| Authored by R & D Law Chambers LLP | Practice led by Ravish Bhatt, Dual-qualified lawyer (India and England & Wales) | Bar Council of Gujarat, Enrolment G/504/2008 | SRA (non-practising) Registration No. 492 477 | ADIT, Chartered Institute of Taxation, London Published: 12 September 2026 | Last reviewed: 12 September 2026 |
| Written against the International Financial Services Centres Authority (Fund Management) Regulations, 2025, notified at Gandhinagar on 10 February 2025 under F. No. IFSCA/GN/2025/002 and published in the Official Gazette on 19 February 2025, as amended by the IFSCA (Fund Management) (Amendment) Regulations, 2025, F. No. IFSCA/GN/2025/007, and the IFSCA (Fund Management) (Amendment) Regulations, 2026, F. No. IFSCA/GN/2026/006, notified on 27 January 2026. This article deals with obligations attaching to the scheme. Entity-level standing obligations, the filing calendar and the enforcement process are dealt with on separate pages linked below and are not repeated here. R & D Law Chambers LLP advises on Indian law only. |
| Answer. Registration regulates the entity. Almost every continuing obligation that actually costs an FME money attaches to the scheme, and control over the scheme is shared: with fiduciaries the FME must appoint, with a valuer it cannot be, with a custodian it must appoint but not employ, and with a 75 per cent investor vote it cannot call on its own. |
Index of Topics
- Registration regulates the entity; the scheme is regulated separately
- Fiduciaries: the governing body appointed before the scheme document is filed
- Valuation has to be done by someone else
- NAV: the methodology is the obligation, not the number
- The custodian, and the transition window still running
- Associates, major investors and the 75 per cent vote
- Disclosure cadence differs by scheme type, and the difference is the compliance
- Skin in the game: the FME’s own contribution to its scheme
- Third-party fund management: the liability that does not move
- What has to exist before first close
- Registration regulates the entity; the scheme is regulated separately
| Answer. The certificate of registration authorises the FME to carry on fund management. It says nothing about any particular scheme. Each scheme is separately filed, separately governed by fiduciaries, separately valued, separately disclosed and separately capitalised by the manager. An FME with a clean entity file can still have a non-compliant scheme. |
Regulation 3 of the IFSCA (Fund Management) Regulations, 2025 requires an entity wishing to undertake fund management in an IFSC to obtain a certificate of registration as an FME under one of three categories, and regulation 12 provides for the grant of that certificate. The Explanation to regulation 3 records that the activities, investment conditions, responsibilities and obligations for each category are specified in distinct Chapters, and that the reference to FME in each Chapter is to be read according to the permitted activities of that category.
That structure is the whole point. The Chapters that follow do not regulate the manager in the abstract. They regulate Venture Capital schemes, restricted schemes, retail schemes, exchange traded funds and special situation funds, each with its own corpus floor, its own valuation and net asset value cadence, its own disclosure timetable and its own contribution requirement. A compliance programme built around the entity will miss all of it.
- Fiduciaries: the governing body appointed before the scheme document is filed
| Answer. Regulation 17 requires the FME, before filing a scheme document with the Authority, to appoint fiduciaries: a board of directors where the scheme is a company, designated partners where it is an LLP, or trustees, including the board of a trustee company, where it is a trust. The FME must ensure they are fit and proper, and for retail schemes their appointment needs prior approval. |
Sub-regulation (2) fixes the timing: the appointment precedes the filing, not the launch. Sub-regulation (3) puts the burden of the fit and proper assessment on the FME itself, measured against the Chapter II requirements. Sub-regulation (4) requires prior approval of the Authority for the appointment of any person as a fiduciary where the FME intends to launch retail schemes. Sub-regulation (5) requires the fiduciaries to comply with the Code of Conduct and obligations in Part B of the Third Schedule.
Two obligations sit on the fiduciaries and nowhere else, and they are the ones an FME most often forgets it does not control. Under regulation 43(5) no retail scheme may be filed with the Authority unless it has been approved by the fiduciaries, and regulation 61(6) imposes the same requirement on the offer document of an exchange traded fund. The compliance function that reports to the FME cannot supply that approval, and a launch timetable that assumes it can will slip.
