Sebi Proposes Significant Reduction in Minimum Investment for Social Impact Funds
The Securities and Exchange Board of India (Sebi) has made a pivotal proposal aimed at revolutionizing social impact investments. On Monday, Sebi suggested slashing the minimum investment for individual investors in social impact funds from the current Rs 2 lakh to just Rs 1,000. This bold move is designed to enhance retail participation and simplify fundraising processes for not-for-profit organizations (NPOs) on the Social Stock Exchange (SSE).
Key Changes Proposed by Sebi
– Minimum Investment Reduction: Individual investors’ minimum investment in social impact funds would decrease to Rs 1,000 from Rs 2 lakh.
– Alignment with Regulations: This reduction aligns with the existing application size for Zero Coupon Zero Principal Instruments (ZCZP) as per ICDR norms, which supports greater retail involvement in social impact investments.
– Extended Registration Period: Sebi proposed extending the registration duration for NPOs on the SSE from two years to three years without fundraising, acknowledging practical challenges such as delays in regulatory approvals.
– Lowered Subscription Requirement: For issuing ZCZP instruments, the minimum subscription requirement may be reduced from 75% to 50% in specific cases. This change is intended for projects with clearly identifiable per-unit costs and outcomes, ensuring partial subscriptions don’t hinder project execution.
– Investor Protection Measures: If the minimum subscription threshold is not met, funds will be refunded to investors, promoting transparency and trust.
Objectives Behind the Proposal
Sebi aims to strengthen the SSE framework, facilitating easier fundraising and encouraging increased participation by NPOs. By lowering the financial barrier for entry, the regulator hopes to attract a broader range of investors, thereby diversifying the funding sources for impactful social initiatives.
Conclusion
The proposed changes by Sebi represent a significant step forward in democratizing access to social impact investments. By reducing the minimum investment threshold, the regulator opens the door for a wider range of investors to contribute to meaningful social change. This initiative not only enhances retail participation but also supports the sustainability of not-for-profit organizations in India, ultimately driving positive societal impact.