Crowdfunding
Raising small amounts from many people online, and what is and is not allowed in India
Rules in force on 16 October 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what 'crowdfunding' means to them. Most will picture a charity drive or a product campaign. Few know that raising equity from the public this way is not a permitted route in India. This deck draws that line.
Crowdfunding means raising a little money from a large number of people, usually over the internet.
In India, whether it is allowed depends on what the backer gets in return: nothing, a product, a loan repayment, or shares. The last one is where the law is strict.
Trainer notes
Keep this slide up. The whole deck turns on one question: what does the person who gives the money receive? That answer decides which law applies.
Four kinds of crowdfunding
Donation-based
You give money as a gift and get nothing back. Used for causes, medical bills and relief, like an online charity drive.
Reward-based
You pledge money and get a product or a perk in return, often before it is made. No shares and no money back.
Lending (P2P)
You lend to borrowers through a platform and are repaid over time, usually with interest. You can lose money.
Equity-based
Backers get shares and a claim on future profits. This is an offer of securities, where the rules are strict.
Take-away: The return to the backer decides the law: a gift, a product, a loan, or shares.
Trainer notes
The first two give no financial return, so they are not an offer of securities. The last two do, which is why one is regulated by RBI and the other is restricted by securities law.
What is allowed in India
The same word, four very different legal answers.
| Type | What the backer gets | Status in India |
|---|---|---|
| Donation | Nothing; it is a gift. | Allowed. Not an offer of securities, so outside SEBI's remit. |
| Reward | A product or a perk, not money. | Allowed. No financial return, so not a securities offer. |
| Lending (P2P) | Repayment, usually with interest. | Allowed only through an RBI-registered NBFC-P2P platform. |
| Equity | Shares and a claim on profits. | Not permitted as a public offer online. SEBI has notified no crowdfunding rules. |
Sources: SEBI press release PR No. 137/2016, 30 Aug 2016; RBI NBFC-P2P Directions, 2025; Companies Act, 2013.
Trainer notes
SEBI's 2016 release does not use the word 'crowdfunding'; it cautions that unauthorised electronic platforms facilitating fund-raising contravene securities laws. It does not address donation or reward campaigns, which offer no securities.
Why public equity crowdfunding does not fit
THE PLAN
A start-up wants to raise ₹2 crore.
It plans to offer shares to 1,000 people online, at ₹20,000 each. These figures are invented.
- A private placement under the Companies Act may be offered to at most 200 people in a financial year, per kind of security.
- This plan reaches 1,000 people: 1,000 × ₹20,000 = ₹2 crore. That is far above 200.
- An offer to more than 200 people is a deemed public offer, which needs a prospectus and listing on a recognised stock exchange.
- An online crowdfunding platform is not a recognised stock exchange, so the shares cannot be sold to the public this way.
Result: Raising equity from the public online is not permitted in India. The limit is the law, not the website.
Illustration with invented, round figures. Not a forecast and not legal advice.
Trainer notes
The 200-person cap is in Section 42 of the Companies Act, read with the Prospectus and Allotment Rules, and excludes qualified institutional buyers and employees under an ESOP. Crossing it is a 'deemed public offer' even if the company never meant to list.
The regulated routes that do exist
A company that wants outside money has legal ways to raise it.
Private placement
Offer shares or debentures to up to 200 people in a financial year, under Section 42 of the Companies Act. No public advertising.
Angel fund or AIF
A SEBI-registered angel fund, a type of alternative investment fund, pools money from accredited investors to back start-ups.
SME exchange listing
Small companies can raise equity from the public through the stock exchanges' SME platforms, with a prospectus and SEBI's framework.
P2P lending
Lending-based funding is allowed through an RBI-registered NBFC-P2P platform, which is only an intermediary and cannot lend itself.
Sources: Companies Act, 2013, s.42 and PAS Rules, 2014, r.14; SEBI AIF Regulations, 2012; SEBI ICDR Regulations, 2018; RBI NBFC-P2P Directions, 2025.
Trainer notes
The common thread: a regulator (SEBI or RBI) sits behind each legal route. The platform that is not behind any of them is the problem SEBI flagged in 2016.
If you learnt this from older material
What older decks say
- SEBI floated a consultation paper, so equity crowdfunding rules are on the way.