- Valuation has to be done by someone else
| Answer. Across Venture Capital, restricted and retail schemes the regulations require the assets of the scheme to be valued by an independent service provider. The list is closed: a fund administrator, a custodian, a credit rating agency registered with the Authority, or a valuer registered with the Insolvency and Bankruptcy Board of India, or such other person as the Authority may specify. |
Regulations 26, 38 and 50 carry the same structure for the three scheme families. Sub-regulation (1) in each case requires the FME and the fiduciaries to ensure compliance with the investment valuation norms specified in the Sixth Schedule. Sub-regulation (2) then requires the assets to be valued by an independent service provider drawn from the list above. A proviso disapplies that requirement for a fund of funds scheme investing in schemes regulated by a financial sector regulator in the IFSC, India or a foreign jurisdiction which are themselves valued by an independent entity.
The operative word is independent, and it is the word that most often fails on a first fund. A valuation performed by the FME’s own team, by a group affiliate, or by a service provider selected and instructed in a way that makes it functionally an extension of the manager, does not answer the requirement however competent the work is. The appointment, the engagement terms and the methodology should be documented before the first asset is acquired, not before the first audit.
- NAV: the methodology is the obligation, not the number
| Answer. The regulations require the procedure and methodology for calculating net asset value to be fully documented, and that documentation to be regularly verified and amended where required. The computation frequency then varies by scheme type. Managers focus on the frequency. The Authority will ask for the documentation. |
Regulations 27, 39 and 51 each carry two limbs. The first fixes the frequency of computation. For a Venture Capital scheme, at least annually. For a restricted scheme, at least monthly, and for a close ended restricted scheme at least half yearly. For a retail scheme, daily where open ended and weekly where close ended. Regulation 69 requires an exchange traded fund’s NAV to be computed daily, published on the FME’s website and informed to the recognised stock exchange where it is listed.
The second limb is the one that is tested. In each case the procedure and methodology must be fully documented and that documentation regularly verified and amended if required. A spreadsheet maintained by one person, with no written methodology and no record of review, satisfies the frequency and fails the obligation. The connected point is that valuation and NAV are separate requirements: an independent valuer values the assets, and the FME computes the NAV from that valuation. Conflating them produces a scheme where neither obligation is cleanly evidenced.
- The custodian, and the transition window still running
| Answer. Regulation 132 requires an independent custodian based in the IFSC for the scheme categories it covers. The IFSCA (Fund Management) (Amendment) Regulations, 2026, notified on 27 January 2026, substituted Explanation II to allow that appointment within twenty-four months of the commencement of those Amendment Regulations, with an interim custodian permitted. |
The substituted Explanation II provides that in the case of schemes required to appoint a custodian in IFSC, such appointment may be made within twenty-four months from the date of commencement of the Amendment Regulations, during which period the FME may appoint an independent custodian in India or any foreign jurisdiction which is regulated by the financial sector regulator in that jurisdiction, and make the necessary arrangement to provide such information to the Authority whenever directed to do so.
The history matters because it tells an FME how the Authority treats this requirement. Regulation 132 originally carried a twelve month migration window from 19 February 2025. By circular dated 24 May 2025 the Authority granted a further six months. The 2026 Amendment Regulations then replaced the window with twenty-four months from their own commencement. The requirement has been repeatedly extended and never diluted. The FME that treats the extension as a reprieve rather than as a deadline is the FME that will be transitioning custody under time pressure.
Two practical points. The interim custodian must be regulated in its own jurisdiction, which is a substantive condition and not a formality. And the FME has to be able to produce information about the interim arrangement to the Authority on demand, which means the custody agreement, the account structure and the reconciliation process should be in a state fit to be produced at any time.
