International Financial Services Centres Authority (Fund Management) Regulations, 2025
On February 19, 2025, the International Financial Services Centres Authority (“IFSCA”) issued the IFSCA (Fund Management) Regulations, 2025 (“FM Regulations”) repealing the erstwhile IFSCA (Fund Management) Regulations, 2020, which were notified on April 13, 2022 .
The objective of the said FM Regulations is to enhance the ease of doing business, reduce the cost of compliance, and to provide better protection of the investors in IFSC funds while achieving? orderly growth of business activities in IFSC.
?The key reforms under the FM Regulations are:
Non-retail Schemes (Venture Capital Schemes and Restricted Schemes)
- The minimum corpus requirement of a scheme has been reduced from USD 5 (five) million to USD 3 (three) million, enabling Fund Management Entities (“FMEs”) to commence investment activities upon reaching lower threshold corpus.
- Validity of Private Placement Memorandum (“PPM”) has been increased from 6 (six) month to 12 (twelve) months from IFSCA’s communication regarding taking it on record.
- Investment under open-ended schemes: The open-ended schemes have been permitted to commence the investment activities upon achieving an investment of USD 1 (one) million with the minimum corpus of USD 3 (three) million which must be achieved within 12 (twelve) months period.
- Contribution by FME/ its associates in a scheme: Under restricted and venture scheme FME can invest above 10% of the targeted corpus where FME and its associate are person resident outside India and not more than 1/3rd of the corpus of the scheme is invested in an investee company and its associates.
- Co- investment and leverage: A restricted scheme may co-invest in permissible investments through a Special Purpose Vehicle (“SPV”) in accordance with the framework specified by IFSCA or through a segregated portfolio by issuing separate class of units.
- Restriction on investment and corpus of the scheme: Venture capital and restricted schemes cannot buy or sell securities from associated, other schemes of the FME or its associates, or an investor committed to invest at least 50% of the corpus unless prior approval is obtained from at least 75% investors in the scheme by value.
?Manpower requirements for FMEs
Key Managerial Personnel (“KMP”) requirement: FMEs with Asset Under Management (“AUM”) of USD 1 (one) billion must appoint an additional fund management KMP on intimation basis to IFSCA. Provided such appointment to be made within 6 (six) months from end of financial year Additionally, vide circular dated February 20,2025 ?IFSCA has prescribed the manner of? appointment and change of a KMP by a fund entity.
Registered FME (Retail) and Retail Schemes
- Eligibility criteria for Registered FME (Retail): FME, its holding and subsidiary companies must have at least 5 (five) years’ experience in fund/ portfolio/ wealth management or investment advisory for at least 1000 (thousand) investors on AUM of at least 50 (fifty) million and has a net worth of at least USD 2 (two) million.
- Listing of close ended retail schemes: FM Regulations has reduced the compliance burden, where the requirement to list close ended retail scheme on recognised stock exchanges has been made optional if minimum amount of investment by each investor in the scheme is at least USD 10,000 (ten thousand).
- Restriction on Investment: A retail scheme cannot invest more than 10% of its AUM in securities of a single company.
- Valuation: The valuation of scheme’s asset by an independent service provider is exempt for fund of funds scheme if the underlying fund have been valued by an independent service provider.
?Portfolio Management Services (“PMS”)
- Minimum corpus requirement: To boost investment in IFSC jurisdiction, the minimum investment amount has been reduced to USD 75,000 (seventy-five thousand) from USD 1,50,000 (one lakh fifty thousand).
- Transfer of funds: FM Regulations now permits the clients under PMS to transfer their funds in a designated broking account which may be then managed by the FME under the PMS, subject to few safeguards.
Family Investment Funds (“FIFs”): Under the FM regulations, the categorisation of Alternative Investment Funds (“AIFs”) and FIF has been streamlined. Whereas a FIF could be set up in IFSC as a company, trust or limited liability partnership or any other forms permitted by IFSCA. The minimum corpus of USD 10 (ten) million must be maintained within a period of 3 (three) years from date of obtaining certificate of registration. The FIF can open both open and closes ended scheme and can undertake all activities related to managing FIF and may invest only in debt securities, physical asset, money market instruments etc.?
Other changes: Under FM Regulations certain relaxations are provided such as (i) streamlined criteria of fit and proper requirement, (ii) FME are permitted to open branches or representative offices in other jurisdictions for purpose of marketing their offerings and client services without prior approval of IFSCA, (iii) provisions to allow IFSCA registered credit rating agencies for fund valuation etc.
The New Regulations can be accessed here.
