On 10 September 2026, the International Financial Services Centres Authority (IFSCA) officially notified the Fund Management (Second Amendment) Regulations, 2026, enacting forty-four targeted statutory modifications to the principal 2025 regulatory framework. Following initial press communications issued on 16 September 2026, an in-depth examination of the gazetted bare regulations reveals an extensive structural recalibration for Fund Management Entities (FMEs), trustees, and fund sponsors operating out of GIFT City IFSC.
Rather than merely tweaking administrative limits, the Second Amendment tackles core structural and operational friction points encountered by fund managers in practice. Crucially, the amendments expand and clarify the scope of "associate" entities while creating an explicit statutory safe harbor for independent trustees and fiduciaries, shift mandatory sponsor contribution calculations from theoretical target figures to contractually committed capital, institute repeatable placement memorandum extensions with discounted initial fees, and defer costly service provider appointments until immediately prior to investor agreement signing, eliminating wasteful pre-launch cash burns.
Quick Answer: What Did IFSCA Change?
The IFSCA (Fund Management) (Second Amendment) Regulations, 2026 enacted on 10 September 2026 modernize the GIFT City regulatory framework across five core operational dimensions:
- Skin-in-the-Game Flexibility: Mandatory sponsor commitments now benchmark against actual committed corpus rather than uncommitted target amounts. Indian resident FMEs investing solely in IFSC or foreign jurisdictions can now contribute up to 25% of corpus (elevated from 10%), while offshore sponsors remain uncapped.
- Pre-Launch Cost Reduction: Auditors, fund administrators, independent valuers, and custodians no longer need to be engaged prior to scheme launch; appointments are required only prior to executing agreements with investors.
- Repeatable PPM Runway: FMEs unable to reach minimum corpus during initial placement memorandum validity can now seek repeatable 6-month extensions, with the first extension fee reduced by half to 25% of fresh scheme filing fees.
- Fiduciary Protection & Conflicts: The "associate" definition has been refined to capture 20%+ direct economic interests under IFSCA AML standards, while explicitly protecting independent fund trustees from being classified as associates of the FME.
- Governance & Record Architecture: All internal compliance frameworks, SOPs, and risk policies now require formal Board or delegated committee approval, backed by a compulsory 8-year electronic document retention requirement under Regulation 119(2)(fa).
Quick Reference: Statutory Amendments Overview
Thematic Regulatory Analysis: What Changed in the Bare Regulations
A rigorous examination of the gazetted text against the 2025 framework highlights critical improvements across ten key operational areas. Below is the substantive analysis of the new legal architecture.
1. Scope of "Associate" & Protection for Fund Fiduciaries [Regulation 2(1)(d)]
The definition of "associate" forms the bedrock of conflict-of-interest checks, related-party investment restrictions, and skin-in-the-game attribution across GIFT IFSC funds. The Second Amendment substantially overhauls Regulation 2(1)(d) in four structural respects:
- Broadening Entity Coverage to Any "Person": Previously, the rule applied narrowly to "a company or a limited liability partnership (LLP) or a body corporate". The amended provision replaces this phrasing with "a person", drawing upon the expansive definition under the IFSCA (AML, CFT and KYC) Guidelines, 2022. This brings individuals, trusts, partnerships, and unincorporated associations into the associate matrix.
- Substance-Over-Form Economic Interest Test: In addition to holding 20% or more of paid-up equity share capital or partnership interest, the rule now captures any "such other equivalent direct economic interest, by whatever name called". This ensures economic parity across hybrid instruments, profit-sharing units, and convertible securities.
- Statutory Safe Harbor for Independent Fiduciaries: Under the previous wording, institutional trustees or independent directors appointed to fund boards under Regulation 17(2) risked being caught as associates across unrelated funds, triggering burdensome 75% investor consent thresholds for routine co-investments. The amendment inserts an explicit proviso clarifying that a person appointed as a scheme fiduciary shall not be deemed an associate of the FME unless such person holds direct economic interest or control in the FME.
- Statutory AML Cross-Reference: An Explanation formally ties the definition of "person" to IFSCA's AML/CFT framework, establishing uniform regulatory interpretation across supervisory verticals.
2. Recalibration of FME & Associate Contribution [Regulations 28(1) & 40(1)]
One of the most consequential commercial reforms concerns the mandatory "skin-in-the-game" investment required from the FME or its associates. Under the 2025 regulations, contributions were calculated against the "targeted corpus" announced in the placement memorandum, forcing sponsors to lock up disproportionately high capital upfront even when capital was drawn down in stages.
