Equity Dilution in India- Definition, Working, Causes, Effects

Jul 30, 2025
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Equity dilution is a concept that every founder, early investor, and shareholder needs to understand, especially as a company moves beyond the seed stage and starts to scale. It typically comes into play during funding rounds, when issuing Employee Stock Option Plans (ESOPs), onboarding strategic partners, or executing mergers and acquisitions.

In India’s rapidly evolving startup and investment ecosystem, it is really important to know how equity dilution works to maintain control, value, and strategic direction in a company.

This blog aims to simplify the concept of equity dilution by explaining what it is, how and why it happens, its implications for founders and shareholders, and, most importantly, how it can be managed smartly within the Indian business and regulatory ecosystem.

Table of Contents

What is Equity Dilution?

Equity dilution refers to the reduction in existing shareholders’ ownership percentage due to the issuance of new shares. Although it doesn't necessarily mean a loss in actual monetary value, it does mean reduced voting power, ownership stake, and potential control over the company.

For example, if a founder owns 50% of a company before a funding round and 40% after new shares are issued to investors, the 10% drop is equity dilution.

Causes of Equity Dilution in India

Several scenarios in India lead to equity dilution:

  • Fundraising through equity: When a company raises capital by issuing new shares to investors (angel, VC, PE).
  • ESOPs (Employee Stock Option Plans): Issuing shares to employees for retention and motivation.
  • Convertible instruments: When convertible debentures or notes convert to equity.
  • Mergers and acquisitions: New shares issued as part of a transaction.
  • Bonus or rights issues: Depending on the structure, these can also dilute holdings if not proportionally subscribed.

Impact of Equity Dilution

Dilution can affect stakeholders in various ways:

  • Founders: Loss of control or voting power if too much equity is given away early.
  • Investors: Reduced ownership percentages, which may affect decision-making influence.
  • Employees: If ESOPs are diluted too often, their potential upside gets reduced.
  • Company valuation: Though dilution reduces percentage ownership, it can lead to growth and higher valuations, offsetting the effect in monetary terms.

How Does Share Dilution Happen?

Share dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. While the total number of shares increases, each existing shareholder’s slice of the pie becomes smaller — unless they participate in the new issue.

Here are the most common ways share dilution happens in India:

1. Fundraising (Equity Rounds)

During seed, Series A, or later funding rounds, new investors are issued fresh equity. To accommodate them, the company increases its authorised and paid-up share capital, diluting the percentage held by existing shareholders.

Example:
A founder owns 100% of a startup with 1,00,000 shares. After raising funds from investors who are issuing 50,000 new shares, the founder’s ownership drops to 66.67%.

2. Issuing ESOPs (Employee Stock Option Plans)

Startups often set aside 5–15% of their cap table for ESOPs to attract and retain top talent. These options, once vested and exercised, convert into shares — reducing the percentage stake of other shareholders.

3. Conversion of Convertible Instruments

Instruments like convertible notes, SAFE (Simple Agreement for Future Equity), or CCDs (Compulsorily Convertible Debentures) convert into equity at a future date. When they convert, new shares are issued, which dilute existing ownership.

4. Mergers or Acquisitions

In some mergers or acquisitions, equity may be offered as part of the consideration to the merging entity or its shareholders. This leads to the issuance of new shares and causes dilution.

5. Bonus Shares to Select Stakeholders

Occasionally, a company might issue bonus shares to certain shareholders or employees as incentives, which can result in uneven dilution.

Reasons for Equity Dilution

  • Capital infusion: To fund growth, R&D, hiring, marketing, etc.
  • Strategic partnerships: Issuing equity to partners or advisors.
  • Debt conversion: Debt turning into equity through convertible notes.
  • Regulatory compliance: SEBI regulations may require public companies to maintain a certain free float, triggering new issuance.

Managing Equity Dilution in India

Equity dilution is inevitable as your startup grows — but managing it smartly can protect both your control and long-term value. Indian founders must understand the tools, strategies, and legal frameworks available to reduce unnecessary dilution and align all stakeholders.

1. Plan Your Cap Table Early

Create a 5–7 year cap table projection. Visualise future funding rounds, ESOP pools, convertible instruments, and expected dilution at each stage.

