Ravish Bhatt | Partner, R & D Law Chambers LLP | giftcitylawyers.com
GIFT City’s fund management ecosystem has grown from eight registered Fund Management Entities in March 2020 to over 177 by December 2025, with cumulative capital commitments crossing USD 32 billion. That growth reflects a regulatory framework that has been deliberately designed to attract serious capital and not the one that operates on a promise. This article sets out, precisely and practically, how to establish an Alternative Investment Fund in GIFT City’s International Financial Services Centre under the current framework: the IFSCA (Fund Management) Regulations 2025, notified on 19 February 2025 (Gazette Notification No. IFSCA/GN/2025/002), and the amendments that followed.
Step 1: Understand the Regulatory Model
Fund management in GIFT City is regulated by the International Financial Services Centres Authority (IFSCA), established under the IFSCA Act 2019. IFSCA is a unified regulator that wields the powers of RBI, SEBI, IRDAI and PFRDA within the IFSC as a single regulatory authority replacing the fragmented approvals applicable to the same activities on the Indian mainland.
IFSCA regulates the Fund Management Entity (FME) as the primary regulated entity, not each individual fund or scheme. A single FME registration permits a manager to launch multiple schemes across different asset classes and strategies. This mirrors the Luxembourg AIFM model and Singapore’s VCC structure, and is materially more efficient than the per-fund registration that mainland AIF managers face under SEBI.
Step 2: Choose Your FME Category
Three FME categories are available under the FM Regulations 2025. The choice drives everything: permissible activities, minimum net worth, key personnel requirements, and the investor base you can access.
| FME Category | Scope, Net Worth and Primary Use |
| Authorised FME | Pools from accredited investors by private placement. Launches Venture Capital Schemes and Family Investment Funds. Minimum net worth: USD 75,000. Suited to early-stage/VC managers and family offices. |
| Registered FME (Non-Retail) | The standard route for institutional and HNI capital. Launches Restricted Schemes (equivalent to Category I, II and III AIFs), provides Portfolio Management Services, acts as investment manager for private placement of REITs and InvITs. Minimum net worth: USD 500,000. Permitted to undertake all Authorised FME activities. |
| Registered FME (Retail) | Public offers, retail schemes, ETFs, public REIT/InvIT offers. Minimum net worth: USD 1,000,000. Must have minimum five years’ experience managing AUM of USD 200 million with at least 25,000 investors, or equivalent group-entity experience. Requires at least four directors with at least 50% independent. |
The Registered FME (Non-Retail) is the most common route for international and institutional managers. A company, LLP, or foreign-entity branch may register in this category. The Registered FME (Retail) is limited to a company or branch structure.
Step 3: Select Your Fund Vehicle and Scheme Type
Schemes (the funds themselves) are commonly structured as trusts in GIFT City with the majority of AIF schemes use a contributory trust with an institutional trustee based in the IFSC. Companies and LLPs are also permitted. The trustee must be an IFSC-incorporated entity or a trust company registered with IFSCA.
Available scheme types under the FM Regulations 2025:
| Scheme Type | Key Features and Minimum Corpus |
| Restricted Scheme (Non-Retail) | The primary vehicle for PE, VC, hedge and credit strategies. Equivalent to SEBI Cat I/II/III AIF. Minimum corpus USD 3 million (reduced from USD 5 million under the 2025 regulations). Open-ended variants may commence at USD 1 million scaling to USD 3 million within 12 months. |
| Venture Capital Scheme | Invests primarily in unlisted securities of start-ups and early-stage ventures. Minimum corpus USD 3 million. Available under Authorised or Non-Retail FME. |
| Family Investment Fund (FIF) | For a single family’s investments. Light-touch governance; no prior IFSCA approval for investments. Minimum corpus USD 10 million within three years. May be a company, LLP or contributory trust. |
| Special Situation Fund | Invests in special situation assets including stressed assets. Defined by IFSCA circular. |
| ESG Fund | Environmental, social and governance framework; IFSCA has waived filing fees for the first 10 ESG schemes per FME. |
| Exchange Traded Fund (ETF) | Only available under Registered FME (Retail). Listed on NSE IFSC or India INX. |
| Retail Scheme | Open to all investors. Minimum corpus USD 3 million. Listed on IFSC exchanges unless each investor commits at least USD 10,000 (per the January 2026 amendments). |
Step 4: Satisfy Substance Requirements
Substance is the non-negotiable condition of the GIFT City regime. The FM Regulations 2025 require that “the proposal on the portfolio composition of a fund shall be initiated by a person who is based in the office of the FME in the IFSC.” This is not a formality.
