RELIEF FOR ANGEL FUNDS: SEBI RELAXES TIMELINE FOR ALLOCATION METHODOLOGY COMPLIANCE UNDER AIF REGULATIONS

Our article in the previous edition of All Things Listed (September 2025) titled ‘Angel Funds under AIF regulations: SEBI’s new compliance and investment norms’ had covered the amendments (“Amendment”) made by SEBI to the SEBI (Alternate Investment Fund) Regulations, 2012 (“AIF Regulations”) and the circular titled ‘Revised regulatory framework for Angel Funds under AIF Regulations’ issued for providing a revised framework for Angel Funds (“Circular”). In continuation of the same, this article discusses SEBI’s recent decision to grant relief to Angel Funds by extending the timeline for compliance with the requirement to disclose and adhere to an allocation methodology under the AIF Regulations.

The Circular, among several other provisions, contained a mandate for Angel Funds in relation to the disclosure of the allocation methodology employed by the fund. Allocation methodology is a system set in place by the Angel Funds, in order to determine the allocation of the investment among the Angel Investors of the Angel Fund (who have provided approval for making such an investment by the Fund).

An allocation methodology is essential for an Angel Fund to ensure fairness, transparency, and consistency in the manner in which investment opportunities are distributed among its investors. Angel Funds typically invest in early-stage businesses with varying investor demands. Therefore, a well-defined allocation framework helps avoid conflicts and ensures that all investors are treated equitably. It provides a structured approach for determining how investment opportunities are offered, subscribed, and allotted, thereby safeguarding the investors’ confidence in the Fund and fulfilling regulatory requirements.

Disclosure of the allocation methodology in the Private Placement Memorandum (“PPM”) of the Fund ensures transparency and aid in decision-making by investors. The PPM serves as the primary disclosure document outlining the operational framework and risk factors of the fund.

The Circular requires the existing Angel Funds to mandatorily disclose an allocation methodology in their PPM for any allocations made after October 15, 2025. However, SEBI has received numerous representations, wherein requests have been raised for the extension of the timeline for the abovementioned compliance.

Based on the same, SEBI has decided to extend the said timeline to January 31, 2026, thereby providing a relaxation from compliance for the Angel Funds. Accordingly, Angel Funds are required to follow the mandate (of making investment allocations based on the disclosed allocation methodology) only post January 31, 2026. SEBI has however clarified that all other provisions effected by the Amendment or the Circular will remain unchanged.