On 10-9-2025, the Securities and Exchange Board of India (‘SEBI’) notified ‘Revised regulatory framework for Angel Funds under AIF Regulations’. The updated framework, aimed at improving ease of doing business, reducing operational risks, and enhancing transparency, introduces several key changes to how Angel Funds operate under the Alternative Investment Funds (AIF) Regulations, 2012.
What are Angel Funds
Angel Funds are regulated investment vehicles that pool capital from accredited investors to support early-stage businesses. They were introduced to channel early-stage capital into innovative ventures. An Angel Fund is a Category I Alternative Investment Fund (AIF) registered with SEBI, designed to pool capital from Accredited Investors for direct investment in early-stage businesses. These funds operate without launching separate schemes and are defined under Section 19-A (1) of SEBI AIF Regulations, 2012, which outline specific rules on compliance, investment limits, and transparency to support startup funding and protect investors.
What are the key takeaways from SEBI’s Revised Norms for Angel Funds
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These changes were formalized through the Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2025, notified on 9-9-2025.
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Under the revised framework, Angel Funds are permitted to raise capital exclusively from Accredited Investors, as defined under Regulation 2(1)(ab) of the AIF Regulations.
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Newly registered funds will be required to comply immediately, while those registered before the circular have until 8-9-2026 to transition. During this period, they can onboard up to 200 non-accredited investors but cannot accept new contributions from them after the deadline.
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Angel Funds will declare their first close within 12 months of SEBI’s acknowledgment of their Private Placement Memorandum (‘PPM’), with a minimum of five accredited investors required.
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Angel Funds will invest directly in startups without launching separate schemes, to simplify the investment structure.
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SEBI has discontinued the requirement to file term sheets, but Angel Funds must maintain internal records of each investment and the participating investors.
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Follow-on investments in existing portfolio companies that are no longer startups are permitted, provided:
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The post-issue shareholding does not exceed the pre-issue stake.
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The total investment does not exceed ₹25 crore.
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Contributions must come from original investors, on a pro-rata basis.
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To ensure investor protection and orderly exits, SEBI has mandated a lock-in period of one year for investments made by Angel Funds. This period is reduced to six months if the exit is through a third-party sale, excluding buybacks or purchases by promoters.
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Angel Funds are also permitted to invest in overseas companies, subject to guidelines issued by SEBI and the Reserve Bank of India. The 25% overseas investment limit will now be calculated based on total investments at cost, rather than corpus.
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The circular emphasizes transparency in the allocation of investment opportunities. Managers will be required to disclose a clear, non-discretionary methodology in the PPM for allocating investments among consenting investors.
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From 15-10-2025, all allocations will follow this methodology. Investors retain pro-rata rights in returns, except where profit-sharing agreements such as carried interest apply.
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In a structural shift, all Angel Funds will now be recognized as a distinct Category I AIF— Angel Fund, rather than a sub-category under Venture Capital Funds. Compliance obligations have also been tightened.
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Funds with total investments exceeding ₹100 Crore will undergo annual audits of their PPM compliance. Angel Funds are required to report investment-wise valuation and cash flow data to benchmarking agencies, and any mention of past performance must be accompanied by benchmark comparison reports.
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These changes will be applicable from the financial year 2025—26. All limits and thresholds will now be calculated based on total investments made at cost, ensuring a more accurate reflection of fund activity.
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The Circular also clarifies that due diligence thresholds, as outlined in SEBI’s October 2024 circular, it will be calculated at the individual investment level, rather than at the fund corpus level.
