India Angel Network opposes Sebi norm on lock-in period

IAN planning to take up the matter with Sebi

India's first and Asia's largest angel investor group, India Angel Network (IAN) today raised concerns over financial regulator, Sebi's recent move to lay down a three-year lock in period for angel investment in a company.

"Lock-in period is not what we are happy with. This should remain flexible because the exit of an angel investor should depend on the requirement of the company concerned. There are instances where our investors have exited within 15 months," Padmaja Ruparel, President  of India Angel Network (IAN) told Business Standard responding to a query on the same, on the sideline of the launch IAN's Kolkata chapter.

In its guidelines issued on June 26, Sebi laid down norms for angel investors stipulating a minimum three-year lock in period for divesting their funds in the company.

Opposing the three-year lock in period norm, IAN is planning to take up the matter with Sebi.

However, according to Ruparek, the Sebi move to structure angel investment is a welcome decision as angel investors are allowed to register as an Alternative Investment Funds (AIF) regulations as a separate sub category, which enjoys tax-pass through status.      "The implications of tax pass through status are still not clear as we are yet to study the fineprint of the SEBI guidelines.  Generally it applies for pooled fund investment and investors using the funds are taxed, not the angel investors. Earlier, angel fund, was not considered as structured asset class and was taxed, which meant taxing on capital," she added.  

So far other aspects of Sebi guidelines are concerned, angel funds have been allowed to invest only in unlisted companies, which are not more than three years old, with a turnover not exceeding Rs 25 crore. Also, angel investors are not permitted to invest in ventures promoted by friends and family members of promoters of the fund. The minimum investment by an angel in a venture has been pegged at Rs 50 lakh.