How to Set Up an Angel Fund in India Under SEBI's 2025 Rules

An angel fund lets a group of experienced investors back early-stage startups through one SEBI-registered vehicle instead of dozens of individual cheques. SEBI overhauled the angel fund framework in 2025 through the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025, notified on 8 September 2025, and a circular dated 10 September 2025. The new regime is narrower on who can invest and more flexible on how deals are done.

This note explains what changed, who can invest, how to set up an angel fund now and what compliance looks like. It is general guidance, not legal advice. Several limits below are still settling, so each must be checked against SEBI's current text before you rely on it.

What changed in 2025

Angel funds are now a distinct sub-category of Category I AIFs, instead of a type of venture capital fund. The old scheme-by-scheme construct and the filing of each deal's term sheet with SEBI were removed, and the manager now verifies each investor's accredited status at the time of investment.

Two other changes matter for deal flow. The per-investee limits moved: the minimum an angel fund can invest in a startup fell from Rs 25 lakh to Rs 10 lakh, and the maximum rose from Rs 10 crore to Rs 25 crore. And angel funds with aggregate investments above Rs 100 crore at cost need an annual audit of compliance with their PPM, from financial year 2025-26.

Accredited investors only: the new gate

Angel funds registered after 10 September 2025 can take money only from accredited investors. Existing angel funds had a transition window to 8 September 2026, during which they could not have more than 200 non-accredited investors; check whether any further relief applies to your fund.

Accreditation is granted by an accreditation agency, not self-declared, and SEBI eased the net-worth certificate paperwork in a circular dated 9 January 2026. Bodies corporate, trusts and firms have separate thresholds. For an individual, HUF, family trust or sole proprietor, the test is any one of these:

• Annual income of at least Rs 2 crore.
• Net worth of at least Rs 7.5 crore, with at least Rs 3.75 crore in financial assets.
• Annual income of at least Rs 1 crore and net worth of at least Rs 5 crore, with at least Rs 2.5 crore in financial assets.

Angel fund or angel network: which do you need?

Many groups start as an angel network, where members invest directly in each startup and the network only curates deals. That generally needs no AIF registration as long as the network does not pool or manage members' money. Once outside money is pooled into an LLP, company or trust that invests on the members' behalf, it can look like an unregistered fund, so take legal advice before you pool.

An angel fund suits a group that wants one entry on each startup's cap table, professional management, a clean record of every investor's position and Category I tax treatment. It costs more to run than a network, and after 2025 every investor must be accredited.

Setting up an angel fund, step by step

Some angel-fund rules are still settling after the overhaul, including the conditions an investee company must meet, the minimum holding period, the concentration cap, the angel-specific continuing interest and the minimum corpus. The earlier rules required a one-year lock-in for angel fund investments; take the current position on all of these from SEBI's text, not from summaries, including this one.

With that caveat, the process follows the general AIF route with angel-specific terms. Every step can change:

• Settle the sponsor, the manager and the trustee, and confirm the manager's key investment team meets SEBI's eligibility tests.
• Execute and register the trust deed, obtain a PAN and open a bank account for the fund.
• Draft the PPM and the contribution agreement around accredited investors, the per-investee limits and the deal allocation process.
• Apply to SEBI on the Intermediary Portal for registration as a Category I angel fund.
• Build investor onboarding: KYC, accreditation checks at the time of each investment, and the records the PPM audit will need.

Tax and compliance for an angel fund

As a Category I AIF, an angel fund gets pass-through tax under Section 115UB of the Income-tax Act, 1961: income other than business income is taxed in investors' hands, and the fund deducts tax on distributions under Section 194LBB. The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, so section references are changing; map each provision you rely on to the new Act.

For founders taking angel fund money, the old angel tax worry is largely gone: the Finance (No. 2) Act, 2024 omitted Section 56(2)(viib) with effect from assessment year 2025-26. Valuation still matters, for the startup's own records and for FEMA pricing where the fund's investment counts as foreign investment.

Ongoing compliance includes SEBI reporting, investor reporting, KYC and accreditation records, the annual PPM audit once the Rs 100 crore threshold is crossed, and the fund's own tax return and TDS filings.

Frequently asked questions

Can a non-accredited investor still invest in an angel fund?

Not in a fund registered after 10 September 2025. Existing funds had a transition window to 8 September 2026; after that, check the current rules before accepting new money from any investor who is not accredited.

What is the minimum and maximum an angel fund can invest in one startup?

After the 2025 changes, a minimum of Rs 10 lakh and a maximum of Rs 25 crore per investee company. Check the investee eligibility conditions in the current regulations as well.

How does someone become an accredited investor in India?

By applying to an accreditation agency with proof of income or net worth. An individual qualifies with annual income of at least Rs 2 crore, or net worth of at least Rs 7.5 crore, or income of at least Rs 1 crore with net worth of at least Rs 5 crore, with at least half of the net worth in financial assets in the last two routes.

Is an angel fund better than investing through an angel network?

It depends on the group. A network is cheaper and generally needs no registration if members invest directly; an angel fund gives one professional vehicle, a single cap-table entry and Category I tax treatment, at the cost of registration and ongoing compliance.

Related guides

• Startup fundraising in India: pre-seed to Series A
• Angel tax under Section 56
• DPIIT startup recognition benefits
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