On 2 May 2025, IFSCA issued its first enforcement action for substance failure with a formal warning to an FME whose key management personnel were not physically present during unannounced inspections. This followed earlier surprise visits in early 2025 across multiple FMEs. The message from the regulator is direct: a GIFT City office must function as a genuine centre of investment decision-making, not a registered address with staff working remotely from Mumbai or Singapore.
Practical requirements: a dedicated, secure, accessible office space in the GIFT SEZ; key management personnel physically present; investment decisions originated from the GIFT City office; and documentation that contemporaneously records where decisions are made. This is what the IFSCA will inspect.
Step 5: Register Through SWITS
All applications are filed through the IFSCA Single Window IT System (SWITS), mandatory from 1 October 2024 (IFSCA Notification dated 30 September 2024). The portal at swit.ifsca.gov.in integrates IFSCA FME registration, SEZ Online approvals (the Provisional Letter of Allotment and Letter of Approval from the GIFT SEZ development authority), GSTN, and no-objection processes from RBI and SEBI where applicable. Payment of fees is made in USD through the integrated gateway.
The process runs in two parallel tracks: SEZ unit registration (for the physical office and operating permissions in the Special Economic Zone) and IFSCA FME registration. Both are required before an FME may commence operations.
| Registration fees (IFSCA Circular dated 8 April 2025): Application fee USD 2,500 (all categories). Registration fee: Authorised FME USD 5,000; Registered FME (Non-Retail) USD 7,500; Registered FME (Retail) USD 10,000. Scheme filing fees: VC Scheme and Cat I Restricted Scheme USD 7,500; Cat II Restricted Scheme USD 15,000; Cat III Restricted Scheme USD 22,500; Retail Scheme/ETF USD 22,500. Annual recurring fee: USD 2,000 per FME. |
Realistic timeline from application submission to first close: three to five months. IFSCA typically takes 30 to 45 working days for an Authorised or Non-Retail registration, up to 60 days for Retail. The SEZ process runs in parallel and usually completes within a similar window. Indicative one-time setup cost: USD 35,000 to 60,000, covering IFSCA fees, professional advisory, office setup, and documentation.
Step 6: The Third-Party Fund Management Route
For international managers who want to access GIFT City without establishing full physical presence, the Third-Party Fund Management (TPFM) framework, introduced via the IFSCA (Fund Management) (Amendment) Regulations 2025 effective 30 July 2025 (Gazette Notification No. IFSCA/GN/2025/007), provides an alternative entry route.
Under TPFM, a registered GIFT City FME with IFSCA’s specific authorisation may launch and manage restricted schemes on behalf of a third-party fund manager that is regulated in its home jurisdiction. The third-party manager need not establish physical presence in GIFT City. The scheme corpus is capped at USD 50 million per scheme (minimum USD 3 million). The FME providing the platform service must maintain an additional net worth of USD 500,000 over and above its own category-minimum net worth, appoint a dedicated Principal Officer for each third-party scheme, and remain fully liable for regulatory compliance regardless of any indemnification arrangement with the third party.
This is GIFT City’s equivalent of a Luxembourg ManCo or Cayman platform structure. IFSCA charges the TPFM-authorised FME an application fee of USD 2,500 and an authorisation fee of USD 7,500, plus USD 2,000 per year per third-party manager being serviced (IFSCA Circular dated 8 September 2025).
Fund Documentation: What Must Be Prepared
Fund documentation in GIFT City follows the IFSCA (FM) Regulations 2025 and the IFSCA AML/KYC Guidelines 2022 (amended January 2026). The core document set is substantially similar to international AIF practice, with specific IFSCA requirements.
Trust Deed
For trust-form AIFs, the foundational document. Must be executed between the FME (as settlor and manager) and an institutional trustee incorporated in the IFSC. The trust deed sets out the investment objective, permitted asset classes, governance of the trustee, fee arrangements, winding-up provisions, and must expressly permit fund management activity. IFSCA reviews the trust deed as part of the scheme registration process.
