SEBI Sets Deadline for Venture Capital Funds to Shift to AIF Structure by July 2025

In a significant regulatory move, the Securities and Exchange Board of India (SEBI) has obligatory and mandated the regulations related to all Venture Capital Funds (VCFs) which are registered under the SEBI (Venture Capital Funds) Regulations, 1996, are required to transition to the AIF framework under the SEBI (Alternative Investment Funds) Regulations, 2012, by July 25, 2025." 

Background

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• VCF Structure (1996): VCFs were regulated under SEBI’s 1996 regime, which was aimed at mainly facilitating early-stage capital investment.  

  
  

• AIF Regulations (2012): Came into effect with a normative framework that aimed to standardize and provide more clarity and flexibility of pooling fund capabilities that was more comprehensive than VCFs.  

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Why Migration?

This is not simply a regulatory move on the bureaucratic side of things, it seems to be a move toward modernity, transparency, and to align with the realities of today’s investments. Here's why SEBI is doing this:

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This table demonstrates why SEBI is directing the shift from the prior VCF regulations to the AIF structure by July 2025. The move is not just procedural but it also is a major modernisation aimed to improve transparency, governance, and investors' confidence in India's  evolving investment ecosystem.

 What Does This Mean for Existing VCFs?

VCFs that were registered under the 1996 regulations have two choices:

• Re-register as AIFs under the 2012 framework by July 2025.

• Wind down operations by the deadline by July 2026, if they don’t plan to continue.

SEBI has stated that legacy funds will not be permitted to raise new capital unless they transition to the AIF structure.

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Current Mandates

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• Migration Deadline: SEBI demands that any legacy VCF to transitions into Category I AIFs under a new “migrated VCF” sub-category must submit their migration application by 19 July 2025. 

  
  

• Extended Liquidation Timeline: Post-migration, funds managing expired schemes get an additional year, until 19 July 2026, to complete wind-ups.

SEBI’s Engagement

Many Venture Capital Funds (VCFs) are experiencing challenges with migration to the Alternative Investment Fund (AIF) regime, primarily due to asset liquidation delays and a lack of clarity regarding reporting under AIF norms. Certain VCFs remain operational despite the expiry of their scheme tenures and have yet to initiate the transition process. Additionally, industry feedback revealed outdated contact records and confusion surrounding the regulatory shift.

SEBI has collaborated with Venture Capital Funds (VCFs) and industry bodies such as IVCA and PEVCCFO to resolve these issues and support the transition from VCFs to AIFs. In response to the issues, SEBI has taken the following actions:

Affected Funds &            Issues	SEBI's Responses & Measures
Asset Liquidation Delays	Liquidation Extension: Granted a one-year extension until July 19, 2026, for winding up expired schemes.  Purpose of the extension:Gives invaluable time to funds to clean up without compromising their governance and avoiding impairing their investors' returns.
Lack of Clarity on AIF Reporting & Compliance	Direct Engagement: Engaged with VCFs and industry bodies like IVCA and PEVCCFO to clarify challenges.  Industry Feedback & Support: Invited industry feedback and promoted dialogue to address confusion and assist with compliance.
Tepid Response to Migration Circular	Fixed Migration Deadline: Maintained the firm deadline of July 19, 2025, for VCFs to apply for migration to the AIF framework.  Migration Framework: Introduced a one-time migration window with simplified re-registration, fee waivers, and customized compliance norms.
Outdated Contact Records & Operational VCFs Past Tenure	Proactive Outreach: Partnered with IVCA and PEVCCFO to disseminate information and effectively reach out to VCFs. Compliance Enforcement: Emphasized that VCFs operating past their permitted tenure without migration may face regulatory action.
Challenges with Residual Assets & Winding Up.	Structured Path: The migration framework offers a structured path for managing residual assets and ensuring regulatory compliance.  Conditions for Migration: Migration is limited to well-governed and fully compliant funds with no outstanding investor grievances or governance concerns.

Implications & Outlook

• Regulatory Clarity: The firm's July 2025 deadline signals SEBI’s intent to finalise the consolidation of funds under the modern AIF umbrella.

  
  

• Industry Cleanup: Underperforming or non-compliant legacy VCFs face a decision between migration or surrendering their registration.

  
  

• Compliance Plus Time: The extra liquidation window reflects SEBI’s flexible yet structured approach, allowing a smoother glide path without compromising oversight.

Conclusion 

SEBI’s decisive move balances momentum and flexibility, pressing VCFs to align with the contemporary AIF regime while offering them breathing space to cleanly wrap up legacy portfolios. For fund managers, the crux lies in the timely submission of migration applications by mid‑July 2025, backed by prompt and disciplined asset wind-down.