How to Set Up an InsureTech VC Fund in GIFT City IFSC (IFSCA Regulations 2025 Guide)

Part 4: Four-Lane India Entry for Insurance 

Introduction

Lane 4 is the vehicle for setting up an InsureTech VC Fund in GIFT City — through which the foreign insurance group participates in the Indian and IFSC InsureTech ecosystem, either directly through fund investment or through Special Scheme co-investment. Lane 4 is the smallest lane in capital terms and operationally the lightest, but it is often strategically valuable: it places the group in the investment flow of the ecosystem, complements the Lane 3 technology centre, and creates optionality on the next generation of InsureTech platforms that may become strategic partners or acquisition targets.

Chapter Fourteen: Authorised FME Registration in GIFT City — IFSCA Fund Management Regulations 2025

An InsureTech VC Fund in GIFT City operates under the IFSCA (Fund Management) Regulations, 2025 (notified 19 February 2025, consolidated through 27 January 2026). For this fund structure, the minimum required registration is an Authorised FME — the entry-level category under the IFSCA Fund Management Regulations 2025, permitting Venture Capital Schemes and Family Investment Funds.

Net Worth and Registration

The net worth requirement for an Authorised FME is USD 75,000, maintained under Regulation 8 read with the Second Schedule. The Principal Officer must be based in the IFSC; additional KMP requirements are lighter than for a Registered FME. Registration requires an application pack covering the fund management entity, the proposed fund, the investment policy, the key personnel and their qualifications, and the fund documentation.

VC Scheme Characteristics

A VC Scheme under the Fund Management Regulations is a venture capital pool structured as a trust or LLP or, less commonly, as a company. For an InsureTech VC fund, the VC Scheme format is the natural vehicle. Key scheme characteristics include:

• Corpus — VC scheme may raise capital from permitted investors including foreign investors, family offices, institutional investors, and resident Indian investors within the LRS framework.
• Investor cap — A restricted (non-retail) scheme is subject to a 1,000-investor cap.
• Investment mandate — VC schemes typically invest in unlisted or early-stage listed securities of portfolio companies within the scheme’s declared focus — here, InsureTech.
• Skin-in-the-game — The FME must maintain a skin-in-the-game contribution to the scheme of 2.5% to 10% of the scheme corpus, depending on scheme size, under Regulation 28.
• Pass-through taxation — A VC scheme operates on a pass-through basis under Section 115UB; income and capital gains are taxed in the hands of the investors rather than the scheme. Note that Section 10(4D) applies specifically to Category III IFSC AIFs, not to VC schemes — the tax architecture for VC schemes is the 115UB pass-through regime, not the 10(4D) fund-level exemption.

Venture Capital Scheme Mechanics

The practical mechanics of an InsureTech VC Fund in GIFT City follow the standard VC scheme pattern with three fund-specific design points: the focus mandate, the investor base, and the parent group’s participation.

The InsureTech Focus Mandate

The scheme’s Private Placement Memorandum and its Investment Policy will set out the InsureTech focus mandate — typically covering early-stage and growth-stage companies in underwriting analytics, claims automation, distribution platforms, health-tech intersections, and policy administration technology. The mandate must be clearly defined at the point of IFSCA registration; material deviations during the scheme’s life are matters of PPM amendment and investor consent.

The Investor Base

The investor base may include: the foreign parent insurance group itself (as an anchor investor); other institutional insurance investors globally; Indian family offices within the LRS framework; and IFSC-resident investors. A 1,000-investor cap applies for restricted schemes; the minimum investor contribution is typically set at USD 150,000 or higher depending on scheme design. The parent group’s contribution, together with the FME’s skin-in-the-game, typically constitutes 20% to 30% of the corpus at the first close, with the balance raised from external investors over a 12 to 18 month fundraising period.

Special Scheme Co-Investment

The Fund Management Regulations permit the creation of Special Schemes alongside the main VC scheme — single-asset vehicles in which specific co-investors participate alongside the main scheme in a single portfolio investment. Special Schemes are useful where a particular investment is substantially larger than the fund’s ordinary deployment size, or where strategic investors wish to invest directly alongside the fund in a named portfolio company.

Special Scheme Characteristics

• Anchor requirement — The existing VC scheme holds at least 25% of the Special Scheme.
• Single-asset focus — One portfolio company per Special Scheme.
• Speed — The Special Scheme may invest before notifying IFSCA; the term sheet is to be filed within 45 days.
• Minimum contribution per co-investor — USD 250,000 for Special Schemes launched by a VC scheme; USD 150,000 for Special Schemes launched by a restricted scheme. The IFSCA Circular on Special Schemes cross-references the scheme-specific minimums under the Fund Management Regulations rather than setting a single flat figure.

The foreign insurance group may co-invest alongside the InsureTech VC Fund in GIFT City through the Special Scheme SPV, or may co-invest directly through a separate FDI transaction. Where regulatory clarity is valued, the Special Scheme framework under the IFSCA Fund Management Regulations 2025 is the cleaner route: the SPV is itself IFSCA-registered and its investment flows through the Fund Management framework. Where the group prefers to consolidate the investment at the corporate level, a direct co-investment under the FDI route is available, subject to the applicable FDI and DPIIT conditions.

FAQ

1. What is a venture capital fund in GIFT City IFSC?

A VC fund in GIFT City IFSC is an IFSCA-regulated investment vehicle that invests in startups and early-stage companies.

2. How to set up a venture capital fund in GIFT City IFSC?

Register as an FME with IFSCA, meet net worth requirements, and launch a VC scheme.

3. What is an Authorised FME in GIFT City?

An Authorised FME is a basic IFSCA license to manage venture capital and investment funds.

4. What are the key requirements for VC fund registration in GIFT City?

Minimum net worth, qualified personnel, and compliance with IFSCA regulations.

5. Can foreign investors invest in GIFT City VC funds?

Yes, foreign investors can freely invest in IFSC-based VC funds.

6. What is a VC Scheme under IFSCA regulations?

A VC Scheme is a pooled fund that invests in startups and unlisted companies.

7. What is the tax treatment of VC funds in GIFT City?

VC funds follow pass-through taxation, where investors pay tax.

8. What is a Special Scheme in GIFT City VC funds?

A Special Scheme allows co-investment in a single portfolio company.

9. What is the minimum investment in a GIFT City VC fund?

Typically starts from USD 150,000.

10. Why is GIFT City attractive for VC funds?

It offers tax benefits, global access, and a strong regulatory framework.