IFSCA (Fund Management) (Second Amendment) Regulations 2026: Key Changes for GIFT IFSC

The IFSCA (Fund Management) Regulations, 2025 were barely a year old when they were amended twice in 2026. The first amendment took effect on 30 January 2026, the second on 10 September 2026. For a manager operating under the framework, the second set is the more consequential: it changes valuation, sponsor commitment, disclosure timelines and several operational deadlines at once.

This article examines the key changes introduced by the IFSCA Fund Management Second Amendment Regulations 2026 and their implications for fund managers in GIFT City IFSC. It draws on the consolidated regulations as amended up to 10 September 2026.

The Provenance of the September 2026 Changes

IFSCA’s press release of 16 September 2026 records that the Second Amendment Regulations were notified and published in the Gazette on 10 September 2026, giving effect to amendments approved by the Authority at its meeting on 24 July 2026. The stated inputs were feedback from the Authority’s Chintan Shivir and other industry interactions, its own supervisory experience, public consultation and the recommendations of the Fund Management Advisory Committee. The stated objectives were ease of doing business, stronger investor protection through enhanced disclosure, and regulatory clarity.

Valuation and NAV

Two relaxations sit together.

NAV periodicity for close-ended restricted schemes. An FME may now move the computation and disclosure of NAV for a close-ended restricted scheme from semi-annual to annual, subject to the prior approval of at least 75% of investors by value.

Independent valuation. The requirement to obtain an independent valuation of the portfolio of venture capital, restricted and retail schemes is relaxed for investments made in underlying schemes that are themselves valued by an independent entity. The consolidated text carries this as a proviso to the valuation regulation for each scheme type.

Both changes remove duplicated work rather than lowering the standard: the investor’s protection in each case is that an independent valuation already exists at the level below.

Sponsor Commitment: A Significant Liberalisation

The requirement that an FME or its associate contribute to its own schemes (Article 19) has been changed in three ways.

• A higher ceiling for Indian-owned managers. In place of the existing 10% limit, FMEs and their associates having Indian ultimate beneficial owners (the press release’s phrase; the regulation turns on residence in India, of the FME or associate or of its ultimate beneficial owner) may contribute up to 25% of the corpus of venture capital and restricted schemes, where those schemes invest only in the IFSC or foreign jurisdictions. The stated purpose is to let such managers build a track record in overseas markets.
• Wider exemption for passive strategies. The exemption from the minimum contribution requirement now extends to restricted and retail schemes that are index schemes, or funds of funds investing in index schemes or passive ETFs, subject to appropriate disclosures.
• A limit on the fund-of-funds exemption. IFSCA clarified that the automatic exemption for funds of funds is available only where no active fund management is involved.

The first of these is a genuine structural change for India-owned managers raising offshore capital, and it is conditioned on both ownership and the scheme’s investment universe.

Venture Capital Schemes: Follow-On Rounds

Venture capital schemes may now participate in subsequent funding rounds of investee companies that have crossed ten years since incorporation, subject to the conditions written into the consolidated regulation: consistency with the scheme’s objectives, strategy, placement 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.

This addresses a practical problem created by the 80% “young company” requirement: a successful early investment could not be supported in later rounds once the company aged past the threshold.

Retail Schemes and Concentration

The sectoral concentration limits for retail schemes are disapplied for funds of funds investing in underlying schemes that are regulated by the relevant financial sector regulator and permitted for offering to retail investors in their home jurisdictions.

Operational And Governance Changes

• Auditor for sovereign structures. Where an FME and its schemes are established by governments or government-related investors, such as sovereign wealth funds, and those investors are the sole contributors directly or indirectly, a common auditor may be appointed for the FME and its schemes.
• ESG disclosure threshold. For sustainability-related disclosure requirements applying to FMEs with AUM above USD 3 billion at the close of a financial year, the AUM of fund-of-funds schemes is excluded in computing the threshold.
• Annual report timeline. The deadline for submitting a scheme’s annual report to IFSCA and to investors is extended from four months to six months from the end of the financial year.
• Investor approvals. Approvals of investors for certain matters may now be obtained through disclosures in the placement memorandum and the agreement executed with investors, rather than by separate consent.
• Internal policies. Policies and frameworks that the regulations require an FME to have must be approved by the FME’s governing body, or by a committee or officials to whom the governing body has delegated the power.
• Service providers. The timeline for appointing key service providers is recast: appointments must be completed before execution of the agreement with any investor in the scheme, and the requirement now covers the valuer and custodian in addition to the fund administrator and auditor. The fiduciary must ensure compliance with these timelines.

