Gujarat International Finance Tec-City (“GIFT City”) is emerging as a pivotal financial gateway, designed to position India as a formidable player in the global financial services landscape. As India’s first operational smart city and International Financial Services Centre (“IFSC”), GIFT City offers a sophisticated ecosystem tailored for global financial operations, particularly for AIFs. This article provides an in-depth guide to establishing and operating AIFs within this unique jurisdiction, detailing the regulatory framework and procedural intricacies under the extant International Financial Services Centres Authority (“IFSCA”) regulations.
I. Understanding International Financial Services Centres
An IFSC is a distinct jurisdiction specifically designed to provide financial services to clients residing outside the domestic economy (the Indian economy for our purpose). These centers play a crucial role in facilitating the cross-border flow of finance, financial products, and services. In the Indian context, an IFSC is defined as a jurisdiction that offers financial services to non-residents and resident institutions, exclusively in currencies other than the Indian Rupee (“INR”). GIFT City has been officially designated as a Multi Services Special Economic Zone (“SEZ”) and India’s IFSC under the Special Economic Zones Act, 2005.
A critical aspect of its operational framework is that an IFSC entity is treated as a non-resident under prevailing Foreign Exchange Management Act (as amended) and rules and regulations made thereunder, which significantly streamlines the international transactionsprovided by IFSC units. This FEMA exemption simplifies financial transactions for AIFs, allowing for freer movement of foreign currency and reducing burdensome reporting requirements.
II. The Unified Regulator: IFSCA
IFSCA serves as the unified regulatory body for IFSCs in India. Established under the International Financial Services Centres Authority Act, 2019, IFSCA consolidates the regulatory powers previously fragmented across multiple domestic regulators, including the IRDAI, SEBI, RBI and PFRDAI. This consolidation aims to provide all regulations related to GIFT City under a single regulator’s legislative powers i.e. the IFSCA, thus attracting foreign interest.
III. The Regulatory Framework: IFSCA (Fund Management) Regulations, 2025
The establishment and operation of AIFs in GIFT City are primarily governed by the IFSCA (Fund Management) Regulations, 2025 (“Regulations”). These regulations, which repealed the earlier 2022 framework, provide a comprehensive rulebook for Fund Management Entities (“FMEs”) and their schemes.
1. Defining the FME: The Regulations define an FME as a registered entity with the Authority (i.e. IFSCA) under any of the specified categories to undertake fund management activities.
2. Categories of FMEs: The Regulations categorize FMEs into three distinct types, each with defined permissible activities and target investor bases:
a) Authorised FME: These entities are permitted to pool money from accredited investors or investors committing above a specified threshold through private placement. Their primary investment focus is on start-ups or early-stage ventures via Venture Capital Schemes. This category also includes FMEs established by a Single Family to manage its Family Investment Fund, investing in financial products and other permitted asset classes.
b) Registered FME (Non-Retail): Expanding upon the scope of Authorised FMEs, Registered FMEs (Non-Retail) are authorized to pool money from accredited investors or those investing above a specified threshold through private placement. These funds are invested in financial products, including securities, and other permitted asset classes through one or more restricted schemes. Additionally, this category is permitted to offer Portfolio Management Services (including for multi-family offices) and act as investment managers for private placements of Investment Trusts (REITs and InvITs).
c) Registered FME (Retail): This represents the broadest category of FMEs, encompassing all activities permitted for Authorised and Registered (Non-Retail) FMEs. Registered FMEs (Retail) are allowed to pool money from all investors or a section of investors under one or more schemes for investment in financial products, including securities, and other permitted asset classes through retail schemes. Furthermore, a Registered FME (Retail) can act as an investment manager for public offers of Investment Trusts (REITs and InvITs) and is authorized to launch Exchange Traded Funds (ETFs).