- Associates, major investors and the 75 per cent vote
| Answer. A scheme may invest in an associate of the FME only with the prior approval of investors holding seventy-five per cent by value, and may not buy or sell securities from an associate, another scheme of the FME or its associates, or an investor committed to at least fifty per cent of the corpus, without the same approval. The interested investor is excluded from the vote. |
Regulation 23 carries this for Venture Capital schemes and regulation 35 for restricted schemes, in identical terms. Sub-regulation (2) of regulation 23 and sub-regulation (3) of regulation 35 require prior approval of seventy-five per cent of investors by value for investment in an associate. Sub-regulation (4) in each case prohibits the scheme from buying or selling securities from associates, from other schemes of the FME or its associates, or from an investor who has committed to invest at least fifty per cent of the corpus, unless the same approval is obtained, with a proviso excluding that investor from the voting process and a further proviso disapplying the approval for a fund of funds scheme which has disclosed the underlying schemes and the nature of any association in its placement memorandum. For retail schemes regulation 47(5) takes a different form: not more than twenty-five per cent of the assets under management may be invested in an associate, again with a fund of funds proviso.
Associate is defined in regulation 2(1)(d) by a twenty per cent test, applied to paid-up equity share capital or partnership interest, and it runs three ways: an entity in which the directors, trustees, partners, fiduciaries or the FME hold twenty per cent or more, individually or collectively; an entity holding twenty per cent or more in the FME; and an entity in which that second entity holds twenty per cent or more. On a group with a fund platform, that definition catches more counterparties than the commercial team expects, and it has to be mapped before the first transaction rather than at the point the vote is needed.
The governance consequence is structural. An investor vote takes time, needs a register that is accurate on the day, and can fail. A deal pipeline that depends on transacting with group entities should be tested against regulation 23 or regulation 35 at the placement memorandum stage, because the disclosure route through the fund of funds proviso is available only where it was disclosed at the outset.
- Disclosure cadence differs by scheme type, and the difference is the compliance
| Answer. The disclosure obligations are not uniform. Net asset value and portfolio disclosure run on different clocks for Venture Capital, restricted and retail schemes, and any material deviation or alteration to the fund strategy requires the consent of at least two-thirds of investors by value in restricted and retail schemes. |
Regulations 24, 36, 48 and 71 carry the disclosure obligations for Venture Capital schemes, restricted schemes, retail schemes and exchange traded funds respectively. Each requires the placement memorandum or offer document to disclose the investment objective, targeted investors, proposed corpus or size, investment style or strategy, investment methodology, proposed tenure, fees and expenses, risk management practices and the key managerial personnel of the FME. Each also requires any other material disclosure considered suitable by the FME or the fiduciaries to be informed to investors immediately.
Two obligations deserve separate attention because they are commonly missed. The first is the strategy consent: regulation 36(2) for restricted schemes and regulation 48(3) for retail schemes require any material deviation or alteration to the fund strategy to be made with the consent of at least two-thirds of investors by value. The second is that the fiduciaries share the compliance obligation with the FME: each of these regulations directs both the FME and the fiduciaries to comply with the disclosure requirements.
| Obligation | Venture Capital scheme | Restricted scheme | Retail scheme |
| Minimum corpus | USD 3 million, total not exceeding USD 200 million (reg 23(1)) | USD 3 million; open ended may start at USD 1 million and reach USD 3 million within 12 months (reg 35(2)) | USD 3 million, with the same open ended commencement rule (reg 47(6)) |
| NAV computation | At least annually (reg 27(1)) | At least monthly; at least half yearly if close ended (reg 39(1)) | Daily if open ended, weekly if close ended (reg 51(1)) |
| NAV disclosure to investors | At least yearly (reg 24(2)) | At least monthly if open ended, half yearly if close ended (reg 36(3)) | Daily if open ended, weekly if close ended (reg 48(4)) |
| Portfolio disclosure | At least yearly, within one month of financial year end (reg 24(3)) | At least quarterly, within one month of quarter end (reg 36(4)) | At least quarterly, within one month of quarter end (reg 48(5)) |
| Transactions with associates | Prior approval of 75 per cent of investors by value (reg 23(2) and 23(4)) | Prior approval of 75 per cent of investors by value (reg 35(3) and 35(4)) | Cap of 25 per cent of AUM in an associate (reg 47(5)) |
| FME contribution | At least 2.5 per cent of targeted corpus up to USD 30 million, or at least USD 750,000 above it, each capped at 10 per cent (reg 28) | As for a Venture Capital scheme if close ended; higher floors if open ended (reg 40) | At least 1 per cent of AUM or USD 200,000, whichever is lower (reg 52(1)) |
- Skin in the game: the FME’s own contribution to its scheme
| Answer. The FME or its associate must invest in its own scheme, within forty-five days and on an ongoing basis. The floors differ by scheme type and by whether the scheme is open or close ended. The obligation is continuing, not a one-off subscription, and the waivers are investor-driven. |
Regulations 28, 40 and 52 carry the requirement. In each case the contribution is to be made within forty-five days and maintained on an ongoing basis, extendable only to the satisfaction of the Authority, and the contribution brought in by the FME may be taken into account for the net worth requirement in Chapter II. For Venture Capital and restricted schemes the contribution is exempted where at least two-thirds of investors by value permit a waiver, where at least two-thirds of the investors are accredited investors, or where the scheme is a fund of funds scheme investing in schemes with similar requirements.