The Second Amendment fundamentally re-anchors the calculation to actual "corpus"—defined under Regulation 2(1)(j) as the total amount committed by investors to the scheme by way of written contract. The revised contribution rules operate as follows:
- Non-Resident Sponsors (Fully Uncapped): If the FME and its associates investing in the scheme are non-residents and have no Indian resident UBOs, the 10% ceiling does not apply at all.
- Indian Resident Sponsors (Cap Raised to 25%): If the FME or its associates are Indian residents or have Indian resident UBOs, the ceiling is elevated from 10% up to 25% of corpus, provided the scheme invests exclusively in GIFT IFSC or foreign jurisdictions (i.e. zero direct investment into mainland India).
3. Repeatable Placement Memorandum Validity Extensions [Regulation 31(3)]
Under the 2025 regulations, if an FME was unable to achieve the minimum corpus within the prescribed validity period of its placement memorandum (PPM), it was granted only a single, one-time extension of 6 months, requiring payment of 50% of the fresh filing fee. If market conditions remained adverse after that single extension, the scheme lapsed, requiring a complete refiling.
The Second Amendment substitutes the proviso to Regulation 31(3) to institute a commercially responsive, repeatable extension regime:
- Repeatable 6-Month Extensions: FMEs now have the statutory option to extend the validity of the PPM "while it is valid for a further period of six (6) months, each time".
- Graded Fee Structure: To support initial capital formation, the regulatory extension fee is lowered to twenty-five per cent (25%) of the fresh filing fee for the first extension, and fifty per cent (50%) for each subsequent extension.
- Strategic Impact: Private equity and venture capital fund managers gain predictable runways during protracted institutional fundraising cycles without having to abandon registered structures.
4. Interim Deployment Prior to First Close & Deletion of CDs [Regulations 22(1), 34(1), 46(1)]
The amendment harmonizes the rules governing capital management before a fund reaches its first close or statutory minimum corpus:
- Express Authority for Pre-First Close Deployments: A new second proviso has been inserted across VC Schemes (Reg. 22(1)), Restricted Schemes (Reg. 34(1)), and Retail Schemes (Reg. 46(1)). Monies collected from early contributors prior to first close (or prior to achieving minimum size in retail schemes) may now be deployed in capital-preservation and liquidity-supporting instruments, such as bank deposits with premature withdrawal facilities and overnight funds, provided this strategy is disclosed in the placement memorandum or offer document.
- Omission of Certificates of Deposit: "Certificates of deposits" (CDs) have been omitted from the list of permissible interim investment vehicles across all three scheme chapters. Fund treasuries must ensure interim deployment pipelines are restricted to overnight funds, liquid schemes, bank deposits, and designated money market instruments.
5. Realignment of NAV & Portfolio Reporting Clocks [Regulations 24, 27, 36, 39, 48, 51]
A persistent operational friction under the original regulations was that statutory reporting obligations—such as computing NAV and disseminating portfolio holding statements within 30 days of period end—technically applied from the date of scheme registration, even if the scheme had not drawn capital or made its maiden portfolio investment.
The Second Amendment cleanly resolves this across Regulations 24(2)-(3), 27(1), 36(3)-(4), 39(1), 48(4)-(5), and 51(1):
- VC and Restricted Schemes: Mandatory annual/periodic NAV calculation and portfolio disclosure obligations now formally trigger "starting from the financial year in which the scheme commences investment activities, excluding investments made in accordance with second proviso (pre-close interim liquidity deployments)".
- Retail Schemes: NAV computation (daily for open-ended, weekly for close-ended) and portfolio reporting trigger "starting from the day or week, as the case may be, in which the scheme commences investment activities".
- Annual NAV Option for Close-Ended Restricted Schemes: Close-ended Restricted Schemes may now compute and disclose NAV on an annual basis (replacing the rigid half-yearly requirement), provided prior approval is secured from at least 75% of investors by value (Reg. 39(1)).
6. VC Scheme Follow-On Rounds Beyond 10 Years [Regulation 23(3)]
The definition of venture capital investee companies has historically centered on early-stage enterprises within 10 years of incorporation. While the press release broadly highlighted relief for follow-on investments, the bare text of Regulation 23(3) introduces three strict statutory conditions that FMEs must satisfy before injecting capital into an investee company that has surpassed the 10-year mark:
- Constitutive Consistency: The follow-on investment must align strictly with the scheme's stated investment objectives, strategy, placement memorandum provisions, and the FME's documented internal investment policy.
