessary move to maintain regulatory uniformity and enhance transparency in India's fund management ecosystem. With approximately 100 legacy VCFs still operating, this migration is expected to affect a considerable portion of the venture capital landscape.

Key legal and compliance implications for such funds include:

Re-registration under AIF norms

Updating fund documents and investment strategies

Ensuring investor communications and disclosures are aligned with AIF requirements

Compliance with new valuation, audit, and reporting obligations

Our Perspective

At Trailblazer, we view this development as an opportunity for legacy funds to modernize their structures and align with international best practices. The migration process, while operationally intensive, can unlock new fundraising avenues and investor confidence.

We assist fund managers in:

Structuring the transition from VCF to AIF

Drafting and revising fund documentation

Liaising with SEBI for registration and regulatory approvals

Ongoing compliance and legal advisory support

As the regulatory landscape evolves, proactive compliance is not just a necessity — it's a strategic advantage. If you are managing a legacy VCF or advising one, now is the time to act.