SEBI’s VCF Settlement Scheme 2025

The Securities and Exchange Board of India (SEBI), in a recent initiative to streamline legacy compliance issues, has introduced the VCF Settlement Scheme 2025, set to open on July 21, 2025. This move is aimed at facilitating the resolution of violations related to the winding-up of Venture Capital Funds (VCFs) that have migrated to the Alternative Investment Fund (AIF) regime. The scheme provides an opportunity for VCFs that have not yet completed the winding-up process despite the expiry of their liquidation periods. It reflects SEBI’s responsive approach to regulatory transition and investor protection.

Background

In May 2012, SEBI notified the AIF Regulations, which replaced the older VCF Regulations. Following this, VCFs were provided a framework to migrate to the AIF regime. However, many VCFs continued to hold unliquidated investments even after the expiry of their tenure, leading to non-compliance with the winding-up provisions. This created a regulatory vacuum and potential investor risk, prompting SEBI to consider a structured settlement mechanism.

Significance of the Scheme

The VCF Settlement Scheme 2025 holds significant importance as it offers a one-time window for VCFs to rectify past regulatory breaches without facing harsh enforcement actions. It also protects the interests of investors whose funds remain locked in schemes that have technically expired but are not wound up. The initiative reinforces regulatory trust and enables smoother compliance for legacy funds in transition.

Objectives of the VCF Settlement Scheme

• To resolve past violations related to the non-winding-up of VCFs post-tenure.
• To provide a final opportunity for migrated VCFs to align with SEBI’s compliance norms.
• To facilitate investor exit from long-pending schemes.
• To prevent enforcement action by encouraging voluntary compliance under a defined framework.

Key Features of the Scheme

1. Opening Date: July 21, 2025
2. Closing Date: January 19, 2026
3. Applicable only to VCFs that have migrated to the AIF regime and whose liquidation period has expired.
4. VCFs must have completed the migration before July 19, 2025, the last date to apply for migration.
5. SEBI may initiate enforcement action against defaulting VCFs post-deadline if they do not utilize the scheme.
6. The scheme offers a structured path for such VCFs to wind up their schemes after obtaining investor approval for a dissolution period.