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November 14, 2013

SEBI Guidelines for Venture Capital Funds

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Friends, in our last post we have discussed about the introduction and features of Venture Capital Companies. In this post we shall discuss about the guidelines issued by SEBI for Venture Capital Companies.The guidelines / regulations contained in a consultative paper (xi) dated 13th February 1996 are approved by SEBI in principle. The regulations are,
  1. Investments : Venture capital funds are permitted to invest upto 80 per cent of their resources in assisted companies. They can invest upto 20 per cent of their corpus in equity of a single company. They can invest in sick units, turn around companies and provide loans except to non-banking, non finance companies.
  2. Registartion : A unit sponsoring a venture capital fund has to apply to SEBI for registration. Registration is granted subject to either a trust being formed and a trust company incorporated or a venture capital company is incorporated. Existing VCF's should register with SEBI within 3 months of notification.
  3. Tax Aspect : It is provided complete income-tax relaxation, exemption from capital gains tax after it is listed in the stock exchange. Shares will have to be held at least for 72 monthly to enjoy tax exemption. Lock in period of 3 years is applicable to unlisted shares. 
  • The conditions for the approval are,
    1. It is registered with SEBI
    2. It invests 80 per cent of total money by acquiring equity shares of venture capital undertakings. 
    3. It invests 80 per cent of its paid up capital in acquiring equity shares of venture capital undertakings.
    4. It shall not invest more than 40 per cent in equity capital of one venture.
    5. It shall submit audited accounts to the Director of Income Tax
That's all for now Friends. In our next post we shall discuss about the Modes of Financing of Venture Capital Companies. Happy Reading :)

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