Portfolio Management and Third-Party Fund Management from GIFT IFSC

Not all fund management in GIFT IFSC involves a pooled fund. Registered Fund Management Entities (FMEs) can offer portfolio management services (PMS) to individual clients or provide third-party fund management services by managing schemes on behalf of another fund manager. Introduced in 2025, the third-party framework creates an additional route for fund managers to access GIFT IFSC, subject to specific authorisation, capital and compliance requirements.

Portfolio Management Services

A Registered FME may offer portfolio management services (PMS) to clients under Chapter VI, Part A.

The client relationship. Before entering into a portfolio management agreement, the FME must provide a disclosure document covering the services offered, risk factors, client representations and financial performance. A written agreement must then set out the terms, and the regulations preserve the client’s ability to withdraw funds or securities before maturity of the contract in the circumstances specified. The FME must furnish periodic reports covering, among other things, the composition of the portfolio, and give each client access to them.

Minimum size. An FME may not accept funds or securities worth less than USD 75,000 from a client under a portfolio management agreement.

Where client money sits. Client funds of a client availing PMS, other than advisory-only clients, may be maintained in a specific client account with a Banking Unit, a bank in India or a foreign bank, or in a specific client account with a regulated broker-dealer in the IFSC. Where funds are held in a client’s bank account, the FME must operate the account itself or through a custodian and provide details of all such accounts.

Segregation. Each client’s securities holdings must be segregated in separate accounts. An omnibus structure is permitted only where prior client consent has been obtained and adequate checks ensure that client securities are earmarked separately.

Fiduciary duties and prohibitions. The FME acts in a fiduciary capacity and may not derive any direct or indirect benefit from client funds or securities. It may not borrow funds or securities on behalf of a client. It may not use client portfolios for derivatives without express client consent. Investment must be in terms of the agreement, and for discretionary PMS the regulations restrict the permitted investment universe.

Custody. An FME acting as a portfolio manager, other than one providing only advisory services, must appoint a custodian for the securities it manages or administers.

Fees. Fees may be fixed, return-based or a combination, but the FME may not guarantee or assure any return, directly or indirectly.

Multi-family offices. Regulation 81 permits an FME to provide services to a multi-family office under a portfolio management agreement, subject to conditions IFSCA may specify. This is the route for a manager serving several families, as distinct from the single-family Family Investment Fund (Article 20).

Third-Party Fund Management: An IFSC Manager for Someone Else’s Funds

Part D of Chapter VI, inserted with effect from 30 July 2025, permits a Registered FME to launch and manage schemes on behalf of a third party.

The concept. “Third-party fund management services” means the activity where a Registered FME manages schemes on behalf of a third party. A “third-party fund manager” is an entity registered or regulated for fund management, portfolio management, investment advisory or similar activity by the financial sector regulator in its country of incorporation, which avails those services from a Registered FME.

The commercial logic is clear: an offshore manager without an IFSC presence can access an IFSC platform, while the regulated responsibility stays with the IFSC entity.

Authorisation and responsibility. An FME intending to do this must obtain a separate authorisation from IFSCA under Part D. It must strengthen its compliance function and deploy resources commensurate with its operations so that each scheme receives adequate compliance focus. Critically, regulation 107C(4) provides that notwithstanding any arrangement with the third party, including any indemnity, the FME continues to be liable for all obligations and liabilities arising in connection with the arrangement. Contractual risk allocation does not transfer regulatory responsibility.

Legal form. The FME must be a company, an LLP or another permitted form, and its memorandum of association or LLP agreement must enable it to offer third-party fund management services.

People. For each scheme managed under a third-party arrangement, the FME must appoint a dedicated principal officer responsible for that scheme’s fund management, risk management and compliance. For a Registered FME (Non-Retail), the compliance officer for its own schemes or PMS may also serve the third-party schemes. For a Registered FME (Retail), the compliance officer for retail schemes must be separate from the compliance officer for non-retail schemes, whether self-managed or third-party managed. AUM of third-party managed schemes counts towards the USD 1 billion threshold that triggers an additional fund-management KMP, excluding fund-of-funds AUM managed under third-party arrangements.

Capital. An FME authorised for this activity must maintain an additional net worth of USD 500,000 at all times, separate from and in addition to the net worth required for its own activities and for any other activities inside or outside the IFSC.

Scope and size. Only restricted schemes may be managed under a third-party arrangement, in accordance with Part B of Chapter III, and such a scheme may not exceed a corpus of USD 50 million, or such other value as IFSCA specifies.

Conflicts. The third party is deemed to be an associate of the FME for the purposes of the specified conflict-of-interest and contribution provisions in regulations 35(3), 35(4) and 40. The consequence is that dealings between the scheme and the third party attract the investor-approval requirements that apply to associate transactions, and the sponsor contribution rules apply accordingly.

Eligibility of the third party. The third party must be a third-party fund manager that is incorporated in India, the IFSC or a foreign jurisdiction; allocates adequate resources to discharge its functions; has persons with adequate and requisite experience responsible for those functions; and whose officers, directors, partners, designated partners, KMPs and controlling shareholders are fit and proper under regulation 9. An explanation makes clear that a third-party fund manager remains eligible even if its ultimate or interim parent is not engaged in fund management.

Choosing Between the Routes

Portfolio management and third-party fund management offer two distinct routes for Registered FMEs in GIFT IFSC. While the former focuses on managing individual client portfolios, the latter allows an IFSC manager to operate restricted schemes on behalf of another fund manager, subject to separate authorisation and additional compliance requirements.

Practical Observations

• Advisory-only mandates are treated differently. Several PMS requirements, including custody and the modes of holding client funds, are expressed to exclude FMEs providing only advisory services. The scope of the mandate should be defined precisely in the agreement.
• Third-party arrangements do not outsource liability. The regulation is explicit, and it should shape indemnity negotiations rather than be displaced by them.
• Watch the corpus cap. A restricted scheme under a third-party arrangement is capped at USD 50 million, which constrains the model’s use for large funds.
• Associate status has consequences downstream. Deemed associate status brings investor-approval requirements into transactions that might otherwise appear arm’s length.

Frequently Asked Questions

1. What is portfolio management services (PMS) in GIFT IFSC?

PMS allows a Registered FME to manage an individual client’s portfolio under a portfolio management agreement, subject to applicable regulatory requirements.

2. What is the minimum investment for PMS in GIFT IFSC?

An FME cannot accept funds or securities worth less than USD 75,000 from a client under a portfolio management agreement.

3. What is third-party fund management in GIFT IFSC?

It allows a Registered FME, with separate IFSCA authorisation, to launch and manage restricted schemes on behalf of an eligible third-party fund manager.

4. What additional net worth is required for third-party fund management?

An authorised FME must maintain additional net worth of USD 500,000, over and above the net worth required for its other activities.

5. What is the corpus limit for third-party managed schemes?

A restricted scheme managed under a third-party arrangement cannot exceed USD 50 million, or another limit specified by IFSCA.

6. Does an FME remain liable under a third-party fund management arrangement?

Yes. Regulation 107C(4) preserves the FME’s liability for obligations and liabilities arising from the arrangement, notwithstanding contractual provisions such as indemnities.