The International Financial Services Centres Authority has operationalised a comprehensive regulatory framework for fund managers operating in International Financial Services Centres (IFSCs) through the International Financial Services Centres Authority (Fund Management) Regulations, 2025, as amended up to January 30, 2026.
Under the framework, no entity can undertake fund management activities in an IFSC without obtaining a certificate of registration from IFSCA. The regulations create three distinct categories of Fund Management Entities (FMEs) — Authorised FMEs, Registered FMEs (Non-Retail), and Registered FMEs (Retail).
Authorised FMEs are permitted to manage venture capital schemes and family investment funds, while Registered FMEs (Non-Retail) can undertake restricted schemes, portfolio management services and manage private placement REITs and InvITs. Registered FMEs (Retail) are authorised to launch retail investment schemes and exchange traded funds (ETFs) and manage public offers of REITs and InvITs.
The regulations prescribe strict eligibility conditions for registration. Applicants must be set up in the IFSC as a company, LLP or branch structure, though retail FMEs cannot operate as LLPs or branches. Branch structures are allowed only where the parent entity is already regulated by a financial sector regulator in India or a foreign jurisdiction for similar activities.
IFSCA has also laid down extensive “fit and proper” criteria for FMEs, directors, key managerial personnel and controlling shareholders. Persons convicted for economic offences, declared wilful defaulters, fugitive economic offenders, or restrained by financial regulators from dealing in securities or financial services markets would not qualify.
A major focus of the framework is governance and compliance oversight. Every FME is required to appoint a Principal Officer responsible for overall fund management, risk management and compliance. Registered FMEs must additionally appoint a Compliance Officer, while Registered FME (Retail) entities are required to appoint another key managerial person specifically responsible for fund management activities.
The regulations further mandate that key managerial personnel be based in the IFSC and possess professional qualifications or postgraduate degrees in finance, law, commerce, accountancy, economics, banking or related disciplines, along with prescribed experience in financial sector activities. The January 2026 amendments broadened the scope of eligible experience and introduced flexibility for professionals with certifications and relevant financial sector exposure.
For venture capital schemes, the regulations permit investments in unlisted securities, listed securities, money market instruments, debt securities, securitised debt instruments, LLPs and units of other schemes. Venture capital schemes must be close-ended with a minimum tenure of three years and a minimum corpus of USD 3 million. Such schemes must invest at least 80% of their corpus in investee companies that are not older than ten years from incorporation.
The framework also introduces “Restricted Schemes” for non-retail sophisticated investors. These schemes may operate as Category I, II or III Alternative Investment Funds and may adopt complex investment strategies, including derivatives trading. Restricted schemes can have up to 1,000 investors and generally require a minimum investment threshold of USD 150,000 per investor unless the investor qualifies as an accredited investor.
Retail schemes have separately been regulated with tighter investor protection measures. Retail schemes must have at least twenty investors and cannot permit any single investor to hold more than 25% of the scheme. Such schemes can invest in listed and unlisted securities, debt instruments, units of other schemes and derivatives for hedging purposes. Open-ended retail schemes cannot invest more than 15% of their assets under management in unlisted securities.
The regulations also mandate continuous disclosure obligations, including periodic NAV disclosures, portfolio disclosures and reporting of material changes to investors. Independent valuation mechanisms through fund administrators, custodians, rating agencies or registered valuers have also been prescribed to strengthen transparency and investor confidence.
Further, the framework provides for Special Situation Funds that may acquire stressed loans and distressed assets in line with RBI’s transfer of loan exposure directions, thereby opening an institutional pathway for distressed asset investments through IFSC structures.
The 2026 amendments have also introduced greater flexibility regarding extension of placement memorandum validity, additional compliance relaxations for certain schemes, and revised eligibility norms for key managerial personnel, indicating IFSCA’s attempt to balance regulatory oversight with ease of doing business for global fund managers seeking to establish operations in IFSCs.
