Regulation 12 - Investment conditions and restrictions. - Securities And Exchange Board of India (Venture Capital Funds) Regulations, 1996

1 [Investment conditions and restrictions. 12. All investment made or to be made by a venture capital fund shall be subject to the following conditions, namely:- (a) venture capital fund shall disclose the investment strategy at the time of application for registration; (b) venture capital fund shall not invest more than 25% corpus of the fund in one venture capital undertaking; 2 [(ba)venture capital fund may invest in securities of foreign companies subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and the Board from time to time.] (c) shall not invest in the associated companies; and (d) venture capital fund shall make investment 3 [* * *] as enumerated below: (i) at least 4 [66.67%] of the investible funds shall be invested in unlisted equity shares or equity linked instruments 5 [of venture capital undertaking]. 6 [***] (ii) Not more than 7 [33.33%] of the investible funds may be invested by way of: (a) subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed 8 [***]; (b) debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.] 9 [(c)preferential allotment of equity shares of a listed company subject to lock in period of one year; (d) the equity shares or equity linked instruments of a financially weak company or a sick industrial company whose shares are listed. Explanation 1.- For the purpose of these regulations, a financially weak company means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year; (e) Special Purpose Vehicles which are created by a venture capital fund for the purpose of facilitating or promoting investment in accordance with these Regulations. Explanation .-The investment conditions and restrictions stipulated in clause (d) of regulation 12 shall be achieved by the venture capital fund by the end of its life cycle;] 10 [(e) venture capital fund shall disclose the duration of life cycle of the fund.] --------------------- Notes: 1. Substituted, ibid. Prior to the substitution, Regulation 12 read as under: 12. Restrictions on investment by a venture capital fund- All investments made or to be made by a venture capital fund shall be subject to the following restrictions: (a) the venture capital fund shall not invest in the equity shares of any company or institution providing financial services; (b) at least 80 percent of funds raised by a venture capital fund shall be invested in:- (i) the equity shares or equity related securities issued by a company whose securities are not listed on any recognised stock exchange: Provided that a venture capital fund may invest in equity shares or equity related securities of a company whose securities are to be listed or are listed where the venture capital fund has made these investments through private placements prior to the listing of the securities. (ii) the equity shares or equity related securities of a financially weak company or a sick industrial company, whose securities may or may not be listed on any recognised stock-exchange. Explanation: For the purposes of this regulation, a financially weak company means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year. (iii) providing financial assistance in any other manner to companies in whose equity shares the venture capital fund has invested under sub-clause (i) or sub-clause (ii),as the case may be. Explanation: For the purposes of this regulation, funds raised means the actual monies raised from investors for subscribing to the securities of the venture capital fund and includes monies raised from the author of the trust in case the venture capital fund has been established as a trust but shall not include the paid up capital of the trustee company, if any . 2. Inserted by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2006, w.e.f. 25-01-2006. 3. Words in venture capital undertaking omitted by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 4. Substituted for 75 % by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 5. Inserted for the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 6. Proviso omitted by the SEBI (Venture Capital Funds) (Second Amendment) Regulations, 2000, w.e.f. 30-12-2000. Prior to omission, the proviso read as under: Provided that if the venture capital fund seeks to avail of benefits under the relevant provisions of the Income Tax Act applicable to a venture capital fund, it shall be required to disinvest from such investments within a period of one year from the date on which the shares of the venture capital undertaking are listed in a recognized Stock Exchange. 7. Substituted for 25% by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 8. Words subject to lock-in period of one year omitted by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 9. Inserted by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004. 10. Inserted by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2004, w.e.f. 05-04-2004.