3. Core Requirements for FMEs: To ensure stability of the fund management ecosystem in GIFT City, the IFSCA has stipulated several core requirements for FMEs:
a) Legal Form: An FME must be established in the IFSC as a company, Limited Liability Partnership (LLP), or a branch. However, a Registered FME (Retail) can only operate as a company. A branch structure is only allowed for FMEs already registered or regulated by a financial sector regulator in India or a foreign jurisdiction for similar activities.
b) Track Record and Reputation of Fairness: Applicants must demonstrate a sound track record and a general reputation for fairness and integrity in all business transactions. For a Registered FME (Retail), specific criteria apply: either the FME (or its holding company/subsidiaries) must have at least five years of experience managing Assets Under Management (AUM) of at least USD 200 million with over 25,000 investors, or the persons controlling the FME (with at least 25% shareholding) must have at least five years of experience in fund management activities for at least 1,000 investors on assets of at least USD 50 million, and the FME must have a net worth of at least USD 2 million. For Registered FME (Non-retail) and Authorised FME, employees must possess relevant experience as may be specified.
c) Key Managerial Personnel (KMP) and Principal Officers: FMEs must designate a Principal Officer responsible for overall activities, including fund management, risk management, and compliance. Registered FMEs require an additional KMP as a Compliance Officer. Registered FME (Retail) must appoint an additional KMP for fund management before filing its first retail scheme or ETF. FMEs managing AUM of at least USD 1 billion (excluding fund of funds) must also appoint an additional KMP for fund management within six months, though this is optional if AUM remains below USD 1 billion for two consecutive years. This requirement is also waived for FMEs set up by Government and Government-related investors who are sole contributors to schemes. All Principal Officers and KMPs must be based in the IFSC and meet stringent educational and experience requirements, including professional qualifications in finance, law, or related fields, and at least five years of relevant experience in the securities market or financial products. Furthermore, IFSCA mandates that the applicant, its principal officer, directors/partners/designated partners, KMPs, and controlling shareholders must consistently meet “fit and proper” criteria as provided by SEBI in its Intermediaries Regulations.
d) Net Worth Requirements: FMEs must consistently comply with specified net worth requirements. These minimum net worth requirements are separate from and in addition to any other net worth requirements for activities within or outside IFSC. For a branch operating in IFSC, the minimum net worth for its IFSC activities can be held at the parent entity level, provided adequate funds are ensured for daily branch operations.
FME Category
Minimum Net Worth (USD)
- Authorised FME – 75,000
- Registered FME (Non-retail) – 500,000
- Registered FME (Retail) – 1,000,000
IV. Detailed Procedures for Establishing an AIF in GIFT City
Establishing an AIF in GIFT City involves a structured, multi-stage process, beginning with the incorporation of the FME and culminating in the registration of the AIF scheme with IFSCA. The entire process is streamlined through a single-window digital platform (SWITS).
1. Incorporating the FME: The foundational step involves incorporating a company limited by shares, with “IFSC” explicitly included in its name. This incorporation is executed through the SPICE+ form form companies and FILLIP form for LLPs available on the MCA Portal, aligning with standard Indian company formation procedure.
2. Obtaining the Provisional Letter of Allotment: Following the successful incorporation of the FME, the entity proceeds to obtain a Provisional Letter of Allotment. This letter is a preliminary step towards securing physical space within the GIFT City SEZ, a prerequisite for formal operations. Generally, the FME may have to get in touch with a developer to get an understanding of the procedure and cost involved that suit their individual needs.
3. Navigating SWITS for Approvals: The application process for various approvals is centralized through SWITS portal. This online portal serves as the primary interface for securing licenses, registrations, or authorizations from IFSCA, approvals from SEZ Authorities, GSTN registration, and No Objection Certificates (NOCs) or requisite approvals from other appropriate regulators such as the RBI, SEBI, and IRDAI. The Common Application Form (CAF) within SWITS is a detailed online form designed to capture all necessary information for both SEZ and IFSC approvals.