2. Raise What You Need, Not What You Can

Avoid over-raising in early rounds. Each round of funding comes at the cost of equity. Only raise what’s required to hit the next set of milestones.

3. Negotiate Better Valuations

Valuation is key to how much equity you give up. Strengthen your fundamentals, traction, and pitch to negotiate higher valuations, thus minimising dilution per rupee raised.

4. Use Convertible Instruments Strategically

Instruments like SAFE notes or CCDs can delay dilution until a priced round. Use them in early or bridge rounds to preserve equity while bringing in capital.

5. Be Thoughtful with ESOP Allocation

ESOPs are critical to building a strong team, but don’t over-allocate too early. Start with a lean pool (5–10%) and expand as your team grows and funding allows.

6. Include Anti-Dilution Provisions (If You're an Investor or Co-Founder)

While often investor-friendly, certain anti-dilution clauses can protect your equity in down rounds. Founders should understand these clauses and negotiate fair terms.

7. Consider Non-Dilutive Capital

Explore grants, government schemes (like Startup India Seed Fund, MeitY TIDE, or NIDHI), or revenue-based financing. These options offer capital with no equity dilution.

8. Maintain Founder Alignment

If co-founders have significantly unequal stakes, align expectations early. Future dilution can compound tensions if not addressed at the start.

How Shareholders Can Handle Equity Dilution?

  • Pre-emptive rights: Ensure agreements include rights to participate in future rounds to maintain shareholding.
  • Anti-dilution clauses: Particularly for investors, these can protect them from value dilution in down rounds.
  • Monitor ESOP pools: Oversized ESOP pools dilute all shareholders.
  • Regular cap table reviews: Stay updated to avoid surprises in ownership shifts.

Conclusion

Equity dilution is a natural part of a growing business, especially in India's thriving startup and investment landscape. While it may seem negative on the surface, it often enables access to capital, talent, and partnerships that fuel long-term value creation. 

The key lies in understanding, planning, and strategically managing dilution to protect stakeholder interests while supporting the company’s growth.

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Frequently Asked Questions

Why does equity dilution occur?

Equity dilution happens when a company issues new shares, usually during funding rounds, ESOP allocations, or while converting instruments like convertible notes. This increases the total number of shares, reducing the ownership percentage of existing shareholders.

Is equity dilution always bad?

Not always. Dilution is a natural part of growth, especially if you're raising capital to build a bigger, more valuable company. What matters is how much value you're gaining in return for the equity you're giving up.

How can I protect myself from equity dilution?

  • Plan your cap table in advance
  • Negotiate better valuations
  • Use convertible instruments smartly
  • Keep ESOP pools lean
  • Explore non-dilutive funding (grants, revenue-based capital)
  • Use pre-emptive rights to maintain your stake in future rounds

What is a pre-emptive right?

Pre-emptive rights allow existing shareholders to buy new shares before they're offered to others. This helps them maintain their ownership percentage and avoid unwanted dilution during future fundraising rounds.

Nipun Jain

Nipun Jain is a seasoned startup leader with 13+ years of experience across zero-to-one journeys, leading enterprise sales, partnerships, and strategy at high-growth startups. He currently heads Razorpay Rize, where he's building India's most loved startup enablement program and launched Rize Incorporation to simplify company registration for founders.

Previously, he founded Natty Niños and scaled it before exiting in 2021, then led enterprise growth at Pickrr Technologies, contributing to its $200M acquisition by Shiprocket. A builder at heart, Nipun loves numbers, stories and simplifying complex processes.

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Related Posts

A Guide to Charitable Trust Registration

A Guide to Charitable Trust Registration

Charitable trusts are powerful vehicles for driving social impact. Whether it's providing education to underprivileged children, supporting healthcare initiatives, or promoting cultural and religious values, charitable trusts operate with the sole aim of public welfare. They function as nonprofit entities, helping individuals and organisations contribute meaningfully to society.

Proper legal registration is required to set up a charitable trust. This not only establishes credibility but also enables access to tax benefits and ensures compliance with laws.

In this guide, we’ll explain everything you need to know about charitable trust registration: what it is, how to create one, the benefits, required documents, legal structure options, and a step-by-step registration process.

Table of Contents

What is a Trust?

