What Is an Angel Fund? SEBI’s Accredited-Investor Route Into Startups

An angel fund is a pooled vehicle for backing startups. SEBI defines it as a sub-category of Category I Alternative Investment Fund that raises money from accredited investors and invests under a dedicated chapter of the AIF Regulations, Chapter III-A.

The unusual part is control. In a normal AIF you commit money and the manager decides where it goes. In an angel fund, the manager brings you each startup and you decide, deal by deal, whether to put money in. SEBI's own board paper puts it plainly: an angel fund "is not a blind-pool product like an AIF, but more akin to an investment under Portfolio Management Service", except that the shares are held in the fund's name rather than yours.

So an angel fund in India sits between two worlds. It has the paperwork, registration and tax status of a SEBI fund. It keeps the choice of an individual angel investor who writes cheques to founders directly.

Since September 2025 it is open only to accredited investors and the fund's own key staff. If you are not accredited, it is closed to you, whatever the size of your cheque.

This guide covers only the angel-fund sub-category. For Category I as a whole, including venture capital, SME, infrastructure and social impact funds, see our separate explainers on Category I AIFs.

Angel funds were added to the AIF Regulations with effect from 16 September 2013. SEBI's explanation for why is unusually candid. The framework followed the Union Budget 2013-14 and was meant to give companies relief from section 56(2)(viib) of the Income-tax Act, 1961, the so-called "angel tax". That provision taxed an unlisted company on share premium received above fair market value, treating the excess as income.

Raising money through a registered angel fund was a way around that problem, and for a decade that shield was a big part of its appeal.

The original rules looked very different from today's:

• An "angel investor" needed net tangible assets of at least Rs 2 crore, excluding the main home, plus early-stage investing experience, serial-entrepreneur experience or ten years in senior management. A body corporate needed net worth of Rs 10 crore.
• Each investor had to put in at least Rs 25 lakh.
• The fund needed a corpus of at least Rs 5 crore.
• Each startup could receive Rs 25 lakh to Rs 10 crore.
• No scheme could have more than 200 angel investors, and no more than 25% of total investments could sit in one company.

By 31 March 2025 there were 103 angel funds registered with SEBI, with Rs 10,138 crore of commitments and Rs 4,439 crore invested. Five years earlier there had been 15 funds and Rs 351 crore invested. SEBI put the growth in investments at a compounded 61% a year.

Growth exposed problems. SEBI's inspections found managers verifying angel investors through "self-declarations and social media profiles". It also found "platform Angel Funds" showing unlisted startup deals to large numbers of people through websites while keeping each deal under 200 contributors. SEBI worried this could look like a public offer by the back door.

The tax rationale was also fading. The Finance (No. 2) Bill, 2024 provided that section 56(2)(viib) would not apply from assessment year 2025-26. With angel tax gone, SEBI asked its advisory committee whether angel funds should be regulated at all. The answer was yes, with a reset.

That reset came through the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025, effective 9 September 2025, and a SEBI circular dated 10 September 2025. Existing funds were moved out of the venture capital sub-category and became "Category I AIF – Angel Funds" in their own right.

Two later steps matter:

• 3 June 2026: the angel fund modalities were folded into Chapter 8 of SEBI's Master Circular for AIFs.
• 7 September 2026: SEBI extended the deadline for older funds to go accredited-only, from 8 September 2026 to 31 March 2027.

The SEBI angel fund rules below are drawn from the AIF Regulations as amended up to 15 October 2026 and the September 2025 and September 2026 circulars.

Regulation 19D(1) now says angel funds "shall raise funds only from accredited investors". Key management personnel of the fund or its manager may also invest. An angel investor is therefore an accredited investor or such a staff member, nothing else.

An individual, HUF, family trust or sole proprietor qualifies as an accredited investor by meeting one test:

The fourth test came in with the AIF (Third Amendment) Regulations, 2026, effective 15 October 2026. Body corporates, LLPs and non-family trusts need net worth of Rs 50 crore or securities market exposure of Rs 20 crore. The same amendment lets a specified SEBI-registered entity grant accreditation, not only an accreditation agency, and deems persons resident outside India to be accredited. SEBI still has to specify how the exposure test and the new route work, so until that circular arrives, most individuals will continue to use a certificate from an accreditation agency.

There is no minimum investment for an angel investor under regulation 19D(2). The old Rs 25 lakh floor is gone. A fund must still onboard at least five accredited investors before its first close, and that first close must happen within 12 months of SEBI taking its placement memorandum on record.