- Disqualification of Previously Excluded Investors: If an investor was excluded from participating in an earlier investment round in that investee company—whether by investor choice (e.g. ESG or sanctions carve-out) or by FME determination under the contribution agreement—such investor shall not be permitted to participate in subsequent follow-on rounds in that enterprise.
- Anti-Dilution Cap on Ownership: The capital contribution by the VC scheme in the follow-on round must be calibrated so that the scheme's post-issue beneficial interest (on a fully diluted basis) does not exceed its pre-issue beneficial interest (on a fully diluted basis). This rule ensures follow-on capital is deployed purely for pro-rata ownership protection, preventing the fund from mutating into a controlling buyout vehicle.
7. Differential Distribution Rights: Senior & Junior Units [Regulation 35(6)]
The Second Amendment inserts an enabling governance provision—Regulation 35(6)—formally permitting Restricted Schemes to offer differential distribution rights to investors through the issuance of senior, junior, or subordinate units, subject to the Authority's regulatory framework.
This statutory recognition unlocks sophisticated private credit, structured debt, mezzanine, and blended-finance vehicles in GIFT City, providing domestic and foreign institutional investors with customizable risk-return tranches.
8. Retail Scheme Reforms: Sectoral Caps & Mandatory Disclosures [Regulations 47(4) & 48(2)]
For Retail Schemes, two substantive enhancements modernize fund architecture:
- Pragmatic Look-Through Relief for Fund of Funds (Reg. 47(4)): Previously, Retail Fund of Funds (FoF) structures were subject to intricate portfolio look-through rules to prove underlying schemes did not exceed single-sector concentration caps (25% generally, 50% for financial services). The amendment replaces this cumbersome test: the sectoral cap no longer applies to an FoF if the underlying scheme is regulated by a financial sector regulator in its home jurisdiction (IFSC, India, or foreign jurisdiction) and is permitted for retail offering in that jurisdiction.
- Mandated Offer Document Disclosures (Reg. 48(2)): Retail offer documents must now explicitly incorporate detailed methodologies regarding the computation and disclosure of NAV and clear governance disclosures surrounding conflicts of interest.
9. Sovereign & Multilateral Auditor Exemption [Regulation 135(1)]
Regulation 135(1) mandates that every scheme launched by an FME must have its annual accounts audited by an independent auditor who is "not in any way associated with the FME". For global institutional setups, this restriction created structural gridlock where state-owned asset managers use centralized statutory audit panels across both management company and fund vehicles.
The Second Amendment inserts an explicit proviso exempting FMEs from this restriction where:
- The FME is established by Government or Government-related investors, including central banks, sovereign wealth funds (SWFs), and international or multilateral organizations; or
- The FME is an entity controlled or at least seventy-five per cent (75%) directly or indirectly owned by such sovereign entities; and
- Such sovereign/government-related investors are the sole contributors, directly or indirectly, of the schemes launched by the FME.
10. Governance Architecture & Re-Sequenced Vendor Appointments [Third Schedule & Reg. 119]
The bare regulations introduce foundational shifts in corporate governance, operational sequencing, and record preservation:
Under the 2025 rules, trustees and fund boards were required to confirm that auditors, fund administrators, independent valuers, and custodians were formally appointed before launching the scheme. This forced FMEs to negotiate complex service agreements and incur significant advisory retainers before gauging investor demand.
The Second Amendment eliminates this pre-launch barrier. Clause (ix) has been stripped of these requirements, and a new Clause (ixa) requires fiduciaries to ensure that auditors, administrators, valuers, and custodians are appointed prior to executing the agreement with any investor in the scheme.
FMEs must now ensure that all policies, frameworks, plans, and standard operating procedures prepared in compliance with the regulations are formally approved by the Board of Directors, designated partners, or trustees, or by an appropriate authorized committee or designated senior management official possessing formally delegated powers.
Fiduciaries have an express statutory duty to ensure that where investor approvals are required under Regulations 23(2), 23(4), 35(3), 35(4), and 36(3) (such as related-party transactions or portfolio alterations), the FME either secures direct investor approvals or provides adequate, prominent disclosures in the placement memorandum and formally incorporates them into the investor contribution agreement.
FMEs are now legally required to maintain and preserve in electronic retrieval form for a minimum of eight (8) years all records pertaining to internal policies, governance frameworks, business continuity plans, and standard operating procedures (SOPs).