A trust is a legal arrangement where one party (the trustor or settlor) transfers assets to another (the trustee), who manages them for the benefit of a third party (the beneficiary). Trusts can be:

  • Private trusts – Created for specific individuals or groups (like family members).
  • Charitable/public trusts – Established to serve the public good through activities in education, healthcare, relief, or religion.

Creation of Trust

Setting up a trust involves a few essential steps:

  1. Define the purpose – Clearly outline the mission or goal of the trust.
  2. Draft a Trust Deed – This is the legal document that outlines the trust’s objectives, details of trustees, mode of operations, and more.
  3. Appoint Trustees – These are individuals who will manage the trust's affairs.
  4. Identify Beneficiaries – Define who will benefit from the trust.
  5. Register the Trust – For a charitable trust to be recognized legally and receive tax exemptions, registration with the local authority is crucial.

What is a Charitable Trust?

A charitable trust is a type of public trust established to carry out philanthropic, religious, educational, or social activities. Unlike private trusts, these operate for the benefit of society at large and not for any specific individual or family.

Charitable trusts must be registered under applicable laws, such as the Indian Trusts Act, 1882, or state-specific legislation, to be legally recognised and to enjoy tax benefits.

Benefits of Setting Up a Charitable Trust

Here’s why setting up a charitable trust can be highly beneficial:

  • Tax Exemptions: Registered charitable trusts can avail of tax benefits under Sections 12A and 80G of the Income Tax Act.
  • Legal Recognition: Gives legitimacy and builds trust among donors and beneficiaries.
  • Structured Fund Management: Enables systematic handling of funds and activities.
  • Credibility and Transparency: Boosts donor confidence and supports fundraising.
  • Long-Term Impact: A legal trust ensures that social efforts continue beyond the lifespan of its founders.

Legal Structure Options for Charitable Trust

When setting up a charitable organisation, you can choose from a few legal structures:

  • Public Charitable Trusts – Governed by the Indian Trusts Act or state laws. Ideal for small to mid-sized social initiatives.
  • Societies – Registered under the Societies Registration Act, 1860. Suitable for large-scale, membership-based organisations.
  • Section 8 Companies – Formed under the Companies Act, 2013, for nonprofit purposes. Best for organisations looking for high compliance standards and credibility.

Depending on your goals, each structure has different compliance requirements, operational flexibility, and advantages.

Documents Required for Registering a Charitable Trust

To register a charitable trust, you’ll typically need the following documents:

  • Trust Deed (on non-judicial stamp paper)
  • PAN card of the trust and the trustees
  • ID and address proof of all trustees (Aadhaar, passport, voter ID)
  • Passport-size photographs of trustees
  • Proof of registered office address (rent agreement, utility bill)
  • No Objection Certificate (NOC) from the property owner (if applicable)
  • Trust objectives clearly stated in the deed

Charitable Trust Registration Process

Follow these steps to register your charitable trust:

  1. Draft the Trust Deed – Clearly define your objectives, trustees, operations, and rules.
  2. Get it Notarised – Ensure it’s on proper stamp paper and signed by the settlor and trustees.
  3. Submit to the Registrar – File the trust deed with the local Sub-Registrar office along with identity proofs and passport-size photos of trustees.
  4. Pay Registration Fees – Fees vary depending on the state and property involved.
  5. Apply for PAN – After registration, get a PAN card for the trust.
  6. Apply for 12A and 80G Certification – These allow income tax exemption for the trust and its donors.

Conclusion

Setting up a charitable trust is a meaningful way to contribute to society, but it requires careful planning, legal clarity, and compliance. Registering your trust legitimises your efforts and opens up access to tax benefits and funding opportunities.

Whether you're working toward education, healthcare, or social welfare, a properly structured and registered charitable trust ensures that your good work has a lasting impact.

Frequently Asked Questions

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Frequently Asked Questions

How Do I Register for a Charitable Trust?

To register a Charitable Trust in India, follow these steps:

Step-by-Step Process:

  1. Choose Trustees: Decide the number of trustees (minimum 2). There’s no upper limit.
  2. Draft a Trust Deed: This legal document defines the trust's objectives, operations, trustee roles, and management rules.
  3. Prepare Supporting Documents: Prepare documents like ID and address proof of all trustees, Photographs, Proof of registered office (rent agreement or ownership document + NOC), etc.
  4. Visit Sub-Registrar Office: Submit the trust deed on stamp paper (value depends on the state), signed by trustees and two witnesses.
  5. Get Trust Deed Registered: Once verified, the registrar will return a certified copy of the trust deed with an official stamp and registration number.

