IFSCA Fund Management Regulations 2025: Venture Capital, Restricted and Special Situation Funds

The IFSCA (Fund Management) Regulations, 2025 do not use the familiar Category I, II and III taxonomy as their organising principle. They divide schemes by investor profile and purpose. For non-retail money, three vehicles matter: the Venture Capital Scheme, the restricted scheme, and the special situation fund. Their differences are precise and consequential.

Venture Capital Schemes

A Venture Capital Scheme is filed with IFSCA as a “venture capital fund” under Category I Alternative Investment Fund, and the regulations state expressly that a scheme filed under this Part may be construed as a venture capital fund under Category I AIF for the purposes of the Income-tax Act, 1961, FEMA and instruments issued under them. That bridge matters for tax and exchange-control analysis.

Launch. Schemes are launched by private placement, by filing a placement memorandum with the applicable fee. Filing is under a green channel: the scheme is open for subscription immediately on IFSCA’s communication that the memorandum has been taken on record, though IFSCA may offer comments at any stage which must be incorporated. For income-tax purposes, that communication is construed as the certificate of registration.

Validity of the memorandum. Twelve months from the date of that communication, within which the FME must declare first close by achieving the minimum corpus. As amended with effect from 30 January 2026 by the IFSCA (Fund Management) (Amendment) Regulations, 2026, extensions are available in successive six-month blocks on application made while the memorandum is still valid, with a fee of 25% of the fresh-filing fee for the first extension and 50% for each subsequent one. The earlier text permitted only a single six-month extension at 50%. The Second Amendment Regulations applied the same successive-extension model to restricted schemes with effect from 10 September 2026. Special situation funds keep the one-time six-month extension described below.

Investors. Not more than 50 investors. The minimum investment is USD 250,000, reduced to USD 60,000 for employees, directors or designated partners of the FME, and disapplied for accredited investors. Joint investors must each meet the minimum, except that specified family combinations (investor with spouse, parent, or son or daughter) may aggregate to USD 250,000. An FME wanting more than fifty investors, or investors at USD 150,000, must use a restricted scheme.

Structure and tenure. Close-ended only, constituted in the IFSC as a company, LLP or trust under Indian law, with a minimum tenure of three years. The tenure may be extended by up to two years with the approval of two-thirds of investors by value; any further extension requires the express consent of willing investors and an exit opportunity for dissenters.

Corpus and concentration. Minimum corpus USD 3 million; maximum corpus USD 200 million. At least 80% of the corpus must be invested in investee companies incorporated not more than ten years earlier, or in schemes meeting that requirement. A 2026 proviso permits follow-on investment in companies that have crossed the ten-year mark in subsequent funding rounds, subject to three conditions: consistency with the scheme’s objectives, strategy, memorandum and the FME’s internal policy; exclusion of an investor who has been excluded from that investee company; and a cap ensuring that the scheme’s post-issue beneficial interest on a fully diluted basis does not exceed its pre-issue interest.

Conflicts. Investment in an associate requires the prior approval of 75% of investors by value. Buying or selling securities from or to associates, other schemes of the FME or its associates, or an investor committed to at least 50% of the corpus, requires the same approval, with the interested investor excluded from the vote. A fund-of-funds scheme that has disclosed the underlying schemes and the FME’s association with their managers is exempt.

Investments and liquidity. Permissible investments span unlisted securities, listed or to-be-listed securities, money market instruments, debt securities, securitised debt instruments, units of other schemes and of retail, restricted or alternative investment funds, LLP interests, and other specified products. Pending deployment, monies may be held in liquid instruments; and, under a 2026 amendment, money received before first close may be deployed only in investments that preserve capital and provide liquidity, such as bank deposits with premature withdrawal options or overnight funds, as disclosed in the memorandum. The same amendment removed certificates of deposit from the permitted parking list.

