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SEBI eases rules for angel funds and FII’s (Relevant for GS Prelims and Mains Paper II, Topic: Ease of regulations by SEBI)

SEBI liberalised norms for Angel Investors:
The Securities and Exchange Board of India (SEBI) has liberalised norms for angel funds to invest in early-stage entities as part of its attempts to facilitate fund-raising for start-ups.
The capital markets regulator also enhanced the scope of investment of foreign investors in unlisted debt securities.

Amendments in SEBI (Alternative Investment Funds) Regulations, 2012:
The board decided to amend the SEBI (Alternative Investment Funds) Regulations, 2012 based on the recommendations received from the 'Alternative Investment Policy Advisory Committee.

1. The regulator has increased the upper limit for number of angel investors in a scheme from forty nine to two hundred.
2. Angel Funds will also be allowed to invest in start-ups incorporated within five years instead of the earlier norm of three years.
3. The requirements of minimum investment amount by an angel fund in any venture capital undertaking has been reduced from Rs.50 lakh to Rs.25 lakh.
4. Further, the lock-in requirements of investment made by angel funds in the venture capital undertaking has been reduced from three years to one year.
5. Such funds have also been allowed to invest in overseas venture capital undertakings up to 25 per cent of their investible corpus in line with other Alternative Investment Funds (AIFs).

Implications:
This will greatly benefit start-ups looking for raising venture funding not just for the money but for the other value addition that raising money from a venture capital firm brings such as direction and mentorship from seasoned investors.

Who are angel investors?
An angel investor also known as a business angel, informal investor, angel funder , private investor, or seed investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

Regulations eased for FII’s:
The regulatory watchdog has also permitted foreign portfolio investors (FPIs) – FIIs to invest in unlisted non-convertible debentures and securitised debt instruments of a public or private company. Such investments, however, will be subject to a minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land.

Earlier, FIIs were allowed to invest in such securities only if it was issued by a company from the infrastructure sector.

About FII’s:
A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds. The types of investors above, others include banks, large corporate buyers or representatives of large institutions.

Exchange Disclosure:
The regulator also clamped down on agreements between company management personnel and shareholders that assure a certain compensation or share in profits to the employee.
SEBI has stated that all such agreements entered into during the last three years will have to be disclosed to the stock exchanges and companies will have to seek an approval from the public shareholders of the company. Further, interested persons involved in the transactions will have to abstain from voting on the said resolution, the capital markets regulator said.



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