International Financial Services Centres Authority (IFSCA) has notified the IFSCA (Fund Management) Regulations, 2025 (Regulations) on February 19, 2025, in the official gazette, in supersession of the existing IFSCA (Fund Management) Regulations, 2022. The new regulatory framework aims to enhance ease of doing business and reduce cost of compliance, introduce safeguards for investor protection, and clarify the regulatory intent of the authority.
Key changes introduced by the revised Regulations are as follows:
- Minimum Corpus and Validity of the Placement Memorandum/ Offer Document
-
- Minimum corpus of the schemes: the minimum size of the corpus has been reduced from USD Five Million to USD Three Million for non-retail and retail schemes.
-
- Validity of the placement memorandum/offer document: the period of validity of the placement memorandum has been increased from six months to 12 months from the date IFSCA takes the placement memorandum on record. This change has been brought to bring the validity period of the placement memorandum in line with the validity period of the offer document. Within this period, the non-retail and retail schemes must achieve their minimum corpus size, otherwise the fund management entity (FME) would need to extend the validity of the placement memorandum/offer document for further six months. However, open-ended restricted schemes and open-ended retail schemes may, upon achieving a corpus size of USD 1 Million, commence its investment activities subject to meeting the minimum corpus requirement within the 12 months period.
- Non-Retail Schemes (Venture Capital Schemes and Restricted Schemes)
-
- Contribution by FME and its associates to a scheme: enhanced contribution i.e. contribution upto 100% is now permitted for schemes where the FME and its associates are non-residents and do not have any Indian resident as their ultimate beneficial owners and not more than 33% of the corpus of the scheme is invested in an investee company and its associates.
-
- Restrictions on Investment: schemes cannot buy or sell securities from their associates or other schemes of the FME or their associates or a major investor (i.e. who has committed to invest atleast 50% of the corpus) unless 3/4th of the investors of the scheme by value give a prior approval. The major investor will be excluded from the voting process if the transaction involves the major investor.
- Registered FME (Retail) and Retail Schemes
-
- Requirement of ‘soundtrack record’ for registration as registered FME (Retail): the requirement of ‘soundtrack record’ for registration as a registered FME (Retail) has been broadened to include the experience of the subsidiaries of FME while calculating the experience of managing assets under management (AUM) of at least USD 200 Million for more than 25,000 investors. Additionally, for the alternate criteria, experience of the person in control of FME (i.e. a person holding more than 25% shareholding in the FME) will be considered in areas related to fund management including portfolio management, wealth management, investment advisory.
-
- Relaxations on investment restrictions: restrictions on investment in unlisted securities by close and open-ended schemes have been relaxed to exclude unlisted securities which are issued by investment funds which are regulated by regulatory authorities in their home jurisdiction and are permitted to offer securities to retail investors in their home jurisdiction. Additionally, limit on investing in a single company for sectoral, thematic or index schemes will be calculated as per the weightage of that company in the index or would be 15%, whichever is higher.
-
- Relaxations given to fund of funds scheme: subject to certain conditions as applicable, fund of funds schemes have been excluded from the existing restriction on retail schemes where retail schemes cannot invest more than 15% of AUM (without approval of fiduciaries) in a single company and more than 25% of AUM in a single sector or in their associates.
-
- Listing of close-ended retail schemes: FMEs may choose to list their schemes (open-ended and close-ended) on stock exchanges. Earlier, close-ended retail schemes had to be mandatorily listed on any one stock exchange. Now, close-ended retail schemes must mandatorily be listed only if the minimum investment by an investor is less than USD 10 Thousand.
- Manpower Requirements for FMEs
-
- Requirement of prior approval of IFSCA for appointment of Key Managerial Personnel (KMPs): the requirement to take approval of IFSCA prior to appointment of a KMP for a FME has been done away with. IFSCA has released a circular dated February 20, 2025, specifying the manner of appointment of and change of KMPs after registration has been obtained by FME.
-
- Appointment of additional KMPs by FMEs: an additional KMP is required to be appointed by registered FME (Retail) and any FME managing AUM of at least USD One Billion (excluding AUM of fund of funds schemes) to undertake the responsibility of fund management. In the latter situation, appointment of additional KMP is to be made within six months from end of the financial year in which the threshold is met.
- Portfolio Management Services
-
- Reduction in the minimum investment amount: the minimum amount of funds or securities that an FME can accept from its client has been reduced from USD 150 Thousand to USD 75 Thousand. The change has been made to bring the minimum requirement in line with portfolio management services regulated by the Securities and Exchange Board of India (SEBI) and the practice followed in other jurisdictions.
-
- Allowing transfer of funds to a designated brokerage account: portfolio managers have been permitted to access funds of a client maintained with regulated broker dealers in International Financial Services Centres, India or foreign jurisdiction provided the portfolio manager has been duly authorised to operate such accounts and it fulfils the minimum investment requirement.
Conclusion:
The revised Regulations represent a strategic overhaul which balances ease of doing business while also enacting robust investor protection measures. By reducing entry barriers, enhancing governance standards, and reducing cost of compliance, IFSCA has provided a globally competitive environment for fund management activities in International Financial Services Centres.