16 September 2026
The International Financial Services Centres Authority (“Authority”) notified the IFSCA (Fund Management) (Second Amendment) Regulations, 2026 (“Amendment Regulations”) on August 31, 2026. The Amendment Regulations were published in the Gazette of India on September 7, 2026 and took effect on that date. They make amendments to the IFSCA (Fund Management) Regulations, 2025 across the venture capital, restricted and retail scheme chapters. Most of these changes respond to practical questions raised by the industry: how monies received before first close should be handled, whether venture capital schemes may keep supporting older portfolio companies, how senior and subordinate units are to be treated, and how often net asset value (“NAV”) and portfolio information must be computed and disclosed. The key changes are:
Revised Definition of “Associate”
The definition of “associate” in the Regulation 2(1)(d) has been replaced. A person is now an associate if the fund management entity (“FME”), any of its directors, partners or trustees, or a fiduciary appointed under Regulation 17(2), individually or collectively holds 20% or more of that person’s paid-up equity share capital, partnership interest or equivalent direct economic interest. The test also operates in the other direction: a person holding 20% or more in the FME is an associate, as is any person in which such a holder in turn holds 20% or more.
Notably, a fiduciary appointed under Regulation 17(2) will not be treated as an associate of the FME by reason of that appointment alone, unless it holds a direct economic interest in, or control over, the FME. For this purpose, “person” carries the meaning given to it in the IFSCA (Anti Money Laundering, Counter Terrorist Financing and Know Your Customer) Guidelines, 2022.
Deployment of Monies Received Prior to First Close, and Removal of Certificates of Deposit
Certificates of deposit have been removed from the list of permissible investments for venture capital, restricted and retail schemes under Regulations 22, 34 and 46. Instead, the Authority has introduced a clear rule for monies received before a scheme is ready to invest. Until the relevant trigger is reached, such monies may be deployed only in investments that preserve capital and offer adequate liquidity, such as bank deposits with a premature withdrawal option and overnight funds, as disclosed in the placement memorandum or offer document.
The trigger is the first close for venture capital schemes and close-ended restricted schemes, attainment of the minimum size under Regulation 47(6) for close-ended retail schemes, and the raising of USD 1 million for open-ended restricted and retail schemes. Investments made under these provisions are excluded from the NAV and portfolio requirements provided in Regulations 24, 27, 36, 39, 48 and 51.
Follow-on Investments by Venture Capital Schemes in Companies Beyond Ten Years
A new proviso to Regulation 23(3) allows venture capital schemes to participate in subsequent funding rounds of investee companies that were incorporated more than ten years ago. This is subject to three conditions. First, the investment must be consistent with the investment objectives and strategy of the scheme, its placement memorandum and the internal policies of the FME. Second, an investor who has been excluded from an investee company, whether at its own choice or at the choice of the FME and in line with the placement memorandum and contribution agreement, may not participate in later rounds in that company. Third, the post-issue beneficial interest in the company in the scheme, on a fully diluted basis, must not exceed its pre-issue interest.
Differential Distribution Rights through Senior and Junior or Subordinate Units
Regulations 23(5) and 35(6), added through the amendment, recognise tiered unit structures in venture capital and restricted schemes. Where an FME grants differential distribution rights by issuing senior and junior or subordinate units, it must do so in accordance with a framework to be specified by the Authority. “Senior units” are those with superior rights over the distribution proceeds of the scheme, while “junior” or “subordinate” units, including mezzanine units, rank behind them.
Recalibrated NAV Computation, NAV Disclosure and Portfolio Reporting Timelines
Across all three scheme categories, the reporting cycle now begins only once a scheme commences investment activities, and investments made under the new pre-close provisions are disregarded.
Venture capital schemes must disclose NAV to investors at least yearly, within the period stated in the placement memorandum, and disclose their portfolio at least yearly, within one month of the end of each financial year under Regulation 24. NAV computation under Regulation 27(1) has been aligned accordingly.
Restricted schemes must compute and disclose NAV at least monthly if open-ended and at least half-yearly if close-ended, under Regulations 36 and 39. A close-ended scheme may move to yearly NAV with the prior approval of investors holding at least 75% by value. Portfolio disclosure is required at least quarterly, within one month of each quarter-end.