For funds registered on or before 10 September 2025 there is a transition, extended by SEBI on 7 September 2026:

• until 31 March 2027 they may offer deals to no more than 200 non-accredited investors;
• after that date they cannot accept money for a new investment from non-accredited investors;
• existing investors keep the investments they already hold.

Funds registered after 10 September 2025 have been accredited-only from day one.

Regulation 19F(2) sets the band: an angel fund's investment in any investee company must be at least Rs 10 lakh and no more than Rs 25 crore. The old band was Rs 25 lakh to Rs 10 crore.

The target must be a startup, meaning a private limited company or LLP that meets the Department for Promotion of Industry and Internal Trade (DPIIT) startup criteria. DPIIT revised those criteria in February 2026; law-firm summaries report a turnover ceiling of Rs 200 crore and a longer window for deep-tech companies. The startup also must not be promoted or sponsored by, or related to, a corporate group whose group turnover exceeds Rs 300 crore.

Three further limits apply to each deal:

• at least two accredited investors must contribute to it;
• the fund cannot invest in its own associates;
• no investor who is a related party of the startup can contribute to that deal.

Because the fund has no schemes, the 1,000-investor cap and the Rs 20 crore corpus rule that bind other AIFs do not apply. Nor does the general rule that a Category I fund keep any one company to 25% of its investable funds.

Every investment by an angel fund is locked in for one year. The lock-in drops to six months if the fund exits by selling to a third party. A buy-back by the startup or a purchase by its promoters or their associates does not count as a third-party sale.

Startups that grow quickly stop being startups. The 2025 rules let an angel fund make follow-on investments in such companies on three conditions:

• the fund's post-issue shareholding percentage cannot exceed its pre-issue percentage;
• total investment in the company, including follow-ons, stays within Rs 25 crore;
• only investors in the original deal can fund the follow-on, pro rata, with unused rights offered to the others in that deal.

Angel funds can also invest in companies incorporated outside India, within the AIF overseas limit of 25%, which for angel funds is measured on total investments at cost.

The manager or sponsor must hold a continuing interest in each investment of at least 0.5% of the amount invested or Rs 50,000, whichever is higher. It cannot be created by waiving management fees. The old rule was 2.5% of corpus or Rs 50,000, whichever was lower, so the new one ties the manager to every deal.

Other duties:

• disclose and offer every opportunity to all angel investors in the fund;
• set out an allocation methodology in the placement memorandum that leaves no case-by-case discretion, applied to investments made after 15 October 2025;
• give investors pro-rata rights in each investment and its proceeds, except for agreed carried interest to the manager or its team;
• flag when a deal involves an existing investee company or its related party;
• keep term sheets and the list of contributors for each investment.

Units of an angel fund cannot be listed on a stock exchange. Funds whose investments at cost exceed Rs 100 crore must have an annual audit of compliance with their placement memorandum, and all angel funds report valuation and cash-flow data to benchmarking agencies from FY 2025-26.

Here is the typical path of one investment.

1. Onboarding. You complete KYC, show your accredited investor certificate, and sign the contribution agreement. You do not commit to any startup yet.
2. Deal sourcing. The manager screens startups, negotiates a term sheet and runs due diligence.
3. Offer to everyone. The opportunity goes to all investors in the fund, with the term sheet and any related-party disclosure.
4. Your decision. You approve or skip. The manager can take money only from investors who approve.
5. Allocation. If approvals exceed the round size, the manager allocates using the methodology in the placement memorandum, with no discretion.
6. Investment. The fund invests directly, without launching a scheme. Its own contribution of at least 0.5% goes in alongside.
7. Holding period. The investment is locked in for one year. You receive valuations and reporting.
8. Follow-ons. If the startup raises again, investors in the original deal get the first right to fund the follow-on, pro rata.
9. Exit. Proceeds from a secondary sale, merger or IPO come back to the investors in that deal, pro rata, after any agreed carried interest.

Each investment can have a different set of investors. Two people in the same angel fund may own completely different portfolios.

The three terms are often confused.

The angel fund vs angel network question is mainly about structure. Many networks run an angel fund as their regulated arm. When you invest directly as a network member, you own the shares, you sign the shareholder agreement and you deal with the company. When you invest through an angel fund, the fund owns the shares, the manager handles documents and reporting, and the regulator supervises the manager.

SEBI has long insisted on individual consent. In 2020 it told one large platform that a lead angel could not approve deals on behalf of all investors. The 2025 rules write that into regulation 19G.