- Online platforms let the public buy shares in start-ups.
- Crowdfunding is one single, new way to raise money.
What holds now
- SEBI has notified no crowdfunding regulations since its paper of 17 Jun 2014.
- In Aug 2016 SEBI warned that unauthorised online fund-raising platforms break securities laws.
- The answer depends on the type: donation and reward yes, P2P via RBI, public equity no.
Take-away: The 2014 paper was only a proposal. The 2016 caution is a warning, not a new rule.
Sources: SEBI Consultation Paper on Crowdfunding, 17 Jun 2014; SEBI press release PR No. 137/2016, 30 Aug 2016.
Trainer notes
Older material was written in 2014-15, when a SEBI framework looked likely. The framework never came; instead SEBI cautioned investors in 2016. Treat the 2014 paper as history, not current rule.
Four things people get wrong
Misconception'All crowdfunding is banned in India.'
What is trueDonation and reward crowdfunding are allowed, and P2P lending through RBI-registered platforms; only public equity crowdfunding is not permitted.
Misconception'Backing a campaign makes me an owner.'
What is trueIn donation and reward crowdfunding you get a thank-you or a product, not shares and not a share of any profit.
Misconception'A reward campaign guarantees the product.'
What is trueYou are backing a plan. The product can be late or may never arrive. The checking is on the backer; there is no SEBI cover.
Misconception'P2P lending is like a bank deposit.'
What is trueIt is lending to individuals. The platform cannot guarantee repayment or any return, and the money lent is at risk.
Trainer notes
The sharpest line to land: the word 'crowdfunding' hides four different legal situations. Never answer 'is crowdfunding allowed?' without first asking what the backer gets.
Four questions before backing a campaign
What do I get back?
A gift, a product, a loan repayment, or shares? The answer tells you which law, if any, protects you.
Who regulates it?
A P2P loan sits behind an RBI-registered platform. A donation or reward campaign has no SEBI or RBI cover for the offer itself.
Is this an equity offer?
If someone online offers you shares in a start-up as a 'crowdfunding' deal, treat it with great caution: SEBI has flagged such platforms.
Can I lose it all?
With lending and equity, yes. Early-stage ventures fail often, and there is no assured return and no deposit cover.
Take-away: We explain how crowdfunding works and where the law stands. We do not recommend any campaign or platform.
Trainer notes
This is the slide to rehearse for a client conversation. The job is to help them see which kind of crowdfunding they are looking at, and that only some kinds have a regulator behind them.
Check yourself
Question 1: A start-up offers shares to 1,000 people through a website. Why is this not a permitted route in India?
Answer: A private placement may reach at most 200 people in a financial year. An offer to more than 200 is a deemed public offer, which needs a prospectus and a recognised stock exchange. A website is not one, and SEBI has notified no crowdfunding rules.Question 2: A friend lends money through a peer-to-peer platform and asks if it is regulated. What do you tell them?
Answer: Yes, but only if the platform is registered with RBI as an NBFC-P2P. It is only an intermediary: it cannot lend itself or guarantee repayment, and the money lent is at risk.Question 3: Someone says 'crowdfunding is illegal in India.' Is that right?
Answer: No. Donation and reward-based crowdfunding are allowed, and P2P lending is allowed through RBI-registered platforms. It is public equity crowdfunding that is not a permitted route.
Sources and disclaimer
Sources for the figures in this explainer
- SEBI cautioned that unauthorised electronic platforms facilitating fund-raising contravene securities laws: SEBI press release PR No. 137/2016, 30 Aug 2016 (sebi.gov.in).
- SEBI proposed, but never notified, a securities-based crowdfunding framework: SEBI Consultation Paper on Crowdfunding in India, 17 Jun 2014.
- Private placement may be offered to at most 200 persons a year per kind of security (excl. QIBs and ESOP); more is a deemed public offer: Companies Act 2013 s.42; PAS Rules 2014 r.14.
- Peer-to-peer lending is regulated by RBI; the platform must register as an NBFC-P2P: RBI (NBFC-P2P) Directions, 2025, dated 28 Nov 2025.
- Angel funds and SME listing as regulated routes: SEBI (AIF) Regulations, 2012; SEBI ICDR Regulations, 2018.
- All company names, figures and campaigns in the worked example are invented for illustration and refer to no real venture.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).