IFSCA widens the green channel for launch of schemes in GIFT City

The International Financial Services Centre Authority (“IFSCA”) vide a circular dated April 5, 2024, on “Ease of doing business – Filing of Schemes or funds under IFSCA (Fund Management) Regulations 2022” (“IFSCA Circular”), has simplified the process for launching of funds and schemes under the IFSCA (Fund Management) Regulations 2022 (“FM Regulations”). The newly simplified process provided for by the IFSCA circular applies to all schemes under the FM Regulations except Retail Schemes.

As per the IFSCA Circular, henceforth, Fund Management Entities (FMEs) can launch any scheme, other than a retail scheme, as soon the PPM along with the scheme application form (with all relevant documents attached) is filed with the IFSCA. The IFSCA Circular has listed out certain minimum disclosures required in the PPM of the scheme being launched. Additionally, when filing scheme documents with the IFSCA, FMEs are required to provide a declaration to the effect that all relevant disclosures, material to the Scheme or Fund, have been disclosed in the PPM.

Prior to this, in the case of Restricted Schemes, Regulation 31(2) of the FM Regulations required FMEs to wait for IFSCA’s comments (if any) and ensure that these comments were incorporated in the PPM before proceeding with the launch. The ‘green channel’ route whereby FMEs were permitted to launch schemes immediately on filing of the PPM was available only to ‘Venture Capital Schemes’ and Restricted Schemes that solicited money only from accredited investors.

We compared the minimum disclosures required in the PPM as per the IFSCA Circular with the requirements prescribed by SEBI for PPMs vide its circular dated February 5, 2020 (“SEBI PPM Template”), which introduced two standardized templates for the PPMs, one for of Category I and Category II AIFs and another for Category III AIFs.  The minimum disclosure requirements in the SEBI PPM Template which are not included in the IFSCA Circular are:

• Section on market opportunity/industry outlook/Indian economy;
• Section on Track Record of the Investment Manager;
• Following sub-items under Principal Terms of the fund:

– Excuse and Exclusion

– Defaulting Unitholders

– Hurdle Rate of Return

– Mandatory Exit of Investors

– Key Person & Key Person Event

– Listing

– Auditors

We did not find any item in the IFSCA Circular which isn’t to be found in the SEBI PPM Template.

The IFSCA Circular also provides an updated scheme application form[1], in which the following changes have been made:

• The requirement of providing the SEZ Letter of Approval is expressly provided in the form;
• The reference[2] to the scheme being launched in form of a body corporate has been removed;
• All fees charged to the investors by the fund are to be disclosed in the form. Earlier it was limited to the fee being charged to the fund by the FME.

• The IFSCA circular has the effect of amending Regulation 31(2) of the FM Regulations and providing a ‘green channel’ for the launch of all restricted schemes. This is definitely a welcome move, one which definitely increases the ease of doing business in GIFT City.
• Prior to the IFSCA circular, one of the key differentiators between a venture capital scheme (“VCS”) and a restricted scheme was that a VCS could be launched under the green channel whilst a restricted scheme could be launched under the green channel only if all its investors were accredited investors. With the advent of the IFSCA Circular, this difference has disappeared. It should be borne in mind that (i) the list of permissible investments for all categories of restricted schemes are the same and (ii) the list of permissible investments for a VCS is very similar to that for restricted schemes. Therefore, now the main differentiators between a VCS and a restricted scheme are that a (i) VCS cannot have more than 50 (fifty) investors, while a restricted scheme can have up to 1,000 investors, (ii) the net worth required of the FME of a VCS is much lower than that required of the FME of a restricted scheme[3] and (iii) the minimum value of the investment to be made by each investor in a VCS is USD 250,000, unless the investor is an accredited investor and the minimum value of the investment to be made by each investor in a restricted scheme is USD 150,000, unless the investor is an accredited investor. The minimum and maximum contribution required of the FME of a VCS and that of a restricted scheme is the same[4].  Therefore, other than the fact that the net worth required of the FME of a VCS is much lower than that required of the FME of a restricted scheme, it appears that there is no significant advantage in launching a VCS and there are a number of disadvantages, such as the cap on total investors.
• It appears that the minimum disclosures prescribed by the IFSCA Circular would be required even for PPMs of retail schemes, though retail schemes are not eligible to be launched under the green channel.
• Though the IFSCA Circular does not expressly state that restricted schemes launched under the green channel would be scrutinized by the IFSCA to ensure that they comply with the minimum disclosure requirements, it is very likely that they will undergo some scrutiny. It is unclear what the consequences would be if a scheme launched under the green channel is found to not contain the minimum disclosures prescribed by the IFSCA Circular. This wasn’t an issue until now, since the green channel available to VCS and “accredited investors-only” Restricted Schemes did not have to comply with any minimum disclosures.

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
Paridhi Jain, Associate, Email – paridhijain@elp-in.com

[1] Until now, the IFSCA’s application form was available at
[2] Contained in para 3.4 of the old form
[3] USD 75,000 for of the FME of a VCS and USD 5,00,000 for the FME of a restricted scheme
[4] The FME or its associate shall invest (a) at least 2.5% of the targeted corpus and not exceeding 10% of the targeted corpus in a scheme with targeted corpus of less than USD 30 Million; or (b) at least USD 750,000 and not exceeding 10% of the targeted corpus in a scheme with targeted corpus of more than USD 30 Million.