Over the past few years, the Securities and Exchange Board of India (“SEBI”) has taken decisive steps to phase out the venture capital fund (“VCF”) regime. To address long-standing challenges faced by VCFs, particularly in dealing with investments which are not liquidated within the tenure of the fund, SEBI provided existing VCFs with an opportunity to migrate to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) framework.
For other VCFs having schemes, all of which were wound up and/or where any or all schemes had made no investments (which were not wound up) were required to submit an application to SEBI for surrender of their registration on or before March 31, 2025.
To recap, migration offers an opportunity for VCFs to regularize tenures, even more so with the facility of a settlement scheme (further details provided below). It provides an opportunity for alignment with current SEBI requirements, including the benefit of extended liquidation timelines and the ability to formally fix a tenure with investor consent.
What happens if you neither surrender nor migrate?
VCFs that have not surrendered their registration and fail to migrate by July 19, 2025, will be exposed to regulatory action, especially if their schemes’ liquidation periods have expired. For schemes of VCFs whose liquidation period have not expired shall be subject to enhanced regulatory reporting.
Simplifying Migration: Who’s eligible and under what conditions?
It is important to understand that the transition from the VCF regime to the AIF framework isn’t one-size-fits-all. The conditions surrounding a VCF’s migration depends on several factors. A key consideration is whether the liquidation period of a scheme has expired. ‘Liquidation period’ is to be determined as per the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”). Notably, the liquidation period is contingent on when the term of the scheme has ended, which, in our experience, requires a careful case-by-case assessment based on the factual matrix, including disclosures in the private placement memorandum and extensions availed, as explained further below.
- VCFs having all schemes whose liquidation periods have not expired
If a VCF has only those schemes whose liquidation period is still ongoing, it may apply for migration to the AIF regime at any time up to July 19, 2025. The tenure of such schemes will remain the same as originally disclosed in the private placement memorandum (“PPM”). However, if no fixed tenure was disclosed, the residual tenure must be formally set with the approval of 75% of investors by value of investment.
- VCFs with at least one scheme whose liquidation period has expired but is not yet wound up
Migration is still possible for such funds but with conditions. If at least one scheme has crossed its liquidation period and remains unwound, the VCF must ensure there are no pending investor complaints, particularly concerning non-receipt of funds or securities, at the time of applying for migration. If eligible, these schemes are granted a one-time extended liquidation period till July 19, 2026, under the AIF Regulations framework. Schemes within such VCFs whose liquidation periods are over and there are no unliquidated investments, in our view, from a good governance perspective, should file a letter with SEBI informing them of this fact.
- VCFs with all schemes wound up or no investments made in remaining schemes
These VCFs are not permitted to migrate. If all schemes have already been wound up, or if the remaining open schemes never made any investments, migration is off the table. Such VCFs were required to surrender their registration by March 31, 2025. These entities must now focus solely on regulatory closure and winding down processes, as no operational path forward remains under the AIF Regulations framework.
To summarize:
|
S.No. |
VCF Type |
Migration Deadline |
Conditions |
Post-Migration Tenure |
|
1. |
VCFs having schemes with unexpired liquidation period |
July 19, 2025 |
– |
Tenure remains as-is if disclosed in PPM, else set with 75% investor approval by value of investment in the scheme(s). |
|
2. |
VCFs having schemes where liquidation period has expired, but are not wound up |
July 19, 2025 |
Can migrate only if no pending investor complaints exist with regard to non-receipt of funds/ securities |
Scheme of VCF whose liquidation period has expired (in terms of the VCF Regulations): |
|
Scheme of VCF other than the above whose liquidation period has not expired: |
||||
|
3. |
VCFs having all schemes already wound up / no investments made by schemes of the VCF which have not been wound up |
Not eligible |
Should have surrendered by March 31, 2025 |
|
Process for VCF Migration
To initiate the migration process under the AIF Regulations, SEBI’s circular dated August 19, 2024 titled “Modalities for migration of Venture Capital Funds registered under erstwhile SEBI (Venture Capital Funds) Regulations, 1996 to SEBI (Alternative Investment Funds) Regulations, 2012” (“Circular”) specifies that the application must be filed through the SEBI Intermediary (“SI”) portal.