Reporting. NAV and portfolio must be disclosed to investors at least annually, from the financial year in which the scheme commences investment activities, with portfolio disclosure within one month of the financial year end. Leverage is permitted subject to disclosure of maximum leverage and methodology, investor consent by two-thirds for deviations, and a risk management framework. Valuation must be by an independent service provider such as a fund administrator, custodian, IFSCA-registered credit rating agency or an IBBI-registered valuer, with an exception for investments in other regulated schemes valued independently.

Restricted Schemes

Restricted schemes are the workhorse non-retail vehicle, available to Registered FMEs. The differences from Venture Capital Schemes are as follows.

Restricted schemes also carry a skin-in-the-game requirement. The FME or its associate must contribute at least 2.5% of the corpus or USD 750,000, whichever is lower, in a close-ended scheme, subject to a ceiling of 10% of corpus (now relaxed in the cases introduced by the Second Amendment Regulations, discussed in Article 23); and at least 5% of the corpus or USD 1,500,000, whichever is lower, in an open-ended scheme. Conflict-of-interest approvals mirror those for Venture Capital Schemes.

Special Situation Funds

Part D permits a Registered FME to launch a special situation fund: a scheme that invests in “special situation assets” and which may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016.

“Special situation asset” is defined by reference to external regimes:

• stressed loans available for acquisition under Clause 58 of the RBI (Transfer of Loan Exposures) Directions, 2021, or as part of a resolution plan approved under the IBC, or under another RBI, IFSCA or Government policy;
• security receipts issued by an Asset Reconstruction Company registered with the RBI; and
• securities of investee companies whose stressed loans are so available, against whose borrowings an ARC has issued security receipts, whose borrowings are subject to a corporate insolvency resolution process under Chapter II of the IBC, or which have disclosed defaults continuing for at least 90 days, provided that in the last two cases the credit rating of the relevant instruments has been downgraded to “D” or equivalent.

Filing follows the restricted-scheme green channel, with a twelve-month validity and a one-time six-month extension on payment of 50% of the fresh filing fee.

The link to the IBC is the significant feature. An IFSC vehicle capitalised by non-resident investors can participate directly in Indian distressed situations, subject to the eligibility requirements for a resolution applicant under section 29A of the Code and to the applicable exchange-control rules, which are analysed separately.

Choosing Between Them

The choice is usually driven by four questions: how many investors, at what ticket size, whether liquidity must be offered through an open-ended structure, and whether the strategy is early-stage, diversified or distressed. Each answer maps to a different set of corpus, concentration, disclosure and sponsor-commitment obligations, and those obligations are conditions of the scheme, not merely of the manager.

Update to 15 October 2026

On 25 September 2026 IFSCA issued a circular setting the operating framework for differential distribution in venture capital schemes and restricted schemes, under regulation 23(5) and regulation 35(6). A scheme may issue senior units and junior or subordinate units. The junior units may absorb losses beyond their pro rata share, accept lower or no returns, or take the form of grants to an ESG scheme. The minimum subscription to junior units is USD 2 million (USD 1 million for qualifying accredited investors). The placement memorandum must disclose the waterfall in tabular form. The detail is summarised in Article 23.

Frequently Asked Questions

1. What are the main non-retail fund schemes under the IFSCA Fund Management Regulations, 2025?

The three key schemes are Venture Capital Schemes, Restricted Schemes and Special Situation Funds, each serving different investment strategies and investor requirements.

2. What is the minimum investment for a Venture Capital Scheme?

The minimum investment is USD 250,000, reduced to USD 60,000 for eligible employees, directors and designated partners of the FME. Accredited investors are exempt from the minimum.

3. What is the minimum investment for a restricted scheme?

The minimum investment is USD 150,000, reduced to USD 40,000 for eligible employees, directors and designated partners of the FME.

4. What is a special situation fund under IFSCA regulations?

A special situation fund invests in specified distressed assets, including eligible stressed loans, security receipts and securities of certain financially distressed companies. It may also act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016, subject to applicable eligibility requirements.

5. Can restricted schemes be open-ended?

Yes. Restricted schemes may be open-ended or close-ended, subject to the applicable investment, corpus, disclosure and other regulatory requirements.