What is the Difference Between an NGO and a Charitable Trust?

"NGO" is a broad term referring to any non-governmental organisation working for social welfare. A Charitable Trust is a specific legal structure for an NGO.

Aspect Charitable Trust NGO
Legal form Specific type of NGO Can be a Trust, Society, or Sector 8 Company
Registration Act Indian Trusts Act, 1882 Depends on structure: Trust Act, Societies Act or Companies Act
Governing Body Trustees Governing council, Board of Directors, etc.
Best suited for Smaller, family-run or religious initiatives Formal NGOs working with the Government or donors

What are the Eligibility Criteria for a Charitable Trust?

To register a charitable trust:

  • Minimum of 2 trustees (individuals)
  • At least one trustee should be an Indian citizen
  • Must have a defined charitable objective (education, healthcare, poverty relief, etc.)
  • Should have a registered address (can be residential or rented space with NOC)
  • Trustees should not be involved in any criminal or financial misconduct

What is the Fee for Charitable Trust Registration?

The registration fee varies by state and typically includes:

  • Stamp Duty for Trust Deed
  • Notarisation Fee
  • Professional Fee

Does a Charitable Trust Have to Pay Tax?

Yes, but they can get exemptions if they register under:

  • Section 12A: Grants income tax exemption for charitable activities.
  • Section 80G: Allows donors to claim tax deductions on donations.

Key conditions to claim exemptions:

  • Funds must only be used for charitable purposes.
  • No profit distribution among trustees.
  • Accounts must be audited if income exceeds limits.

Sarthak Goyal

Sarthak Goyal is a Chartered Accountant with 10+ years of experience in business process consulting, internal audits, risk management, and Virtual CFO services. He cleared his CA at 21, began his career in a PSU, and went on to establish a successful ₹8 Cr+ e-commerce venture.

He has since advised ₹200–1000 Cr+ companies on streamlining operations, setting up audit frameworks, and financial monitoring. A community builder for finance professionals and an amateur writer, Sarthak blends deep finance expertise with an entrepreneurial spirit and a passion for continuous learning.

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Difference Between Businessman and Entrepreneur : Which Path is Right For You?

Difference Between Businessman and Entrepreneur : Which Path is Right For You?

The terms "businessman" and "entrepreneur" are often used interchangeably, but there are distinct differences between the two. Understanding these differences between entrepreneur and businessman can help you determine which path aligns best with your skills, ambitions, and vision for success. In this article, we'll explore the key differences between a businessman and an entrepreneur, examining their mindset, risk-taking approach, and business goals. While a businessman typically follows an established model, an entrepreneur creates something new and innovative. Let's delve deeper into the difference between entrepreneur and business man to help you make an informed decision about your career path.

Table of Contents

Entrepreneur Vs Businessman: Know the Differences Now!

To clearly understand the difference between entrepreneur and business man, let's compare their key characteristics:

Aspect Entrepreneur Businessman
Definition Starts an enterprise based on a new idea or concept Sets up a business with an existing idea
Innovation Constantly works towards innovation in products, business models, and marketing strategies Focuses on executing known business ideas and models
Risk-taking Willing to take greater risks for higher rewards Takes calculated risks and prefers tested methods
Motivation Driven by the desire to innovate, create, and make an impact Primarily motivated by making money and generating profits
Approach Unconventional; creates new markets and explores uncharted territories Conventional; operates based on existing market conditions
Resources Usually starts with limited resources and arranges them along the way Mostly starts with adequate capital and business skills
Competition Aims to make competition irrelevant by creating new uncontested market spaces Tries to capture market share from existing players
Growth Always looking for rapid and significant growth Satisfied with slow and steady growth as long as the business remains profitable

By examining these key differences, you can begin to understand the distinct mindsets and approaches that define an entrepreneur and a businessman. While entrepreneurs bring innovation and disruption to industries, businessmen excel at optimising existing models for profitability and longevity.

Who is a Businessman?

A businessman is an individual who operates within the confines of an existing market, focusing on profitability and stability. They typically follow proven business models, work with lower risks, and aim for steady growth rather than groundbreaking innovation. Businessmen are skilled at identifying opportunities within established industries and leveraging their expertise to maximise returns.

