Securities and Exchange Board of India (SEBI) has launched the VCF Settlement Scheme 2025 to provide regulatory relief for legacy Venture Capital Funds (VCFs) that have not completed liquidation of their investments within their mandated tenure. This initiative aims to resolve regulatory actions against funds that have failed to fully liquidate investments and encourages their transition into the Alternative Investment Fund (AIF) regime. VCF Settlement Scheme 2025, approved at SEBI’s June 2025 board meeting, will remain open from July 21, 2025 to January 19, 2026.
Key Highlights of VCF Settlement Scheme 2025
| Aspect | Details |
| Announced By | SEBI (Post June 2025 board meeting) |
| Application Window | 21 July 2025 to 19 January 2026 |
| Targeted Entities | VCFs whose schemes have crossed liquidation period but are still active |
| Objective | Resolve regulatory non-compliance issues & facilitate transition to AIF framework |
| Eligibility Condition | VCF must have applied for migration to the AIF regime by July 19, 2025 |
Other Key Provisions
- Additional Year: SEBI gives VCFs 1 more year to liquidate investments and close operations.
- Investor Consent: After migration, investor approval is required to enter the formal dissolution phase.
- Non-compliant VCFs post-deadline may face regulatory action.
Purpose of the Scheme
- To allow eligible VCFs to settle regulatory actions arising from delays in winding up.
- Addressed challenges faced by VCFs in liquidating investments beyond scheme tenure.
- Enable structured closure through migration to the AIF framework and investor consent.
Settlement Cost Structure
| Delay Period | Base Cost (₹) | Additional Charges |
| Up to 1 year | ₹1,00,000 | – |
| Beyond 1 year | +₹50,000 per year (or part thereof) | – |
| Based on investment value | ₹1,00,000 to ₹6,00,000 | Tiered by amount of unliquidated assets |
Note:
- All settlement expenses must be borne by the sponsor/investment manager and cannot be passed on to the fund or investors.
- A non-refundable application fee of ₹25,000 + 18% GST is mandatory.
Background: From VCF to AIF Framework
- VCF Regulations (1996) were repealed in May 2012 with the introduction of SEBI AIF Regulations (2012).
- Some VCFs failed to liquidate during their operational tenure and continued to hold investments.
- SEBI allowed such legacy funds to migrate to the AIF regime and provided an extra year for liquidation.
- VCFs failing to migrate or settle by July 19, 2025 may face regulatory action.
Significance of Scheme
- Offers an exit route for legacy VCFs and ensures regulatory compliance.
- Encourages a clean-up of legacy investment vehicles from the pre-AIF regime.
- Supports SEBI’s broader agenda of strengthening investor protection and transparency.
- Reinforces migration to a uniform, regulated investment fund architecture under the AIF system.
- By offering a clear path for migration and resolution, SEBI aims to streamline India’s alternative investments landscape and enhance investor confidence.
- It reflects SEBI’s adaptive regulatory approach, balancing compliance enforcement with transitional flexibility for legacy entities.
Why This Scheme?
- Some VCFs couldn’t liquidate investments within their scheme tenure.
- SEBI had provided a path to migrate to AIF regime for smoother wind-up.
- Even after migration, many funds still held unliquidated assets.
- The scheme now allows them to settle pending regulatory issues and avoid further action.
Venture Capital Funds (VCFs) vs. Alternative Investment Funds (AIFs)
Venture Capital Funds (VCFs)
| Feature | Details |
| Purpose | High-risk, high-return investments in startups/SMEs |
| Regulation | SEBI (VCF) Regulations, 1996 (now repealed) |
| Investor Type | Accredited & institutional investors |
| Liquidity | Close-ended; tenure-bound schemes |
Alternative Investment Funds (AIFs)
| Feature | Details |
| Regulation | SEBI (AIF) Regulations, 2012 |
| Structure | Trust, LLP, Company, etc. |
| Types | Category I, II, III (based on strategy & leverage use) |
| Target Investors | HNIs, Institutional Investors |
Categories of AIFs
| Category | Characteristics | Examples |
| Category I | Promote early-stage/startup sectors | Venture Capital Funds, Angel Funds, Infrastructure Funds |
| Category II | No leverage (except for operations) | Private Equity, Debt Funds |
| Category III | High-risk, leverage allowed | Hedge Funds, PIPE Funds |
Facts:
- SEBI (est. 1992) is the regulator for the securities and capital markets in India.
- Current SEBI Chairperson (as of 2025): Madhabi Puri Buch