4. SEZ Approval Lifecycle: Post the submission of CAF on the SWITS platform, the application for the SEZ Letter of Approval (“LOA”) is automatically submitted to the SEZ Online portal. Then further steps are taken from the SEZ portal which include:
a) Deficiencies and Rectification: Post-submission, the applicant receives login credentials for the SEZ Online portal via email. The IFSCA reviews the LOA applications on this portal and typically raises any deficiencies or queries within 1-2 working days. Applicants are required to log in to the SEZ Online portal to rectify these deficiencies promptly, ensuring the application becomes complete for further processing.
b) The Unit Approval Committee (“UAC”) Meeting: Applications that are complete in all respects are then placed before the UAC for consideration. The agenda for UAC meetings is published on the IFSCA website one to two days prior, and included applicants receive an email with the meeting link. Authorized representatives of the applicant are expected to attend, provide a brief project proposal, and respond to any questions from the UAC. The UAC communicates its approval decision during the meeting.
c) LOA Issuance: Upon UAC approval, the decision is formally recorded in the Minutes of the Meeting. Once these minutes are finalized and approved, the LOA is issued directly on the SEZ Online portal. This LOA is typically valid for one year, providing a window for the unit to commence operations.
d) Executing the Bond Cum Letter of Undertaking (“BLUT”):
i. BLUT is a mandatory document as per Rule 22 of the SEZ Rules, signifying the SEZ unit’s commitment to its obligations under the SEZ Act/Rules. Its execution is crucial for enabling the unit to conduct transactions related to the procurement of goods and services on the SEZ Online portal.
ii. An Eligibility Certificate, vital for claiming State tax exemptions such as stamp duty, is issued concurrently with the BLUT.
iii. The BLUT must be executed on a non-judicial stamp paper of INR 100/-and duly notarized. Required documents include Form-H, a letter from the entity accepting the LOA terms, a detailed calculation sheet outlining projected customs duties and GST savings over five (5) financial years (signed by the obligor on company letterhead), a resolution authorizing the obligor to sign the BLUT, and proper identification details for both the obligor and witnesses.
iv. The submission process involves two phases: first, a physical copy of the executed BLUT, accompanied by a covering letter addressed to IFSCA is submitted by post. IFSCA reviews this for discrepancies and, once satisfied, forwards it to the Specified Officer of Customs for approval. After approval from both the Specified Officer and IFSCA, a PDF copy of the approved BLUT and the Eligibility Certificate are emailed to the FME. Second, the unit files a “New LUT” request on the SEZ Online portal, attaching the approved BLUT PDF, ensuring all details are correctly entered. This online request is then approved by the Specified Officer and IFSCA, updating the bond amount and LUT validity dates officially on the portal.
e) Lease Deed: As per Rule 18(2) of the SEZ Rules, a copy of the registered Lease Deed must be furnished to the IFSCA within six (6) months from the issuance of the LOA. This requires a valid LOA and the Eligibility Certificate. The unit must email a copy of the registered Lease Deed to [email protected] and simultaneously submit a “Unit Lease Deed” request on the SEZ Online portal, ensuring accurate lease term and unit address details.
f) Importer Exporter Code (“IEC”): An IEC issued by the Directorate General of Foreign Trade (“DGFT”), is mandatory for all entities engaged in import or export activities from India. The application is made online via the DGFT portal. Once issued, the unit must file a “Free Form – IEC Application”request on the SEZ Online portal, attaching the IEC Certificate PDF, for IFSCA to update the IEC in the FME’s profile data.
g) Commencement of Operations: As per Rule 19(4) and 19(6) of the SEZ Rules, the LOA remains valid for one year from its issuance, during which period the unit must commence service for IFSC operations and formally intimate IFSCA of the commencement date. Following this intimation, the LOA’s validity extends for five years from the date of commencement of operations. The intimation is made by submitting a “Free Form-Unit-Intimation of DCP” request on the SEZ Online portal, supported by proof of commencement, a copy of the IFSCA Letter of Authorization/Certificate of Registration/Recognition, and the registered Lease Deed.
h) Registering the AIF with IFSCA: The final step in establishing an AIF involves registering the fund or scheme with IFSCA. Applications and annexures should be submitted electronically to [email protected].
