Social Impact Fund
Also written SIF · Social impact funds · Social venture fund
A Category I AIF investing primarily in social ventures and social enterprises, which satisfies the social performance norms laid down by the fund and may both take and give grants.
In plain language
Most funds have one test: did the money grow? A social impact fund has two. It must earn a return and satisfy the social performance norms laid down by the fund itself, and it invests primarily in the securities, units or partnership interest of social ventures or in the securities of social enterprises.
A social venture, in the regulations, is a trust, society, company, venture capital undertaking or LLP formed for promoting social welfare, solving social problems or providing social benefits.
The distinctive feature is grants. A social impact fund may accept grants, and it may give grants to social ventures or social enterprises. No other AIF sub-category works that way, and the reason it can is that a grant, by definition, earns nothing: no profits or gains may be attributed to the person who provided it.
How it works
The 75% floor. At least 75% of investable funds must go into unlisted securities or partnership interest of social ventures, units of social ventures, or securities of social enterprises. An existing social impact fund may put the remaining investable funds into the securities of not-for-profit organisations registered or listed on a social stock exchange, but only with the prior consent of at least 75% of investors by value of their investment.
The 100% case. A social impact fund — or a scheme of one — launched exclusively for a not-for-profit organisation registered or listed on a social stock exchange may deploy 100% of its investable funds into the securities of such NPOs.
Grants in. The fund may accept grants provided they are used subject to the same 75% condition. The minimum grant from any person is Rs 10 lakh, and that minimum does not apply to accredited investors. No profits or gains may be attributed to the grant provider.
Grants out. The fund may give grants to social ventures or social enterprises, provided appropriate disclosure is made in the PPM.
Social Stock Exchange alignment. SIFs must align with the Social Stock Exchange framework by ensuring their investee NPOs meet the eligibility, disclosure and reporting requirements, and must build Annual Impact Report (AIR) compliance — including assessment by Social Impact Assessors — into their monitoring and reporting.
A worked example
Sahaj Impact Fund I has investable funds of Rs 320 crore. The 75% floor is Rs 240 crore.
| Deployment | Rs crore |
|---|---|
| Unlisted equity of an affordable-diagnostics social venture | 95 |
| Partnership interest in a rural-sanitation LLP | 60 |
| Securities of two listed social enterprises | 95 |
| Qualifying total | 250 (78.1%) |
| Securities of NPOs listed on the Social Stock Exchange | 45 |
| Undeployed | 25 |
That Rs 45 crore into NPO securities sits in the residual bucket, so the manager must first obtain the prior consent of investors holding at least 75% by value — on a Rs 320 crore fund, holders of Rs 240 crore or more of the commitments. Consent from nine investors holding Rs 218 crore is not enough, however many investors that is by headcount.
Separately, a corporate donor offers a grant of Rs 8 lakh. The donor is not an accredited investor, so the Rs 10 lakh minimum applies and the grant cannot be accepted at that size. The same Rs 8 lakh from an accredited investor could be.
The fund then makes a grant of Rs 2 crore to a school-nutrition social venture. That is permitted because the PPM discloses the grant-making policy — and the donor of the Rs 10 lakh grant in gets nothing back from it, because no profits or gains may be attributed to a grant provider.
Why NISM asks about it
Chapter 2 defines the fund and the social venture at 2.3.10; Chapter 4 gives the four additional conditions at 4.1.10. Questions come off the numbers and the consents: the 75% of investable funds floor, the 75%-by-value investor consent needed to use the residual on social-stock-exchange NPOs, the 100% permission for an NPO-exclusive fund or scheme, the Rs 10 lakh minimum grant and its accredited-investor exemption, and the rule that no profit or gain may be attributed to a grant provider.
Common exam traps
- Two different 75%s. One is 75% of investable funds deployed in social ventures and social enterprises. The other is consent from 75% of investors by value before the residual goes into social-stock-exchange NPOs. Questions deliberately blur them.
- Consent is by value of investment, not by number of investors. A majority of heads holding a minority of money does not clear it.
- The Rs 10 lakh minimum applies to grants, not to investments — and it does not apply to accredited investors.
- A grant provider earns nothing. If a question offers a grant with a return attached, it is not a grant.
- The 100% deployment permission is narrow: only for a fund or scheme launched exclusively for an NPO registered or listed on a social stock exchange.
- Social venture and social enterprise are not the same word twice. A social venture is the trust, society, company, VCU or LLP formed for social purposes; social enterprises are the entities recognised under the Social Stock Exchange framework.
Where this is taught
- Series XIX-D · Chapter 3: Alternative Investment Funds in India and its Suitabilityintroduced here
- Series XIX-B · Chapter 2: Growth of Alternative Investment Funds in India and Suitability of Category III AIFsintroduced here
- Series X-A · Chapter 13: Overview of Alternative Investment Funds (AIFs)introduced here
- Series XIX-A · Chapter 2: Alternative Investment Funds in Indiaintroduced here
- Series XIX-A · Chapter 4: Regulatory Framework - Indian Context
Related terms
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- Alternative Investment FundA privately pooled investment vehicle registered with SEBI that raises money from select Indian or foreign investors under a defined investment policy — never from the public at large.
- Social Stock ExchangeUnder the SEBI ICDR Regulations 2018, a separate segment of a recognised stock exchange with nationwide trading terminals, permitted to register not-for-profit organisations and list the securities they issue.
- Infrastructure FundA Category I AIF investing primarily in the unlisted securities, partnership interest or listed and securitised debt of companies and SPVs that operate, develop or hold infrastructure projects.
- Special Situation FundA sub-category of Category I AIF that invests only in special situation assets — stressed loans, security receipts and the securities of defaulting companies — and may act as a resolution applicant under the IBC.
- Category I AIFThe AIF category for funds the government or a regulator treats as socially or economically desirable — venture capital, angel, SME, social impact, infrastructure, special situation and CDMDF funds.
- Economic Internal Rate of ReturnThe IRR of a project widened to include the direct and indirect economic benefits it creates, whether or not they reach the fund — as distinct from the financial IRR the fund actually earns.