Complete Provision-by-Provision Regulatory Register
The table below provides an exhaustive, provision-level mapping of all forty-four statutory modifications enacted under the Second Amendment Regulations, 2026, comparing the prior legal position with the amended framework.
Exemptions and Carve-Outs at a Glance
Why This Matters: Commercial and Strategic Implications
The Second Amendment marks an important evolution in IFSCA's supervisory posture—transitioning from rigid prescriptive mandates to an internationally responsive, commercially pragmatic framework. Three strategic outcomes stand out:
Under the earlier framework, an FME launching a fund had to engage legal teams, independent valuers, fund administrators, custodians, and statutory auditors before knowing whether prospective LPs would commit capital. By moving these appointments to the point immediately prior to investor agreement execution (Third Schedule, Clause (ixa)), fund managers save between USD 25,000 to USD 50,000 in upfront setup retainers per scheme. Coupled with the 25% fee discount for the first PPM extension, GIFT City now offers a dramatically leaner path to market.
The relaxation of the 10% sponsor cap up to 25% for Indian-resident FMEs (and Indian UBOs) investing exclusively into GIFT IFSC or foreign jurisdictions resolves a major structural bottleneck. Previously, prominent Indian fund managers seeking to establish global offshore funds in GIFT City were constrained by the 10% ceiling, pushing many to establish Cayman or Mauritius vehicles. With a 25% sponsor commitment permissible for outbound strategies, GIFT IFSC is directly competitive with traditional offshore fund domiciles.
The amendments balance operational flexibility with heightened institutional rigor. The requirement for governing body (or delegated committee) sign-off on all compliance policies, combined with the 8-year electronic retention requirement under Regulation 119(2)(fa), closes the gap between GIFT City FMEs and mature regulatory regimes such as Singapore's MAS or the UK's FCA. Compliance officers must transition from informal SOPs to formal, board-approved governance registers.
Who Is Affected? Impact by Market Participant
When Does It Apply? Effective Date and Transition Rules
The Second Amendment Regulations were notified in the Gazette of India on 10 September 2026. In accordance with Regulation 1(2), the regulations took effect on and from the date of publication. There is no delayed enforcement window; the revised provisions apply immediately to:
- New Schemes: All scheme filing documents, PPMs, and offer documents submitted to IFSCA on or after 10 September 2026 must adhere strictly to the updated disclosures, contribution benchmarks, and vendor sequencing.
- Existing Schemes with Pending PPM Extensions: FMEs currently within their initial PPM validity period can immediately leverage the repeatable 6-month extension framework under Regulation 31(3) at the discounted 25% initial filing fee.
- Active Closed-Ended Funds Seeking Annual NAV: FMEs managing existing close-ended Restricted Schemes may transition from semi-annual to annual NAV reporting upon obtaining 75% investor consent by value and updating their PPM records.
- Annual Report Dispatches: Schemes whose financial years ended within four months preceding notification automatically benefit from the expanded six-month submission deadline under Regulation 134(1) and (3).
Practical Implications for Compliance Teams
To implement the Second Amendment seamlessly into daily operations, legal and compliance teams should address four immediate workflow priorities:
- Restructure Scheme Launch Workflows: Update standard launch checklists so that engagement letters with fund administrators, custodians, statutory auditors, and independent valuers are timed for execution concurrently with final LP negotiations, rather than during initial regulatory scheme filing.
- Establish Formal Board Policy Approvals: In terms of Third Schedule Part A, Clause (o), ensure that every risk management framework, AML manual, valuation policy, ESG policy, and compliance manual is formally approved by the Board of Directors or an authorized board committee, with signed minutes preserved.
- Audit Electronic Retention Systems: Under Regulation 119(2)(fa), configure internal document management repositories to enforce an immutable 8-year electronic retention schedule for all internal policies, operational SOPs, and governance plans.
- Recalibrate Fund Documentation: Revise standard PPM templates to incorporate the second proviso to Regulation 22(1)/34(1) regarding pre-first close interim deployments, update the NAV computation frequency disclosures, and include the statutory conflict and NAV methodology disclosures in retail offer documents.
Comprehensive Compliance Checklist
Frequently Asked Questions
1. When did the Second Amendment Regulations, 2026 come into legal force?
The regulations were published in the Official Gazette on 10 September 2026 and came into force immediately upon publication, in accordance with Regulation 1(2). Although the official press release was issued on 16 September 2026, the legal commencement date across all provisions is 10 September 2026.
