New Delhi, Feb. 10 -- The Securities and Exchange Board of India has proposed a large cut in the minimum amount an individual investor can invest in social impact funds (SIFs) that put money only in non-profit organisations (NPOs) registered or listed on social stock exchanges.
The capital markets regulator, in a consultation paper issued on Monday, has suggested that the minimum investment in these funds by individual investors be reduced by almost 99.5%.
The paper also makes another significant suggestion of reducing the minimum subscription for particular projects by a third, and a third proposal of allowing extension of registration of inactive funds by a year.
Here is a quick breakdown.
What are social impact funds and where do they invest?
SIFs are a particular kind of alternative investment funds (AIFs) that invest in enterprises that seek to tackle social issues. Under SEBI's AIF regulations, SIFs are part of the Category-I funds that also include venture capital funds and infrastructure funds.
These SIFs can invest in both non-profits and for-profit social enterprises. SEBI's latest consultation paper pertains to only those funds that invest in non-profits.
What is a social stock exchange and are there any enterprises registered or listed on these exchanges?
Both the BSE and the NSE have set up SSE segments. The SSEs were first proposed by Finance Minister Nirmala Sitharama in July 2019 as part of the Union Budget for 2019-20. Subsequently, SEBI set up an expert panel to advise it on the creation of SSEs. The panel submitted its report in 2020.
SEBI allowed BSE and NSE to set up SSE verticals in late 2022 and early 2023, respectively. Currently, about 80 enterprises are registered on NSE's SSE platform.
What is the latest SEBI proposal for SIFs?
The regulator has suggested that SIFs that invest only in securities of non-profit organisations that are listed on the SSEs be allowed to onboard individual investors for as little as Rs 1,000. As of now, the minimum investment individuals need to make in such funds is Rs 2 lakh.
As the paper says, this is being suggested "to align it with the minimum application size for subscription to ZCZP in ICDR Regulations".
ICDR is short for SEBI's Issue of Capital and Disclosure Requirements Regulations. ZCZP stands for zero coupon zero principal, which qualifies bonds that do not give interest or principal payments but allow for better traceability on use of funds.
In January 2023, SEBI had reduced the minimum subscription amount for individuals directly buying ZCZP bonds from Rs 2 lakh to Rs 10,000. Then, in March 2025, it reduced the amount further to Rs 1,000. With the latest consultation paper, SEBI proposes to bring the minimum investment made through a fund in line with this.
What are the other proposals?
A second proposal is to reduce the minimum subscription requirement of issuance of ZCZP bonds to 50% from the current 75% for projects that meet certain criteria.
This option will not be available to all projects by entities listed on the SSE, but only to those projects where the cost and intended outcomes can be proportionately allocated on a "per unit" basis. This is to ensure that "partial subscription does not adversely affect the project implementation and that the issue proceeds are meaningfully deployed towards the disclosed object/s of the project in the fund raising document".
This would also be subject to SSEs undertaking due diligence of the fund-raising document and satisfying themselves about the feasibility of the project implementation at lower subscription before granting approval to the NPO for raising the funds.
The third is to allow NPOs who are listed on the exchange and have not yet raised funds to extend their registration with the exchange to three years. Currently, they can hold their registration without raising funds for only two years.
Published by HT Digital Content Services with permission from VC Circle.