Qualities of a Businessman

To succeed as a businessman, one must possess a unique set of qualities that enable them to navigate the challenges of running a business effectively. Some of the essential qualities of a successful businessman include:

  • Strong decision-making skills to navigate complex business situations
  • Effective risk management to minimise potential losses
  • Excellent leadership abilities to guide teams towards common goals
  • Financial acumen to optimise budgets and maximise profits
  • Adaptability to changing market conditions and consumer demands

A businessman with these qualities can effectively steer their organisation towards profitability, make sound financial decisions, and lead their team to achieve targets and milestones.

Types of Businessman

Businessmen can be categorised based on their business model and operations. Some common types of businessmen include:

  • Small Business Owners: These individuals own and operate small-scale businesses, often in local markets or niche industries.
  • Traders: Businessmen who engage in buying and selling goods or services for profit, often in wholesale or retail markets.
  • Manufacturers: Those who own and manage manufacturing facilities, producing goods for sale to other businesses or consumers.
  • Franchise Owners: Businessmen who operate a business under a franchising agreement, following established business models and brand guidelines.
  • Corporate Businessmen: High-level executives or managers within large corporations, responsible for overseeing departments or entire business units.

Each type of businessman contributes to the economy in their own way, whether by providing employment opportunities, generating revenue, or contributing to the overall growth of their industry.

Who is an Entrepreneur?

An entrepreneur is an individual who identifies a problem or opportunity, takes on the risk of starting a new venture to address it, and comes up with innovative ideas to disrupt the market. Entrepreneurs are driven by a passion for solving problems and creating value, often venturing into uncharted territories to bring their vision to life.

Entrepreneurs focus on building scalable businesses from the ground up, constantly seeking new ways to innovate and improve upon existing solutions. They are not afraid to challenge the status quo and take bold risks in pursuit of their goals. Some famous examples of entrepreneurs include Bill Gates (Microsoft), Steve Jobs (Apple), Elon Musk (Tesla, SpaceX), and Jeff Bezos (Amazon), all of whom founded highly innovative companies that revolutionised entire industries.

Qualities of an Entrepreneur

Successful entrepreneurs possess a distinct set of qualities that enable them to navigate the challenges of starting and growing a business. Some of the key qualities of an entrepreneur include:

  • Innovative thinking to come up with original, impactful ideas
  • Comfort with taking risks to bring unproven concepts to market
  • Resilience to overcome the many challenges of starting a business
  • Strong leadership skills to build and inspire talented teams
  • Adaptability to pivot business strategies as needed
  • Creative problem-solving abilities to navigate uncharted territory

These qualities help entrepreneurs blaze new trails and create value in the world.

Entrepreneurs with these qualities are well-equipped to identify market gaps, develop unique solutions, and persevere through the ups and downs of building a successful venture.

Types of Entrepreneur

Entrepreneurs can be classified based on their approach, industry, and level of innovation. Some common types of entrepreneurs include:

  • Small Business Entrepreneurs: These individuals start and run small businesses, often serving local markets or niche industries.
  • Scalable Startup Entrepreneurs: Entrepreneurs who focus on building high-growth, innovative companies with the potential to scale rapidly and disrupt markets.
  • Social Entrepreneurs: Those who start ventures with the primary goal of creating social or environmental impact, often addressing pressing societal issues.
  • Corporate Entrepreneurs (Intrapreneurs): Entrepreneurs who operate within large corporations, driving innovation and new business development from within.
  • Innovative Entrepreneurs: Entrepreneurs who consistently push the boundaries of their industries, introducing groundbreaking products, services, or business models.

Each type of entrepreneur brings a unique perspective and set of skills to the table, contributing to the overall diversity and dynamism of the business world.

Similarities Between Entrepreneurs and Businessmen

Despite their differences, entrepreneurs and businessmen share some common traits and characteristics that contribute to their success. These similarities include:

  1. Leadership skills: Both roles require the ability to lead and motivate teams, set goals, and make critical decisions.
  2. Goal orientation: Entrepreneurs and businessmen are driven by their goals, whether it's building a successful startup or growing an established company.
  3. Financial management: Both must be skilled at managing finances, creating budgets, and making sound financial decisions.
  4. Market understanding: A deep understanding of their target market, customer needs, and industry trends is essential for both entrepreneurs and businessmen.