2. How has the calculation base for the FME/associate contribution changed?
The statutory base shifted from "targeted corpus" to "corpus". Under Regulation 2(1)(j), corpus means the total amount committed by investors to the scheme under written contract. As a result, sponsors no longer have to fund their mandatory skin-in-the-game on uncommitted target amounts; contributions scale proportionately with actual signed LP commitments.
3. Which fund managers qualify for the increased 25% contribution ceiling?
Under the second proviso to Regulations 28(1) and 40(1), FMEs that are Indian residents or have Indian resident ultimate beneficial owners (UBOs) can contribute up to 25% of corpus (elevated from the general 10% cap), provided the scheme invests exclusively in GIFT IFSC or foreign jurisdictions. If the FME and its associates are non-residents with zero Indian UBOs, the 10% ceiling does not apply at all.
4. Can an FME extend the validity of a placement memorandum more than once?
Yes. The amendment replaces the prior one-time extension with repeatable 6-month validity extensions while the placement memorandum remains valid (Regulation 31(3)). The regulatory fee is 25% of the fresh filing fee for the first extension, and 50% for each subsequent extension.
5. What are the requirements for close-ended Restricted Schemes to adopt annual NAV disclosure?
Under amended Regulation 39(1), close-ended Restricted Schemes may compute and disclose NAV on an annual basis (rather than semi-annually), provided the FME obtains prior approval from at least 75% of investors in the scheme by value of their investment.
6. When must an FME appoint its auditor, administrator, valuer, and custodian?
Under Third Schedule Part B, Clause (ixa), these service providers no longer need to be engaged prior to scheme launch. Instead, the fund's governing body must ensure that the auditor, fund administrator, independent valuer, and custodian are formally appointed prior to executing the agreement with any investor in the scheme.
7. Are independent scheme fiduciaries and trustees considered associates of the FME?
No. The Second Amendment inserted an express safe harbor in the proviso to Regulation 2(1)(d) confirming that a person appointed as a scheme fiduciary under Regulation 17(2) shall not be deemed an associate of the FME unless such person holds direct economic interest or control in the FME.
8. Can Venture Capital Schemes make follow-on investments in companies older than 10 years?
Yes, subject to three statutory conditions under Regulation 23(3): (i) the investment must be consistent with the scheme's objectives, strategy, PPM, and internal policies; (ii) any investor previously excluded from that company cannot participate; and (iii) the scheme's post-issue fully diluted beneficial interest must not exceed its pre-issue beneficial interest.
9. Who is exempt from the auditor-independence requirement under Regulation 135(1)?
Under the new proviso to Regulation 135(1), the prohibition on appointing an auditor associated with the FME does not apply to FMEs established by Governments, central banks, sovereign wealth funds, or multilateral agencies (or entities at least 75% owned by them), provided these sovereign entities are the sole contributors to the schemes launched by the FME.
10. How does the amendment alter the USD 3 billion ESG disclosure threshold?
Regulation 72(1) was amended to explicitly exclude the AUM of Fund of Funds schemes from the USD 3 billion threshold that triggers comprehensive ESG governance and reporting obligations, eliminating artificial double-counting of assets.
CorpLawUpdates Analysis & Strategic Outlook
The IFSCA (Fund Management) (Second Amendment) Regulations, 2026 reflect a regulator actively listening to market participants. By removing certificates of deposit, refining the "associate" definition, and aligning sponsor contributions with contractually committed capital, IFSCA has resolved several ambiguities that previously complicated cross-border fund formation. Crucially, allowing repeatable PPM extensions and deferring vendor retainers until investor agreements are finalized makes GIFT IFSC substantially more cost-competitive against mature jurisdictions like Delaware, Luxembourg, and Singapore. FMEs should move promptly to align internal policy approvals and record retention architectures with the amended standards.
Principal Regulations: IFSCA (Fund Management) Regulations, 2025, notified vide Notification No. IFSCA/GN/2025/002 dated 10 February 2025, published in the Gazette of India, Extraordinary, Part III, Section 4, No. 116, dated 13 February 2025.
Amending Instrument: IFSCA (Fund Management) (Second Amendment) Regulations, 2026, published in the Gazette of India, Extraordinary, Part III, Section 4, on 10 September 2026.
Authority Meeting: Approved by the Authority in its meeting held on 24 July 2026.
Official Press Release: Issued by IFSCA at Gandhinagar on 16 September 2026.
Disclaimer: This article is prepared for informational and educational purposes only and does not constitute formal legal, investment, or regulatory advice. Fund managers and investors should consult the official Gazette notification and qualified counsel for specific structuring decisions.
