SEBI Issues New Framework for Angel Funds and Co-Investments

Circular No. SEBI/HO/AFD/AFD-POD-1/P/CIR/2025/126., Dated 09.09.2025

1.Introduction

The Securities and Exchange Board of India (SEBI), pursuant to the amendments notified on 9th September 2025 to the AIF Regulations, has issued a revised framework for Angel Funds and also permitted Category I and II Alternative Investment Funds (AIFs) to offer co-investment opportunities through separate schemes. These reforms are aimed at strengthening investor protection, improving governance, and enhancing transparency in India’s growing alternative investment space.

2. Revised Framework for Angel Funds

Under the revised norms, Angel Funds are required to raise funds exclusively from accredited investors. This ensures that only investors with adequate financial capacity and risk awareness participate in these high-risk investment vehicles. Additionally, Angel Funds must comply with prescribed timelines for their first close, bringing discipline and certainty to the fundraising process.

3. Compliance in Investments and Allocation

SEBI has also tightened requirements relating to investments, allocation, and reporting by Angel Funds. These measures mandate adherence to revised guidelines on how investments are structured, how allocations are distributed among investors, and how regular audits are conducted. Such rules are designed to increase accountability and minimize risks of mismanagement.

4. Framework for Co-Investment Schemes

For Category I and II AIFs, SEBI has permitted co-investment through separate schemes. These co-investment structures must maintain ring-fencing of assets, uphold pro-rata rights of investors, and ensure robust disclosure and governance mechanisms. By ring-fencing, SEBI ensures that co-investment assets remain separate from the parent fund’s portfolio, preventing conflicts of interest and safeguarding investor interests.

5. Conclusion

The revised framework for Angel Funds and the introduction of structured co-investment schemes represent a progressive step in deepening India’s AIF ecosystem. By insisting on accredited investor participation, timely closures, enhanced governance, and stricter disclosure requirements, SEBI has created a more transparent and resilient regulatory environment. These reforms are expected to boost investor confidence and promote long-term, sustainable growth in the alternative investment industry.

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