While their approaches may differ, both entrepreneurs and businessmen play crucial roles in driving economic growth, creating jobs, and generating value for their stakeholders. Recognising these shared traits can help aspiring entrepreneurs and businessmen focus on developing the skills and qualities that are most likely to contribute to their success, regardless of the path they choose.

Final Thoughts

Choosing between the path of an entrepreneur or a businessman ultimately depends on your individual goals, risk appetite, and preferred work style. If you thrive on stability, have strong management skills, and prefer working with established business models, the path of a businessman may be right for you. On the other hand, if you're a passionate risk-taker with a drive to solve problems and disrupt industries with innovative ideas, entrepreneurship could be your calling.

Regardless of the path you choose, understanding the difference between a businessman and an entrepreneur is crucial in aligning your skills and passions with your professional goals. By recognising the key differences between entrepreneur and business man, you can make an informed decision about which route best suits your unique strengths and aspirations.

Ultimately, both entrepreneurs and businessmen contribute significantly to the economy, and society needs each type to thrive. The key is to align your career path with your unique strengths, passions, and goals. Whether you choose to be an innovator or an optimiser, the business world offers endless opportunities for growth and success.

Frequently Asked Questions

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Frequently Asked Questions

Who is bigger-entrepreneur or businessman?

Neither entrepreneurs nor businessmen are inherently "bigger" than the other. The scale and impact of their ventures depend on various factors such as industry, market conditions, and individual success. Some entrepreneurs may build large, disruptive companies, while some businessmen may run highly successful, established corporations.

Is a businessman also called an entrepreneur?

While businessmen and entrepreneurs share some common traits, they are not necessarily the same. A businessman typically operates within established market frameworks, focusing on profitability and stability, while an entrepreneur is driven by innovation and takes risks to create new products, services, or markets.

What are the challenges of being an entrepreneur and a businessman?

Both entrepreneurs and businessmen face challenges in their respective roles. Entrepreneurs often face high risk, uncertainty, and the need to constantly innovate, while businessmen may struggle with adapting to changing market conditions, maintaining profitability, and managing complex operations.

Are businessmen and entrepreneurs equally focused on long-term goals?

Both businessmen and entrepreneurs have long-term goals, but their focus may differ. Entrepreneurs often prioritize building scalable, innovative companies with the potential for high growth, while businessmen may focus on steady, long-term profitability and market share within established industries.

Who is an example of an entrepreneur?

Some well-known examples of entrepreneurs include Steve Jobs (Apple), Bill Gates (Microsoft), Elon Musk (Tesla, SpaceX), Jeff Bezos (Amazon), and Mark Zuckerberg (Facebook). These individuals founded innovative companies that disrupted industries and created entirely new markets.

Who is an example of a businessman?

Examples of successful businessmen include Warren Buffett (Berkshire Hathaway), Mukesh Ambani (Reliance Industries), Ratan Tata (Tata Group), and Lakshmi Mittal (ArcelorMittal). These individuals have led and grown large, established companies, focusing on profitability and market dominance within their respective industries.

Eashita Maheshwary

With nearly a decade of building and nurturing strategic connections in D2C space, Eashita is a business growth strategist known for turning networks into revenue, relationships into partnerships, and ideas into actionable growth.

A three-time founder across gender diversity, investing, and real estate-hospitality sectors, Eashita Maheshwary brings a unique blend of entrepreneurial empathy and ecosystem expertise. Now focused on helping startups and businesses scale, she specializes in enabling growth through partnerships with a proven track record of working across geographies like India and the Middle East.

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Pradhan Mantri Mudra Yojana (PMMY) for Startups | Razorpay Rize

Pradhan Mantri Mudra Yojana (PMMY) for Startups | Razorpay Rize

The PMMY scheme launched in 2015 aims to provide MUDRA Loans to small and micro enterprises through various commercial banks, RRBs, SFBs, NBFCs, and Cooperative Banks.

Description Who is it for? Benefits
To loan funds in the form of MUDRA for promoting MSMEs For small-scale businesses & MSMEs Business loans ranging from Rs.50,000 to Rs.10 lakh can be applied under this scheme, which is divided into three categories: Sishu, Kishor, and Tarun.