Private Placement Memorandum (PPM)
Mandatory for all restricted and venture capital schemes. Filed with IFSCA via SWITS. Must contain the minimum disclosures specified by IFSCA’s Circular dated 5 April 2024 (F. No. IFSCA-AIF/32/2024-Capital Markets): investment strategy in sufficient detail, risk factors specific to the strategy, fee structure (management fee and performance fee/carry), conflict-of-interest policy, leverage limits, valuation methodology, and a declaration by an authorised person that all material disclosures are made.
PPM validity under the 2025 regulations: 12 months from the date of filing (extended from six months under the prior framework). Under the January 2026 amendments (IFSCA (Fund Management) (Amendment) Regulations 2026, effective 28 January 2026), multiple six-month extensions are permitted at 25% of the fresh scheme filing fee for the first extension, 50% for each subsequent extension.
The PPM must carry a disclaimer that IFSCA has not reviewed or approved its content, and does not guarantee accuracy or adequacy of the information therein.
Subscription Agreement
The investment contract between the scheme and each investor. Must include representations and warranties from the investor confirming: source of funds, no sanctions exposure, AML/KYC compliance, FATCA/CRS self-certification, and (for US persons or entities with US beneficial owners) the relevant tax declarations. Non-resident investors are required to provide apostille-certified formation documents, beneficial ownership declarations, and supporting KYC documentation under the IFSCA AML/KYC Guidelines 2022 as amended by the January 2026 circular (F. No. IFSCA-DAC/7/2024-AMLCFT, dated 2 January 2026).
The January 2026 circular introduced a material change: enhanced due diligence is now mandatory where a beneficial owner of an investor is an Indian national, aimed at preventing round-tripping of Indian capital through IFSC funds. This applies regardless of the legal jurisdiction of the investor entity. The circular also bars disclosure of a customer’s risk categorisation to the customer themselves.
Investment Management Agreement
Between the FME and the scheme (or trustee on behalf of the scheme). Sets out the management mandate, fee structure, performance-fee mechanics, investment guidelines, reporting obligations, and grounds for removal. Performance fees (carry) in GIFT City are treated as business income of the FME and qualify for the Section 80LA / Section 147 deduction during the tax-holiday period, which is a significant advantage over the treatment of carry in other jurisdictions.
Custodian Arrangement
Schemes requiring a custodian must use an IFSCA-registered custodian. The January 2026 amendments extended a transition period of 24 months from the amendment commencement date during which an India-based or foreign-regulated custodian may be used while the IFSC custodian market develops. Fund-of-funds structures are exempt from the custodian requirement where the underlying fund has its own custodian.
Valuation Policy
The FM Regulations 2025 require that portfolio assets be valued by an independent service provider: a SEBI-registered fund administrator, an IFSCA-registered custodian, an IFSCA-registered credit-rating agency, or an IBBI-registered valuer. The January 2026 amendments tie NAV computation to independent portfolio valuation and specify the timelines from which NAV and portfolio disclosures must be published (from the financial year of the first close).
Compliance Manual and AML/KYC Framework
Every FME must maintain a compliance manual aligned with the IFSCA AML/KYC Guidelines 2022, itself aligned with the FATF Recommendations. The Prevention of Money Laundering Act 2002 applies to IFSC entities. KYC for foreign investors is now facilitated through Video-based Customer Identification Process (V-CIP), widened for low-risk non-resident investors by the January 2026 circular, and through the KYC Registration Agency (KRA) system introduced by the IFSCA (KRA) Regulations 2025. Politically Exposed Persons and high-risk investors require enhanced due diligence.
Key Personnel Requirements
Every FME must have at minimum a Principal Officer (responsible for fund management, risk and compliance) and a Compliance Officer. A Registered FME (Non-Retail) must have at least two KMPs before launching schemes. A Registered FME (Retail) requires at least three KMPs before launching retail products. FMEs with AUM exceeding USD 1 billion (excluding fund-of-funds) must appoint an additional KMP within six months of the financial year end.
Under the 2025 regulations, KMP appointments no longer require prior IFSCA approval intimation is sufficient. Employees of FMEs must undergo certification from IFSCA-specified institutions to stay current on regulatory requirements.
Our GIFT City practice advises FMEs from initial structuring & IFSCA registration through documentation, ongoing compliance and regulatory interface. For international tax, transfer pricing and treaty advisory see https://rdlawchambers.com/our-services/
| Disclaimer: This article is for general informational purposes and does not constitute legal or regulatory advice. All regulatory requirements should be verified against the current text of IFSCA regulations and circulars before reliance. References to the IFSCA (Fund Management) Regulations 2025 are as amended up to January 2026. |