SEBI introduces Venture Capital Funds Settlement Scheme, 2025 for VCFs with expired liquidation periods

Following the repeal of the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (VCF Regulations) and upon the notification of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, Venture Capital Funds (VCFs) registered under the former regime have continued to be regulated under the repealed VCF Regulations until the winding up of their existing schemes.  However, several VCFs have faced challenges in liquidating investments within their tenures, resulting in schemes that remain active beyond their expiry and VCFs holding unliquidated investments beyond the expiry of their tenure.

To address these challenges, the Securities and Exchange Board of India (SEBI) through its circular dated August 19, 2024, provided for migration of such VCFs to the Alternative Investment Fund (AIF) regime, granting VCFs an additional year for liquidation and the option to enter a dissolution period with investor approval (which can be accessed here).  The deadline for filing such migration applications was July 19, 2025.

SEBI has announced the Venture Capital Funds Settlement Scheme (VCF Settlement Scheme) to provide legacy VCFs which have failed to wind up expired schemes despite having migrated to the AIF regime, an opportunity to regularise compliance.

Key features of the VCF Settlement Scheme are outlined below:

• Eligibility and Validity:

• • The scheme is open to VCFs with at least one scheme whose tenure has expired but remains unwound and which have completed migration to the AIF regime.

• • The scheme will be operational from July 21, 2025, to January 19, 2026 (both dates inclusive), or such other date as may be approved by SEBI.

• Filing of Application: Eligible funds must file a formal settlement application in the prescribed format and pay a non-refundable application fee of INR 25,000 plus applicable GST. The application format will be available on SEBI’s website.

• Settlement Terms:

• • For delays up to one year in winding up, a base settlement amount of INR 1,00,000 is payable.For each additional year or part thereof, an incremental amount of INR 50,000 applies.

• • An additional amount is payable based on the cumulative value of unliquidated investments as of the date of the migration application, in accordance with the matrix prescribed by SEBI.

• • Remittance of the settlement amount is required to be made through a dedicated payment gateway, details of which will be available on SEBI’s website.

• Conditions for Settlement:

• • migration to the AIF regime must be completed by VCFs prior to applying for settlement under the VCF Settlement Scheme; and

• • the settlement amount and all expenses related to settlement must be borne by the investment manager or sponsor of the VCF and cannot be recovered from the scheme, fund, or investors.

 SEBI has clarified that funds with expired schemes holding unliquidated investments, which fail to avail the VCF Settlement Scheme by July 19, 2025, may face regulatory action.

 Conclusion:

The move underscores SEBI’s intent to address legacy regulatory gaps while offering a one-time compliance window for older funds caught in transition. The VCF Settlement Scheme is expected to enhance clarity for investors and enable funds to formally conclude their obligations through a structured process.