The online application facility on the SI Portal has been activated to accept such applications. It may be noted that the information / documents required on the SI Portal bear similarity to that of an AIF application. Furthermore, the SI Portal application requests certain information and documents that may not be applicable to migrating VCFs. Accordingly, the information to be filled on the SI portal must be analysed basis its applicability to VCFs. Overall, an application for migration must include detailed fund-level information covering the VCF, its trustee, sponsor (if applicable), and investment manager along with the physical original certificate of registration issued under the VCF Regulations.
Further, while the application format seeks details of the sponsor, it is noteworthy that the VCF Regulations did not formally require the appointment of a sponsor. Accordingly, disclosures in this regard will need to be assessed on a case-by-case basis, depending on how the role and obligations, if any, were captured in the fund documents or trust deed.
Additionally, scheme-wise information must be submitted for each scheme of the VCF. This includes the private placement memorandum (or equivalent investor agreements), details of original and extended tenure, the end date of the liquidation period, residual tenure (where applicable), investor confirmations for minimum commitments, and particulars of unliquidated investments. Declarations regarding pending investor complaints, adverse regulatory history, and the “fit and proper” status of all key entities are also required as part of the filing. Details on the application can be found here.
Post Migration
Once SEBI approves the migration of a VCF into the AIF Regulations regime, and such VCF’s liquidation period is over, the schemes of the migrated VCF are eligible to opt for in-specie distributions or enter into dissolution period to address any unliquidated investments.
In either case, the manager has to arrange a bid for at least 25% of the value of the unliquidated investments, supported by valuations from two independent valuers. While we have not gone into a detailed breakdown, for the dissolution period, it is important to note that disclosures must be made to investors including the proposed tenure of the dissolution period (which cannot exceed the original scheme tenure), details of unliquidated investments, and the indicative bid value range. Key to this process is meeting all steps required in a timely fashion since the window to apply for the dissolution period is contingent upon the expiry of the liquidation period, especially if a scheme’s liquidation period ends as on July 19, 2026.
All preparatory steps, including obtaining investor consent and notifying SEBI must be completed before the liquidation period expires. Further, once 75% consent by value is secured, SEBI must be informed of the decision to commence the dissolution period prior to the liquidation deadline.
To formally enter the dissolution period, the migrated VCF is required to submit an application to SEBI, along with an information memorandum and a due diligence certificate from a merchant banker, in the format prescribed by SEBI’s available here.
Settlement Scheme
It is noteworthy to mention that SEBI, at its h board meeting held on June 18, 2025, took note of a settlement scheme specifically designed to aid the settlement of violations of winding up provisions by migrated VCFs. The one-time scheme shall provide VCFs that have completed the migration to AIF Regulations with an opportunity to regularize past non-compliance related to scheme tenure. The settlement scheme shall be exclusively available to VCFs that have completed the migration to AIF Regulations and is not available to VCFs that have already surrendered their registration or chosen not to migrate by the stipulated deadline.
Conclusion
The sunsetting of the VCF regime marks a significant regulatory shift, and for legacy funds, the choices are no longer optional but imperative. Migration under the AIF Regulations framework offers a structured path forward, but only for those who act within the prescribed timelines and meet the necessary conditions. With July 19, 2025, serving as the compliance checkpoint for many, VCFs must take immediate stock of their scheme-level positions, investor dynamics, and readiness to comply with SEBI’s procedural expectations. Whether through tenure regularisation, in-specie distributions, or the dissolution period, timely action will be critical in navigating the endgame of the VCF journey. The window may be narrow, but with careful planning and prompt execution, an orderly transition is still within reach.
Authors: Leelavathi Naidu (Senior Partner), Harsh Kothari (Partner) and Tahhira Somal (Senior Associate) are part of the Funds, Asset Management and Regulatory Practice at the Mumbai office.
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