The Securities and Exchange Board of India advisory committee on venture capital funds (VCFs) has suggested the removal of lock-in on shares after listing of a venture capital-funded undertaking.
The panel has also suggested the reduction of the investment limit for VCFs in unlisted companies from 75 per cent to 66.67 per cent.
The committee has widen the investment horizon of VCFs and proposed investments in real estates and non-banking finance companies in equipment leasing and hire purchase.
Further, VCFs continue to enjoy tax exemption even after they receive foreign securities in lieu of domestic securities held by them in a venture capital undertaking.
The Sebi panel, headed by Ashok Lahiri, chief economic advisor, ministry of finance, was set up to advice on matters relating to the development and regulation of VCF industry in the country.
The committee has suggested the removal of gold financing from the negative list for VCFs and foreign venture capital investors (FVCIs).
However, such financing should be restricted to gold financing for jewellery alone and not pure trade and speculation in gold.
The committee has suggested that certain hybrid instruments, which are optionally convertible into equities, may be permitted as a class of investment instruments under the 66.67 per cent (now recommended) portion of the investible funds.
The report, which has been placed on the Sebi website for public opinion, said the balance 33.33 per cent or less may be permitted to be invested in listed securities and this limit shall be achieved by the end of the life cycle of a fund.
Also, the restriction on FVCIs to invest not more than 25 per cent of their investible funds in a single VCF may be removed.
Further, a special purpose vehicle, which is mandated for investment in a venture capital undertaking, may be permitted to invest up to a maximum of 33.33 per cent of its investible funds.
The committee said, "A life cycle of more than 10 years will have to be justified by the fund wherever such investments trigger the takeover code.
All requirements of the code will have to be fulfilled by the VCF/FVCI and no exemption from the clauses may be provided."
However, where as a result of investments made under the mandatory requirement of the takeover code, investment restrictions are breached, the same may not be considered as a violation of the Sebi (VCF/FVCI) Regulations.
The committee has suggested that a VCF may be permitted to invest in offshore venture capital units and the Reserve Bank of India may periodically announce the overall limit for investment by VCFs and inform Sebi accordingly.
