IFSCA Fund Management Regulations 2025: A Comprehensive Guide

The International Financial Services Centres Authority (IFSCA) has introduced the Fund Management Regulations, 2025, aimed at streamlining and enhancing fund management activities within International Financial Services Centres (IFSCs). These regulations provide a structured framework for fund managers, alternative investment funds (AIFs), portfolio managers, and collective investment schemes (CIS), ensuring greater transparency, efficiency, and compliance in fund management operations.

Key Objectives of the Fund Management Regulations, 2025

The IFSCA Fund Management Regulations 2025 have been designed to: Establish a globally competitive regulatory framework for fund management within IFSCs. Strengthen investor protection and risk management practices. Facilitate the ease of doing business for fund managers and financial institutions. Encourage international investment participation in IFSCs. Enhance transparency, governance, and compliance standards for fund managers and investment entities. Promote ethical fund management practices by introducing strict compliance frameworks. Ensure liquidity in fund transactions through a structured regulatory environment.

Key Objectives of the Fund Management Regulations, 2025

The IFSCA Fund Management Regulations 2025 have been formulated with several objectives that aim to create a robust and investor-friendly regulatory framework within IFSCs. These key objectives include:

1. Establishing a Globally Competitive Fund Management Ecosystem

• The regulations are designed to position India’s IFSCs as global financial hubs for fund management.
• By aligning with international best practices, the regulatory framework enhances India’s competitiveness in financial services.
• The goal is to attract top global fund managers and institutional investors by ensuring regulatory clarity and efficiency.

2. Strengthening Investor Protection and Risk Management

• Transparency and accountability are at the core of these regulations, ensuring strong investor confidence.
• Fund managers must adhere to strict disclosure norms, ensuring that investors are well-informed about risks and fund strategies.
• The implementation of stringent risk management measures will protect investors from fraud, mismanagement, and unforeseen financial risks.
• Investor funds must be safeguarded through independent custodian oversight, ensuring that they are not misused.

3. Facilitating Ease of Doing Business for Fund Managers

• The regulations simplify the registration and compliance processes for fund managers, making it easier for new entrants to set up operations in IFSCs.
• A streamlined approval process reduces bureaucratic delays, enhancing operational efficiency.
• Clear guidelines on fund governance, reporting, and disclosures eliminate ambiguities, ensuring fund managers can focus on investment strategies.

4. Encouraging International Investment Participation

• The framework allows foreign investors and institutions to participate in India’s financial ecosystem without unnecessary regulatory burdens.
• By providing tax benefits, regulatory clarity, and fund structuring advantages, the IFSCs become attractive destinations for international funds.
• Foreign fund managers can establish offshore investment vehicles, increasing capital inflows into the Indian economy.

5. Enhancing Transparency, Governance, and Compliance Standards

• To maintain market integrity, fund managers must follow comprehensive governance frameworks.
• The implementation of independent risk oversight committees, compliance officers, and internal audits ensures a structured governance model.
• Regular reporting and disclosure obligations keep the market transparent and prevent financial misconduct.

6. Promoting Ethical Fund Management Practices

• The regulations promote ethical investment practices by mandating fund managers to operate with integrity, fairness, and transparency.
• Funds must implement strict anti-money laundering (AML) and Know Your Customer (KYC) policies.
• Market participants are required to adhere to strict fiduciary responsibilities, ensuring that investor funds are managed responsibly.

7. Ensuring Liquidity in Fund Transactions

• Liquidity is essential for smooth fund operations. The regulations encourage efficient fund transfers, redemptions, and settlements.
• Rules regarding portfolio diversification and capital adequacy ensure that funds maintain sufficient liquidity to meet investor obligations.
• Fund managers must implement liquidity stress testing mechanisms to identify potential liquidity risks and take proactive measures.

These key objectives form the foundation of the IFSCA Fund Management Regulations 2025, ensuring a secure, efficient, and globally integrated fund management ecosystem in IFSCs.

Categories of Fund Management Activities

The new regulations classify fund management into the following categories: Alternative Investment Funds (AIFs): Covering hedge funds, private equity funds, venture capital funds, and other structured investment vehicles. Portfolio Management Services (PMS): Enabling professional management of investment portfolios on behalf of clients. Collective Investment Schemes (CIS): Pooling funds from multiple investors for investment in diversified portfolios. Mutual Funds: Regulated funds for retail and institutional investors looking for diversified investment opportunities. Exchange-Traded Funds (ETFs): Passively managed funds tracking indices or asset classes, allowing investors market exposure. Real Estate Investment Trusts (REITs): Investment vehicles focused on real estate assets generating passive income.