The angel fund vs venture capital fund comparison turns on control and size. A venture capital fund raises a blind pool from investors who commit at least Rs 1 crore, and its investment committee decides. Each scheme needs a corpus of at least Rs 20 crore, and the manager's continuing interest is 2.5% of corpus or Rs 5 crore, whichever is lower. An angel fund has no corpus floor, no ticket floor and a manager stake tied to each deal. VC funds also tend to invest later and in larger amounts, though the Rs 25 crore angel ceiling now overlaps with many seed and Series A rounds.

SEBI's quarterly statistics show angel funds had raised Rs 10,987 crore of commitments by 30 June 2026, of which Rs 6,688 crore had been called and Rs 5,610 crore invested. Category I AIFs as a whole had Rs 1,13,041 crore of commitments, so angel funds are just under a tenth of the category.

The gap between commitments and investments is typical: investors commit broadly, then choose deal by deal.

The wider market has been harder. Tracxn data reported by Moneycontrol shows Indian angel rounds fell from 1,495 in 2024 to 834 in 2025, and capital deployed fell from about US$5.35 billion to US$3.85 billion.

Technology shapes this market in three ways:

• Deal platforms. Many angel funds are run by online platforms that show deals, collect approvals and handle paperwork. SEBI's 2025 rules were partly a response to how widely such platforms showed deals.
• Accreditation data. Accreditation agencies that are also KYC registration agencies can draw on existing KYC records, and the securities-exposure test approved by the SEBI Board on 24 September 2026 is designed to be checked from market data. SEBI counted 649 accredited investors on 29 May 2025 and 4,492 on 28 August 2026.
• Reporting. AIF units are held in demat form, and angel funds now send investment-wise valuation and cash-flow data to benchmarking agencies, so investors can compare a fund's record with peers.

1. You choose every startup. Nothing is invested in your name without your approval. For a hands-on investor this is the main attraction.
2. No regulatory minimum. An accredited investor can spread a modest amount across many deals, subject to the fund's own minimums and the Rs 10 lakh minimum per deal at fund level.
3. Professional deal flow and paperwork. The manager sources, negotiates, documents and monitors. You do not sign dozens of shareholder agreements or chase founders for updates.
4. The manager has money in every deal. At least 0.5% of each investment or Rs 50,000 must come from the manager or sponsor.
5. Rules against favouritism. Every opportunity goes to every investor, allocation follows a published method, and economic rights are pro rata.
6. Follow-on access. You can keep your stake in a winner through later rounds, up to the Rs 25 crore company limit.
7. Pass-through tax. As a Category I AIF, an angel fund generally does not pay tax on capital gains; you pay as if you had invested directly.
8. A cleaner cap table for founders. One fund replaces many small shareholders, which helps later rounds, and the founder deals with one professional counterparty.

Angel fund taxation now has two separate parts: what happens to the startup, and what happens to you.

For the startup, the old angel tax is gone. Under the Finance (No. 2) Bill, 2024 memorandum, section 56(2)(viib) does not apply from assessment year 2025-26, which removes the tax reason angel funds were created for. The Income-tax Act, 2025, in force from 1 April 2026, did not bring it back.

For you as an investor, an angel fund is a Category I AIF, so it has statutory pass-through status. This sits in section 224 of the Income-tax Act, 2025, which replaced section 115UB of the 1961 Act. The main effects:

• Gains keep their character. A long-term gain on unlisted startup shares, held for more than 24 months, is taxed at 12.5% without indexation. A gain on shares held for 24 months or less is short-term and taxed at your slab rate. Because the lock-in is only one year, a quick third-party sale can produce short-term gains.
• Business income stays in the fund. If the fund has business income, it is taxed in the fund and exempt in your hands.
• Income can be taxed before you get cash. Income not paid out by the end of the tax year is deemed credited to you on its last day.
• TDS of 10% applies to income distributed to resident unit holders, and is credited against your final tax.

Surcharge and 4% cess apply on top, and the surcharge on these capital gains is capped at 15% for individuals.

Losses are where angel fund taxation becomes uncomfortable. Business losses stay in the fund. Other losses, such as capital losses, pass through to you only if you have held the relevant units for at least 12 months. Whether, and when, a write-off of a failed startup becomes a deductible capital loss depends on whether there is a "transfer", which is a fact-specific question.

Management fees carry 18% GST. Non-residents face withholding at the rates in force and treaty questions. Treat this section as a map, not advice, and consult a tax adviser before investing.

Here is how to invest in an angel fund in practice.