Retail schemes must compute and disclose NAV daily if open-ended and at least weekly if close-ended, in the manner specified by the Authority, with quarterly portfolio disclosure within one month of each quarter-end, under Regulations 48 and 51. The offer document must now also set out the NAV computation and disclosure methodology and any conflicts of interest.
Valuation Relief for Investments in Other Regulated Schemes
The valuation requirements in Regulations 26(2), 38(2) and 50(2) are now expressly tied to the computation and disclosure of NAV to investors. Furthermore, they no longer apply to the investments of schemes in other schemes that are regulated by a financial sector regulator, directly or through their manager, in the IFSC, India or a foreign jurisdiction, and that are valued by an independent entity.
Revised Contribution Requirements and Wider Exemptions for Passive and Fund of Funds Schemes
The FME or its associate must now contribute at least 2.5% of the corpus or USD 750,000, whichever is lower, to a venture capital scheme or a close-ended restricted scheme, and at least 5% of the corpus or USD 1,500,000, whichever is lower, to an open-ended restricted scheme, under Regulations 28(1) and 40(1). In each case, the contribution may not exceed 10% of the corpus, and it remains optional for schemes relocated to the IFSC from outside India.
The 10% ceiling does not apply to following two cases: where the FME and its investing associate are non-residents with no Indian resident ultimate beneficial owner and no more than one-third of the corpus is invested in an investee company and its associates; or where they are Indian residents (or have an Indian resident ultimate beneficial owner), the scheme invests only in permissible investments in the IFSC or foreign jurisdictions, and the contribution does not exceed 25% of the corpus.
Furthermore, a fund of funds scheme investing in schemes with similar requirements is exempt where the IFSC scheme is not actively managed by the FME and the inter-se allocation is disclosed in the placement memorandum. Restricted schemes additionally benefit from exemptions for index schemes and for fund of funds schemes investing in index schemes or passive ETFs. For retail schemes, a consolidated proviso to Regulation 52(1) now exempts relocated schemes, qualifying fund of funds schemes, index schemes, and fund of funds schemes investing only in index schemes or passive ETFs.
Extension of Validity of the Placement Memorandum
An FME that has not reached the minimum corpus under Regulation 35(2) within the prescribed time may now extend the validity of its placement memorandum, under Regulation 31(3). Each extension lasts six months from the day after the existing validity expires, and must be applied for while the placement memorandum remains valid. The fee is 25% of the prevailing fee for filing a fresh scheme for the first extension, and 50% for each subsequent extension.
Relaxations for Fund of Funds Schemes and Government-Sponsored FMEs
For retail fund of funds schemes, the sectoral cap under Regulation 47(4) will not apply where the underlying schemes are regulated in their home jurisdictions and permitted to be offered to retail investors there. The AUM of fund of funds schemes is also excluded when assessing the USD 3 billion threshold under Regulation 72(1).
The new proviso added to the Regulation 135(1) disapplies that requirement for FMEs set up by the Government or by Government-related investors, such as central banks, sovereign wealth funds and international or multilateral organisations, including entities they control or own at least 75% of, directly or indirectly, where those investors are the sole contributors to the schemes.
Among the consequential changes, Regulation 80(a) now requires compliance with Regulation 34 of the IFSCA (Capital Market Intermediaries) Regulations, 2025; Regulation 119(2)(fa), added through this amendment, requires FMEs to maintain records of internal policies, frameworks, plans and standard operating procedures; and the timelines in Regulations 134(1) and 134(3) have been extended from four to six.
Revised Obligations of FMEs and Fiduciaries under the Third Schedule
Under Part A, a new item (o) requires all policies, frameworks and plans prepared under the Principal Regulations to be approved by the board of the FME, designated partners or trustees, or by an authorised committee or senior official to whom those powers have been delegated.
Under Part B, the obligations of the fiduciary have been consolidated into a new sub-item (ixa). Before any investor agreement is signed, the fiduciary must ensure that auditors have been appointed; that fund administrators registered with the Authority have been appointed, or that the FME can perform this function in-house; that an independent valuer has been appointed; and, where applicable, that a custodian has been appointed under Regulation 132. A new sub-item (xiv) further requires the fiduciary to ensure that, wherever Regulations 23(2), 23(4), 35(3), 35(4) and 36(3) call for it, the FME either obtains investor approval or makes adequate and prominent disclosure in the placement memorandum, and reflects the same in the investor agreement.
