Budget 2025: FM Sitharaman Announces ₹10,000 Crore Fund for Startups

India’s startup ecosystem just got a major push! Union Finance Minister Nirmala Sitharaman, in her 8th budget speech, announced a fresh ₹10,000 crore Fund of Funds to support startups. This initiative comes with an expanded scope, aiming to fuel innovation and growth in the sector.

For those unfamiliar, a Fund of Funds (FoF) works differently from traditional investment models. Instead of directly funding startups, it invests in venture capital and private equity funds that, in turn, support emerging businesses. This creates a ripple effect, enabling a larger pool of startups to benefit from structured funding.

So far, Alternate Investment Funds (AIFs) for startups have already received over ₹91,000 crore in commitments, all backed by the government’s earlier ₹10,000 crore Fund of Funds. With this new infusion, even more startups can access vital funding to scale their businesses.

Understand Key Points of FoF and AIFs

Regulatory Oversight

• FoFs operate under mutual fund regulations, ensuring investor protection and transparency. In India, they are regulated by SEBI (Securities and Exchange Board of India), which sets clear guidelines for their operation.
• AIFs follow a different rulebook—SEBI (Alternative Investment Funds) Regulations, 2012. These regulations offer more investment flexibility but also require greater disclosures and investor qualifications.

Investment Strategy

• FoFs primarily invest in other mutual funds or ETFs. The idea is to diversify across fund managers and investment styles to create a balanced portfolio with controlled risk.
• AIFs can invest in high-risk, high-reward opportunities, including venture capital, startups, and distressed assets—investments that aren’t available through regular mutual funds.

Who Should Invest?

Fund of Funds (FoF) – Ideal for Beginners & Diversification Seekers

• Designed for retail investors and those who prefer a hands-off approach.
• Suitable for individuals looking for lower risk and steady returns.
• Requires a lower minimum investment, making it accessible to a wide range of investors.

Alternative Investment Fund (AIF) – Best for High-Net-Worth & Institutional Investors

• Tailored for those who understand market complexities and can handle higher risks.
• Attracts investors looking for non-traditional assets with potential for high growth.
• Requires a significant initial investment, limiting access to select investors.

Addressing the Startup Funding Slowdown

While this new fund is great news, it comes at a time when Indian startups have been struggling with funding challenges. According to a report by GlobalData, startup funding in India dropped by a staggering 66% from January to November 2023. In this period, startups managed to raise $6.9 billion across 1,013 venture capital deals, a sharp decline from the $20.2 billion raised during the same time in 2022.

Easier Access to Credit for Startups

The finance minister didn’t just stop at funding—she also introduced measures to make credit more accessible. Startups will now be eligible for loans ranging from ₹10 crore to ₹20 crore, with a reduced guarantee fee of just 1%. This move is set to benefit businesses in 27 key sectors, helping them thrive under the Atmanirbhar Bharat (Self-Reliant India) initiative.

What This Means for Entrepreneurs

For Indian entrepreneurs, this budget brings a mix of relief and opportunity. While funding challenges remain, the government’s renewed commitment to supporting startups through structured funds and easier credit access could provide the much-needed boost to innovation and business growth.

With the right strategy, startups can now leverage these financial opportunities to scale, innovate, and contribute to India’s growing economy. If you’re a founder or investor, this is the time to stay optimistic and make the most of these new initiatives!

Conclusion

The government’s decision to expand the Fund of Funds with an additional ₹10,000 crore reflects its commitment to fostering startup growth in India. Despite a significant decline in startup funding in 2023, these initiatives aim to provide much-needed financial support and improved credit access. With lower guarantee fees and targeted sectoral focus, the new measures will help strengthen India’s startup ecosystem and drive the vision of Atmanirbhar Bharat forward.