1. Check your status. See whether you meet one of the accredited investor tests. Accreditation agencies issue certificates, generally valid for two years, or three if you met the criteria in each of the two preceding years. The October 2026 changes may alter this once SEBI issues its circular.
2. Get the certificate. Apply to a SEBI-recognised accreditation agency with KYC and income or net-worth evidence.
3. Shortlist SEBI-registered funds. Confirm registration as a Category I AIF – Angel Fund on SEBI's list of registered AIFs. A network or platform is not the same as a registered fund.
4. Read the placement memorandum. Look for the allocation methodology, fees, carried interest, expenses, how follow-ons work and how conflicts are handled.
5. Ask the manager hard questions. How many deals a year? How many reached a priced follow-on round? What is the fund's benchmark report? Who sits on the investment committee? What is the minimum per deal?
6. Sign and onboard. Provide KYC, the certificate and the contribution agreement.
7. Approve deals selectively. Read every term sheet. Saying no is your right and your main risk control.
8. Track and plan for tax. Keep the fund's annual tax statements, budget for advance tax on deemed income, and record each deal's dates for the holding-period rules.

Treat each deal as money you may never see again, and spread across many startups rather than a few.

An angel fund hands you the decision on every deal, so the quality of your homework matters more than in a blind-pool fund. PMS Sahi Hai is built for the step before you sign: understanding the structure and seeing it next to the alternatives. Here is what the platform offers, and where it stops.

What you can do on the site

• Put the offer in context. The AIF comparison page lists AIFs across Category I, II and III with strategy, vintage, AUM, one-year return, lock-in and a Nyra score, and lets you filter by category. Use the Category I filter to see how other startup-focused vehicles, such as venture capital funds, compare with the angel fund you have been offered.
• Ask Nyra in plain English. Nyra, the platform's AI research tool, can explain how an angel fund differs from a VC fund or which category fits your horizon. Its published methodology scores strategies on five pillars and marks anything with under 12 months of track record as "Not Rated" rather than guessing, which matters because many angel funds and their deals are young.
• Go deeper on the two hardest parts. Our guide to the AIF minimum investment and the accredited investor route walks through the tests and the certificate, and Is AIF Tax Free? explains the pass-through rules line by line.

What it does not do

The site does not issue or check accredited investor certificates; only a SEBI-recognised agency does that. It does not show an angel fund's deal-by-deal term sheets, so those still come from the manager. Nyra describes itself as an analytical tool, not a SEBI-registered investment adviser.

One more practical point. If you see the old Rs 25 lakh angel fund minimum or a 49-investor cap quoted anywhere, including older pages on this site, that information predates the September 2025 rules. The figures in this guide reflect the regulations as amended to 15 October 2026.

Angel funds are a regulated way to take an unregulated amount of risk. The main limitations:

• Most startups fail or stall. Early-stage outcomes are skewed; a few winners carry the portfolio. The 2025 fall in angel rounds shows how quickly funding can dry up for follow-on rounds.
• Long and uncertain exits. The one-year lock-in is a minimum, not an exit date. Real exits come through later funding rounds, acquisitions or IPOs, often many years later, and units cannot be listed or easily sold.
• Concentration. Angel funds are not bound by the 25% single-company limit that applies to other Category I funds, and each investor's portfolio depends on the deals he or she picks.
• Selection risk on you. Results depend on your own deal choices as much as the manager's.
• Valuation risk. Startup valuations are set in private rounds and can be marked down sharply.
• Fewer protections. The accredited investor framework assumes you can look after yourself, and some safeguards that apply to other investors do not apply.
• Transition confusion. Older funds may still have non-accredited investors until 31 March 2027, and some web pages still quote the old Rs 25 lakh minimum and Rs 5 crore or Rs 10 crore corpus rules.
• Tax friction. Deemed income, TDS and the 12-month loss rule can mismatch tax with cash.
• Fees. Management fees, carried interest and expenses eat into a few large wins.

An angel fund suits a narrow investor: accredited, able to lock money away for many years, comfortable losing most of what is put into any single startup, and willing to read term sheets. For that person, it is a cleaner and better-supervised way to back startups than writing direct cheques through informal groups.

It is not a substitute for a diversified Category I or II fund, nor for an investor who needs liquidity or income. Keep the allocation small and spread it across many deals. Before you commit, use PMS Sahi Hai's comparison tools and Nyra to see how the structure stacks up against other Category I options.

An angel fund puts the deal decision in your hands, so the quality of your information matters more than in almost any other fund. Before you commit:

• filter Category I funds on the PMS Sahi Hai AIF comparison page to see the alternatives side by side;
• ask Nyra how an angel fund fits your horizon, liquidity needs and existing portfolio;
• confirm your accreditation status and the latest SEBI position, then read the placement memorandum with a tax adviser.

Startups reward patience and punish haste. Do the comparison first, and back only the deals you understand.