The loan range may vary depending on growth, development, and funding needs. The MUDRA loan can be categorized into

  • Sishu - Up to Rs. 50,000
  • Kishore - Rs. 50,000 to 5 Lakh
  • Tarun - Rs. 5 Lakh to 10 Lakh
The essentials of US Incorporations - documents, eligibility and process.

Table of Contents

Eligibility

  • Must have business plans for service sector activities or trading or manufacturing activities.
  • In the case of an individual applicant, the age range must be between 18 and 65 years.
  • Must be a non-corporate and non-farm small and micro-enterprise.

Documents Required for the PMMY Scheme

  • Proof of identity
    Self-attested copy of Voter's ID card/Driving Licence/PAN Card/AadhaarCard/Passport/Photo IDs issued by Govt. authority etc.
  • Proof of Residence
    Recent telephone bill/electricity bill/property tax receipt (not older than 2 months) / Voter's ID card / Aadhaar Card / Passport of Individual / Proprietor/Partners/Bank passbook or latest account statement duly attested by Bank officials/Domicile certificate/certificate issued by Govt. authority/Local panchayat/Municipality etc.
  • Applicant's Recent Photograph (2 copies) 6 months or older.
  • Proof of Identity/Address of the Business
    Copies of relevant licenses/registration certificates/other documents pertaining to the ownership, identity, and address of the business unit, if any

Other relevant documents, like proof of category, quotation, etc., are also required during the application process.

Application procedure

If you are eligible, applying for a MUDRA loan is relatively easy and can be done both online & offline.

Online

  • Visit the official website of the PMMY-authorized financial institution from which you wish to avail of the Mudra loan.
  • Download the relevant form depending on the type of loan (Sishu, Kishore, and Tarun).
  • Fill out all the personal and business details and then “Submit” the form.
  • Once received, the application form is verified and processed accordingly. Following the verification, the loan amount is approved and disbursed.
  • The loan amount can be withdrawn with the help of a MUDRA card issued after the loan approval.
Application procedure

Offline

  • Visit a PMMY-authorized bank or NBFC of your choice.
  • Fill out the MUDRA loan application form with the required details.
  • Submit the application form with a self-written business plan and other documents to substantiate those details.
  • After successful document verification, the loan will get approved, and the desired amount will be credited.
  • Must have the required infrastructure and targeted acceleration programs.

Benefits of the PMMY Scheme

  • MUDRA loans can be taken for small amounts at affordable interest rates; also, the credit guarantee is borne by the Government.
  • This scheme could be availed without any collateral or security.
  • The Mudra loan scheme in collaboration with the “Make In India” campaign, helps in fostering innovation, facilitating investment, and improving skill development.
  • Women Borrowers can avail this scheme with discounted interest rates.
  • Relief of up to 1500 Crore will be provided to the Borrowers as Interest Subsidy under the Mudra Shishu Category.

Achievements Under PMMY Scheme

Here’s a table to highlight the achievements under the PMMY scheme in the last 3 years.

No. of PMMY loans sanctioned Amount sanctioned
FY 23–24 66777013 INR 541012.86 Crores
FY 22–23 62310598 INR 456537.98 Crores
FY 21–22 53795526 INR 339110.35 Crores

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Frequently Asked Questions

Who is eligible to apply for the PMMY Scheme?

Individuals, including entrepreneurs, micro-enterprises, and small businesses in the non-corporate, non-farm sector, are eligible to apply for loans under the PMMY Scheme.

Is there any collateral required for loans under the PMMY Scheme?

Loans under the PMMY Scheme are collateral-free, meaning borrowers do not need to provide any security or collateral to avail of the loans, making them accessible to a wider segment of the population.

Can existing businesses apply for loans under the PMMY Scheme, or is it only for new startups?

The PMMY Scheme is open to both existing businesses and new startups. As long as the business falls under the micro-enterprise or small business category and meets the eligibility criteria, it can apply for a loan under the scheme.

What is the role of the Micro Units Development and Refinance Agency (MUDRA) in implementing the PMMY Scheme?

The Micro Units Development and Refinance Agency (MUDRA) acts as the nodal agency for the implementation of the PMMY Scheme. It works in collaboration with various financial institutions to ensure the effective disbursal of loans and monitoring of the scheme's progress.

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We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

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