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Impact Investing as an emerging asset class and the regulatory response in India

14 Sep 2022

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This article was contributed as a chapter to the IIC’s handbook titled ‘India Impact Investing: A multidimensional view on enabling social impact’. You may access the complete handbook here.



By Upasana Rao (Partner), Jayesh Kumar Singh (Associate), and Megha Neelakshi Katheria (Research Analyst)

Impact investing has gained focus in recent times driven by increasing attention to sustainability factors in the world at large. The role of investors in the impact ecosystem is being viewed beyond simply allocating capital, as many investors are now interested in assessing the impact and sustainability outcomes of their investments with intentionality. While the primary objective for an investment fund is to generate a financial return and minimise risk for its beneficiaries, the defining feature of impact investing is to pursue additional, or even distinct, sustainability impact goals. In view of these dual objectives, there is merit in the proposition of impact investing as a separate asset class as it would encourage different investors to increase their asset allocation to social and environmental impact goals. While certain recent regulatory amendments were introduced to target increasing the flow of impact capital, further legal intervention is needed from time to time to keep up with the momentum of the impact sector.

AIF – Social Impact Funds

Alternate Investment Funds (AIFs) are a significant source of private capital for impact sectors from domestic and foreign investors. The SEBI AIF Regulations first introduced Social Venture Funds (SVFs) as a Category-I AIF that could invest primarily in securities of social ventures that satisfied its own criteria for social performance and provided restricted or muted returns to the investors. Only trusts, societies and not-for profit companies registered under Section 8 of Companies Act 2013 were eligible as social ventures that could receive investment from SVFs. The regulations overlooked for-profit social enterprises as viable avenues of investment by SVFs and carried a negative connotation with the use of the phrase “restricted or muted returns” that failed to encapsulate the value of social returns for impact investors.

The recent SEBI (Alternative Investment Funds) (Amendment) Regulations of July 2022 have re-christened the term SVFs to Social Impact Funds (SIFs) and relaxed certain investment conditions to attract a deeper pool of capital from different classes of investors for a wider range of impact areas.

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