Retail schemes and exchange-traded funds (ETFs) in IFSC are subject to specific requirements under the IFSCA (Fund Management) Regulations, 2025. These cover who can manage a scheme, the number of investors it must have, investment and concentration limits, valuation, disclosure and ETF listing requirements.

Only One Category of Manager

Only a Registered FME (Retail) may launch retail schemes. That category carries the most demanding entry conditions in the regulations (Article 18): it cannot be an LLP or a branch; it must have at least four directors of whom at least half are independent and unassociated with the FME; it must satisfy an objective track-record test; it must appoint a dedicated fund-management KMP before filing the offer document for its first retail scheme or ETF; and its minimum net worth is USD 1 million.

The first protection, in other words, is at the level of the manager.

Retail Schemes: The Quantitative Architecture

Offer document and filing. A retail scheme may not be launched unless a draft offer document is filed with IFSCA with the applicable fee. The offer document is valid for twelve months from IFSCA’s communication that it has been taken on record, with a one-time six-month extension available on payment of 50% of the fee for a fresh filing. Material changes must be notified to IFSCA immediately. Unlike venture capital and restricted schemes, which use a green channel, a retail scheme’s document goes through the offer-document route.

Investor base. A retail scheme must have at least 20 investors, and no single investor may hold more than 25% of the scheme. This prevents a nominally retail scheme from operating as a private vehicle.

Liquidity of the portfolio. For an open-ended scheme, investment in unlisted securities may not exceed 15% of total AUM. A close-ended scheme that invests more than 15% in unlisted securities is subject to two conditions: the minimum investment by an investor is USD 10,000, and the scheme may not invest more than 50% in unlisted securities; both conditions are relaxed for specified investments by a close-ended retail scheme.

Concentration. A retail scheme may not invest more than 10% of AUM in the securities of a single company, extended to 15% with the specified approval; not more than 25% of AUM in a single sector, with a higher ceiling of 50% for the financial services sector; and not more than 25% of AUM in schemes of the FME itself or its associates, subject to disclosure of the underlying schemes in the offer document.

Scheme size. The minimum size of a retail scheme is USD 3 million. A scheme may launch on receiving at least USD 1 million and must reach USD 3 million within twelve months of IFSCA’s communication, failing which a one-time six-month extension may be obtained at 50% of the fresh filing fee.

Valuation and reporting. NAV must be disclosed to investors daily for an open-ended scheme, with a less frequent cycle for close-ended schemes as specified. The offer document must contain all material disclosures, including the investment objective, strategy, NAV disclosure practice, fees and expenses, conflicts of interest and risk management practices.

Read together, these provisions do the work that gating and redemption terms do in a private fund: they keep the portfolio liquid enough to meet redemptions, diversified enough to survive a single failure, and transparent enough for an investor to price an exit.

Exchange Traded Funds

ETFs are dealt with separately, and only a Registered FME (Retail) may launch one.

Listing is mandatory. An ETF must be listed and traded on a recognised stock exchange. Permitted categories are equity index based, debt index based, commodity based, hybrid (two or more asset classes), actively managed, and any other ETF approved by the exchange and IFSCA. The offer document may not be filed with IFSCA unless approved by the exchange, and for actively managed and “other” ETFs, prior approval of the exchange where listing is intended is required.

Identification. An ETF in the IFSC must use the identifier “IFSC ETF”, marking it as an ETF listed and traded in the IFSC.

Index quality rules. For an equity index based ETF, the index must have at least ten stocks; for a sectoral or thematic index, no single stock may exceed 35% weight, and otherwise no single stock may exceed 25%; and the ETF must replicate the index to at least 95% of total assets.

For a debt index based ETF, the index must have at least five issuers, no single issuer may exceed 25% weight, and constituents must be investment grade, with an exception for specified index-based funds. Replication must be at least 90%, with a limited allowance for deviation where issuances of an index constituent are unavailable.

For a commodity based ETF, at least 90% must be invested in the specified commodity, and the FME must have a KMP with the specified experience.

The regulatory technique here is indirect but effective: rather than policing the ETF’s portfolio continuously, the rules police the quality of the index it tracks and the fidelity with which it tracks it.

Where the Protections Sit, Compared with Non-Retail Schemes

Two Practical Observations

The manager’s own schemes are capped. The 25% limit on investment in the FME’s own or associate schemes is a structural conflict rule, not merely a disclosure item, and it applies at AUM level.

Custody sits elsewhere in the regulations. For portfolio management activity, regulation 78(7) requires an FME operating as a portfolio manager, other than one providing only advisory services, to appoint a custodian for securities managed or administered by it. Scheme-level custody, valuation and administration obligations should be read together with the general obligations chapter and the codes of conduct in the Third Schedule.

Frequently Asked Questions

1. Who can launch a retail scheme in IFSC?

Only a Registered FME (Retail) authorised under the IFSCA (Fund Management) Regulations, 2025 can launch a retail scheme.

2. What is the minimum size of a retail scheme?

The minimum scheme size is USD 3 million. A scheme may launch with at least USD 1 million and must reach the minimum within twelve months, subject to the prescribed extension.

3. How many investors must a retail scheme have?

A retail scheme must have at least 20 investors, and no single investor may hold more than 25% of the scheme.

4. What are the investment limits for retail schemes?

Retail schemes are subject to prescribed limits on unlisted securities, single-company exposure, sector concentration and investments in schemes managed by the FME or its associates.

5. Are ETFs permitted in GIFT IFSC?

Yes. A Registered FME (Retail) may launch an ETF, which must be listed and traded on a recognised stock exchange and comply with the applicable index, investment and disclosure requirements.

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