Fund of Funds for Startups (FFS)

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Fund of Funds for Startups (FFS), launched under the Startup India initiative in 2016, has committed Rs. 7,385 crores to 88 Alternative Investment Funds (AIFs).

These AIFs, in turn, have invested Rs. 11,206 crores in 720 startups. 

FFS has played a huge role in mobilising domestic capital in the Indian startup ecosystem. 

Fund of Funds for Startups

• Fund of Funds is a multi-manager investment fund that helps startups by reducing the risk of investing in bonds, stocks and other types of securities. 
• The fund of funds can be domestic or international. 
• The scheme allows the startups to be registered with the Department for Promotion of Industry and Internal Trade (DPIIT) for tax benefits, easier compliance, IPR fast-tracking and self-certification on labour laws.

Objectives of the Scheme

• To create sustainable economic growth.
• To generate large-scale employment opportunities.
• To empower Startups through innovation and design.
• To minimise the risk of investing in other types of securities.

Features of this Scheme

• The startups shall be exempt from the income tax for three years under section 80-IAC of the Income Act, 1961.
• The GoI will fund a total of Rs.10,000 crore.
• Exemption from the taxation of a capital gain on the sale of shares.
• The startups could get repayment of up to 80% on filing the application for a patent.
• Simplified process in the filing of patents.
• Equal opportunities for both startups and existing enterprises.

Performance:

• The amount committed under FFS has seen notable growth over the years, recording a Compound annual growth rate of over 21% since the launch of the Scheme. 
• Also, the Small Industries Development Bank of India (SIDBI), responsible for operationalising the scheme, has recently undertaken several reforms to accelerate drawdowns and enable AIFs under FFS to avail of accelerated drawdowns.
  • This has resulted in year on year (Q1 FY 2021-22 vis-à-vis Q1 FY 2022-23) surge of 100% in the number of drawdowns. 
• FFS has helped anchor 67 AIFs out of 88 AIFs supported.
  • 38 of these are first-time fund managers in line with FFS’s core objective of anchoring venture capital investments for Indian startups.

Alternative Investment Funds (AIFs)

• AIFs refer to any privately pooled investment fund (whether from Indian or foreign sources) in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).
• As per SEBI (AIF) Regulations, 2012, AIFs shall seek registration in one of the three categories:
  • Category I: Mainly invests in start-ups, small and medium-sized enterprises or any other sector that Govt. considers economically and socially viable.
  • Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which the government gives no specific incentives or concessions or any other Regulator
  • Category III: Alternative Investment Funds such as hedge funds or funds which trade intending to make short term returns or such other funds which are open-ended and for which the government or any other Regulator gives no specific incentives or concessions.

Pic Courtesy: freepik

Content Source: PIB

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Created on September 27, 2022 By Pavithra

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Which of the following are the objectives of the Fund of Funds for Startups scheme?

1. To create sustainable economic growth.
2. To generate large-scale employment opportunities.
3. To empower Startups through innovation and design.

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1 and 2 only

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