The phrase to plan against is maintained on an ongoing basis. As the corpus grows through subsequent closes, a contribution that satisfied the requirement at first close may cease to do so. The monitoring of that ratio is a scheme-level compliance task with a cash consequence, and it belongs in the treasury plan and not only in the compliance register.
- Third-party fund management: the liability that does not move
| Answer. The IFSCA (Fund Management) (Amendment) Regulations, 2025 inserted the third-party fund management framework. The governance point that matters is that the FME remains fully liable for the obligations and liabilities associated with the arrangement, irrespective of any indemnification agreement with the third party. |
The amendment, notified under F. No. IFSCA/GN/2025/007, inserted a new Part in Chapter VI after regulation 107. A Registered FME authorised by the Authority may launch and manage schemes on behalf of a third-party fund manager registered or regulated in its own jurisdiction and meeting fit and proper standards. The servicing FME must maintain an additional net worth of USD 500,000, appoint a dedicated principal officer for each third-party managed scheme, and maintain a risk management framework. Investors must be told about the arrangement, the potential conflicts and the split of responsibilities between the FME and the third party.
The liability provision is the one to put in front of the board. A contractual indemnity from the third-party manager allocates loss between the two of them. It does not move the regulatory obligation, and an FME that has priced the platform business on the basis that the indemnity is the answer has mispriced it. The correct controls are diligence on the third-party manager, a dedicated principal officer with real authority, and an investment process the servicing FME can actually supervise.
- What has to exist before first close
| Answer. Six things, in this order: the fiduciaries appointed and, for a retail scheme, approved; the independent valuer engaged; the NAV methodology written down; the custodian arrangement settled, interim or final; the associate map completed; and the FME’s own contribution funded and monitored. |
The sequencing is not arbitrary. Fiduciaries come first because regulation 17 requires their appointment before the scheme document is filed and, for retail schemes and exchange traded funds, their approval before filing. The valuer and the NAV methodology come next because they determine what can be reported and when. The custody arrangement follows because it takes the longest to document. The associate map and the contribution are the two that create cash and timing consequences and are therefore the two most often deferred.
One further item belongs on the list for larger managers. Regulation 72 applies to an FME managing assets under management above USD 3 billion at the close of a financial year, or any other threshold the Authority may specify, requiring a policy on governance around material sustainability related risks and opportunities and annual report disclosure of how they are identified, assessed and managed. Separately, every scheme document filed under Chapter III must disclose whether sustainability related risks are incorporated in decision making, and must carry a negative statement where they are not. That negative statement obligation applies to every FME, at every size.
Frequently Asked Questions
What governance obligations attach to a scheme rather than to the FME?
Appointment of fiduciaries under regulation 17, independent valuation under regulations 26, 38 and 50, documented NAV methodology under regulations 27, 39 and 51, custodian appointment under regulation 132, associate transaction approvals under regulations 23, 35 and 47, disclosure cadence under regulations 24, 36, 48 and 71, and the FME’s own contribution under regulations 28, 40 and 52.