V. Third-Party Fund Management Services: A New Dimension
The International Financial Services Centres Authority (Fund Management) (Amendment) Regulations, 2025, introduce a significant new provision: the framework for “Third-Party Fund Management Services”. This amendment broadens the operational scope for FMEs in GIFT City, allowing them to manage schemes on behalf of other entities.
Earlier the only way to launch your first AIF scheme in GIFT City was to establish an FME but that requirement has been relaxed now by IFSCA subject to certain conditions. Let us get into it.
1. Introduction to “Third-party fund management services”: It refers to the activity where a Registered FME in GIFT City manages schemes on behalf of another entity, termed a “third-party.” A “third-party fund manager” is defined as an entity registered or regulated for fund management, portfolio management, investment advisory, or similar activities in its country of incorporation, which then avails these services from a Registered FME in GIFT City. An FME intending to offer these services must seek specific authorization from the IFSCA and comply with the stipulated terms and conditions.
2. Legal Form: An FME seeking authorization to provide third-party fund management services must be established as a company or an LLP.
3. Net Worth Requirements: An FME offering third-party management services must maintain an additional net worth of USD 500,000/- at all times. This additional net worth is distinct from and supplementary to the minimum net worth requirements applicable for its other FME activities (e.g., for self-managed schemes or Portfolio Management Services) and any other activities within or outside the IFSC.
4. Allowed Schemes: An FME shall manage Restricted Schemes under third-party fund management arrangement if corpus of such scheme does not exceed the USD 50 million. This makes it clear that third-party arrangement is not allowed for retail schemes at this point.
5. Key Managerial Personnel (KMP) Requirements: The amendment imposesspecific KMP requirements for FMEs engaged in third-party fund management:
a) For each scheme managed under a third-party arrangement, the FME must appoint a dedicated Principal Officer responsible for the scheme’s overall activities, including fund management, risk management, and compliance.
b) For a Registered FME (Non-Retail), the Compliance Officer for its self-managed schemes or Portfolio Management Services may also serve as the Compliance Officer for schemes managed under the third-party arrangement. However, for a Registered FME (Retail), the Compliance Officer for its Retail Schemes must be separate from the Compliance Officer for Non-Retail Schemes (whether self-managed or managed through third-party arrangements)
c) The AUM of schemes managed under third-party fund management arrangements will be considered when determining the need for appointing additional KMP.
6. Eligibility Criteria for Third-Party Fund Managers: An FME can only provide third-party fund management services to a third-party fund manager that meets specific criteria:
a) The third-party must be incorporated in India, IFSC, or a foreign jurisdiction.
b) It must allocate adequate resources to discharge its functions.
c) The individuals responsible for its functions must possess adequate and requisite experience
d) The third-party, its officers, directors/partners/designated partners, KMPs, and controlling shareholders must all qualify as “fit and proper persons” as per IFSCA’s Regulations. Notably, a third-party fund manager is eligible even if its ultimate or interim parent entity is not directly engaged in fund management activities.
Now that you have an idea of the two ways to establish your presence in GIFT City for launching your own AIF, the next step is to understand what are the different kind of AIFs allowed within GIFT City. We will cover the intricacies of this topic and the steps to launch your first scheme (whether after establishment of FME or through a third party arrangement) in our next article.
Conclusion
GIFT City has rapidly evolved into a compelling jurisdiction for the establishment and operation of AIFs. The detailed regulatory provisions for FMEs, schemes and now for even the third-party arrangements underscores IFSCA’s commitment to operational efficiency. these measures reinforce the integrity and transparency of the ecosystem. Collectively, these elements firmly establish GIFT City as a dynamic and strategically vital global hub for AIFs poised for continued growth and international recognition