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SEBI issues consultation paper on crowdfunding

MUMBAI: Crowdfunding, which means raising funds from the general public over the internet, will soon be a legal and preferred source in India, particularly for the creative sector—media and entertainment (M&E) including films, book publishing, etc.

The Securities and Exchange Board of India (SEBI) on Tuesday issued a consultation paper on proposed rules on crowdfunding aimed at allowing start-ups to raise funds.

With the help of crowdfunding, individuals and small businesses will be able to raise money from pools of investors who can participate in peer-to-peer lending schemes or securities such as unlisted shares.

Since the concept of crowdfunding is new and at a nascent stage, global regulators are still busy devising regulatory norms. It was in last October that the US Securities and Exchange Commission (SEC) had issued draft rules for crowdfunding. Canadian regulators had issued rules early this year.

SEBI’s consultation paper regarding crowdfunding will be followed by draft regulations and later by actual rules governing crowdfunding. It has sought public comments on this paper by 16 July.

SEBI proposes to allow SMEs and start-ups to raise as much as Rs 10 crore (Rs 100 million) during a year through crowdfunding. An individual investor can invest up to Rs 60,000 with a mandatory institutional investor buying of 5 per cent of crowdfunding size.

The maximum number of individual investors in a particular issue is limited to 200.

SMEs and start-ups funded through such ventures would be required to make periodic disclosures to its investors. However, the disclosure norms would be less stringent than those for publicly listed companies.