Who must value a scheme’s assets in GIFT IFSC?
An independent service provider. Regulations 26, 38 and 50 name a fund administrator, a custodian, a credit rating agency registered with the Authority, or a valuer registered with the Insolvency and Bankruptcy Board of India, or such other person as the Authority may specify. A fund of funds scheme is exempted where the underlying scheme is regulated by a financial sector regulator and is itself valued by an independent entity.
When must an FME appoint a custodian based in the IFSC?
Regulation 132 carries the requirement. Explanation II, as substituted by the IFSCA (Fund Management) (Amendment) Regulations, 2026 notified on 27 January 2026, allows the appointment to be made within twenty-four months from the commencement of those Amendment Regulations, during which the FME may appoint an independent custodian in India or any foreign jurisdiction regulated by the financial sector regulator there.
Can a scheme transact with a group company of the FME?
Only with investor approval. For Venture Capital and restricted schemes, regulations 23 and 35 require prior approval of seventy-five per cent of investors by value before investing in an associate or buying or selling securities from an associate, another scheme of the FME or its associates, or an investor committed to at least fifty per cent of the corpus, with that investor excluded from the vote. Retail schemes face a twenty-five per cent cap instead.
How much must an FME invest in its own scheme?
For a Venture Capital scheme, regulation 28 requires at least 2.5 per cent of the targeted corpus up to USD 30 million, or at least USD 750,000 above that, each subject to a ten per cent ceiling. Restricted schemes follow regulation 40, with higher floors for open ended schemes. Retail schemes require one per cent of assets under management or USD 200,000, whichever is lower, under regulation 52(1).
Does an indemnity from a third-party fund manager protect the FME?
Not as against the regulator. The third-party fund management framework inserted by the IFSCA (Fund Management) (Amendment) Regulations, 2025 provides that the FME remains fully liable for the obligations and liabilities associated with the arrangement irrespective of any indemnification agreement with the third party. The indemnity allocates loss between the two managers. It does not move the regulatory obligation.
How R & D Law Chambers Works on These Matters
We advise fund management entities, sponsors and investors on GIFT IFSC fund structuring, scheme documentation and continuing regulatory compliance, and we act on IFSCA enforcement matters when a compliance question becomes an adversarial one.
What we do differently on this subject is to build the compliance architecture around the scheme rather than around the entity, and to settle the four dependencies the FME does not control, being the fiduciaries, the independent valuer, the custodian and the investor vote, before the placement memorandum is filed rather than after it is taken on record. Most first-fund compliance failures we see are timing failures of that kind, not judgement failures.
Related services
- Regulatory and Compliance Advisory, for the continuing compliance programme of an FME and its schemes.
- Fund Structuring, for scheme type, vehicle and category selection before the scheme document is drafted.
- Fund Documentation, for placement memoranda, offer documents and the fiduciary and service provider agreements.
- Top Arbitration Law Firm in Ahmedabad, where a scheme-level dispute with an investor or a service provider goes to arbitration.
Further reading on this site
- Setting Up a Fund Management Entity in GIFT City: Categories, Capital and the Platform Alternative, for registration, category choice and personnel, which this article does not cover.
- Setting Up an AIF in GIFT City IFSC: The Practical Guide to Structure, Registration, and Fund Documentation, for the structure, registration and fund documents of an AIF, which this article does not cover.
- AML, Cyber and Governance: The Standing Obligations of a GIFT IFSC Entity, for the entity-level obligations that run alongside these scheme-level ones.
- The GIFT IFSC Compliance Calendar, for what is filed, under what power, and what happens if it is not.
- Enforcement in GIFT IFSC: Inspections, Notices and the Power to Cancel, for what happens when a scheme-level failure becomes a show cause notice.
| This article is for general information and does not constitute legal advice. It states the law as at 12 September 2026. R & D Law Chambers LLP advises on Indian law only. Nothing here creates a lawyer-client relationship, and no reader should act on it without advice on their own facts. |