Investor-Protection Additions

• Retail offer documents must now also disclose the methodology of NAV computation and conflicts of interest.
• Pre-close deployment. Money received before a scheme achieves its minimum corpus may be deployed only in instruments that support preservation of capital and adequate liquidity, disclosed in advance in the placement memorandum or offer document. In the venture capital chapter, the consolidated text gives bank deposits with premature withdrawal options and overnight funds as examples, and certificates of deposit were removed from the general list of permitted parking instruments.
• Definition of “associate”. The definition is widened to cover natural persons and juridical persons that are not body corporates but hold a direct economic interest. This expands the reach of every conflict-of-interest provision that turns on the term.
• Disclosure timing. The commencement of NAV and portfolio disclosure obligations is now linked to the commencement of investment activities, excluding temporary deployment in permitted instruments.

The January 2026 Amendment

The January 2026 amendment to the IFSCA (Fund Management) Regulations, 2025, introduced targeted changes affecting key managerial personnel eligibility and placement memorandum extensions.

KMP eligibility. The qualification and experience conditions in regulation 7 were substituted. The current text requires a professional qualification or relevant post-graduate qualification, with a graduate degree sufficing for a principal officer with fifteen years’ experience, and at least five years’ experience in an “eligible institution”, reduced for a compliance officer with a professional qualification and for individuals holding specified certifications. The definition of “eligible institution” was widened to include professional and advisory firms serving regulated institutions, and the finance, accounts, secretarial and legal departments of companies (Article 18).

Placement memorandum extensions. In the venture capital chapter, the single six-month extension at 50% of the fresh filing fee was replaced by successive six-month extensions, at 25% of the fresh filing fee for the first and 50% for each subsequent extension, on an application made while the memorandum is still valid. The Second Amendment then extended the same model to restricted schemes from 10 September 2026. Special situation funds and retail schemes retain a one-time extension.

Open-ended restricted schemes. The January amendment also provides that an open-ended restricted scheme may invest in unlisted securities only after achieving the minimum corpus of USD 3 million.

What Managers Should Do?

• Re-paper the internal governance chain, since policies now require governing-body or delegated approval.
• Re-check sponsor commitment calculations against the new 25% ceiling and the expanded exemptions, and confirm the ultimate beneficial ownership analysis where the higher ceiling is relied on.
• Revisit scheme documents for NAV methodology and conflicts disclosure, pre-close deployment language and investor approvals now to be obtained through documentation.
• Diarise the new timelines, including the six-month annual report deadline and the requirement to appoint valuers and custodians before the first investor agreement.
• Re-run the “associate” test across existing arrangements in light of the widened definition.

Further September Changes

Two further features of the Second Amendment deserve mention. For non-resident FMEs, the 10% sponsor ceiling does not apply where the scheme’s investment in any one investee company does not exceed one-third of its corpus. And the amendment introduced differential distribution in venture capital and restricted schemes (regulations 23(5) and 35(6)). IFSCA’s circular of 25 September 2026, issued after this article’s cut-off, permits senior units and junior or subordinate units. Junior investors may bear disproportionate losses, accept lower or zero returns, or provide grants to an ESG scheme. Junior subscriptions must be at least USD 2 million (USD 1 million for qualifying accredited investors), ESG schemes may accept grants of up to 49% of corpus, and the placement memorandum must disclose the distribution waterfall in tabular scenarios.

Frequently Asked Questions

1. What are the key changes under the IFSCA (Fund Management) Second Amendment Regulations, 2026?

The amendments revise valuation requirements, sponsor commitments, investor disclosures, governance procedures and compliance timelines for fund management entities (FMEs) in GIFT IFSC.

2. Can an FME increase its contribution to a scheme under the September 2026 amendments?

Yes. Eligible FMEs or their associates meeting the specified Indian-residency conditions may contribute up to 25% of the corpus of qualifying venture capital and restricted schemes investing exclusively in the IFSC or foreign jurisdictions.

3. Has the deadline for submitting scheme annual reports changed?

Yes. The deadline has been extended from four months to six months from the end of the financial year.

4. Are independent valuations still required for investments in underlying schemes?

The independent valuation requirement is relaxed where the underlying scheme’s investments are already valued by an independent entity, subject to the applicable regulatory conditions.

5. What should fund management entities do to comply with the amendments?

FMEs should review their sponsor commitment calculations, scheme documents, investor disclosures, internal governance policies, service-provider appointments and revised reporting deadlines.