Categories of Fund Management Activities in Details 

The IFSCA Fund Management Regulations 2025 classify fund management activities into different categories, each tailored to specific investment strategies and regulatory requirements. These categories help define the operational scope, risk factors, and governance standards applicable to various fund types. Below is a detailed breakdown of the key fund management activities regulated under the framework.

1. Alternative Investment Funds (AIFs)

Alternative Investment Funds (AIFs) are investment vehicles that pool capital from investors and invest in non-traditional assets such as private equity, hedge funds, real estate, and venture capital. They are broadly categorized into three types:

Category I AIFs – These include funds that invest in socially or economically beneficial sectors, such as venture capital funds, social venture funds, infrastructure funds, and early-stage startups. They receive regulatory incentives to encourage investment.

Category II AIFs – These funds invest in private equity, debt instruments, and structured investment products. They do not get direct incentives from regulatory authorities but offer diversified investment strategies.

Category III AIFs – These include hedge funds and leveraged investment vehicles that employ advanced trading strategies, such as arbitrage, derivatives trading, and long-short equity.

AIFs are subject to investment concentration limits, risk disclosure requirements, and leverage restrictions, ensuring transparency and risk mitigation.

2. Portfolio Management Services (PMS)

Portfolio Management Services (PMS) allow investors to hand over their investment decisions to professional fund managers who actively manage portfolios based on predefined investment strategies. PMS can be broadly classified into:

Discretionary PMS: The portfolio manager has full control over the investment decisions, executing trades without requiring prior client approval.

Non-Discretionary PMS: The fund manager provides investment advice, but clients have the final decision-making authority before transactions are executed.

Advisory PMS: The manager acts as a consultant, offering investment recommendations while the client retains execution control.

PMS providers must ensure clear risk disclosures, fee transparency, and compliance with capital adequacy norms.

3. Collective Investment Schemes (CIS)

Collective Investment Schemes (CIS) pool funds from multiple investors to invest in a diversified portfolio of assets. These funds operate under strict governance standards, with independent trustees overseeing fund management activities.

Investors receive units representing their share in the collective investment vehicle. The fund’s assets are managed by professional portfolio managers who adhere to predefined investment policies. CIS funds operate under full transparency and regulatory oversight, ensuring fair distribution of profits and risks among investors.

4. Mutual Funds

Mutual funds are regulated and professionally managed investment pools that allow retail and institutional investors to invest in diversified portfolios. They offer liquidity, ease of investment, and exposure to equity, debt, and hybrid instruments.

Open-Ended Mutual Funds: Investors can enter and exit at any time based on the Net Asset Value (NAV). Close-Ended Mutual Funds: These funds have a fixed investment period and are traded on stock exchanges. Debt-Oriented Funds: Focus on fixed-income securities such as government bonds and corporate debt. Equity-Oriented Funds: Primarily invest in stock markets, offering long-term capital appreciation. Hybrid/Balanced Funds: Diversify investments across equities and fixed-income securities, balancing risk and return.

Mutual funds must comply with stringent risk management policies, disclosure norms, and investor protection measures.

5. Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs) are investment funds that track a specific index, commodity, or asset class and trade on stock exchanges like equities.

ETFs offer liquidity, diversification, and cost efficiency, making them attractive to institutional and retail investors. They can track equity indices, gold, real estate, or fixed-income securities. Unlike mutual funds, ETFs are passively managed, reducing fund management costs. Authorized participants facilitate price stability by arbitraging any difference between the ETF market price and the underlying asset value.

ETFs operate under strict governance and transparency norms, ensuring efficient capital allocation.

6. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are pooled investment vehicles that allow investors to gain exposure to income-generating real estate assets without directly purchasing properties.

REITs invest in commercial real estate, rental properties, office spaces, hotels, and infrastructure projects. Investors earn dividends from rental income and capital appreciation from asset growth. REITs are listed on stock exchanges, providing liquidity and accessibility. They operate under minimum distribution requirements, ensuring investors receive regular income payouts. REIT managers must adhere to strict compliance, valuation transparency, and governance norms.

7. Infrastructure Investment Trusts (InvITs)

Infrastructure Investment Trusts (InvITs) function similarly to REITs but focus on infrastructure assets such as roads, energy projects, transmission networks, and telecom towers.

InvITs help finance infrastructure development while offering investors long-term income streams. They allow partial ownership of infrastructure projects without requiring large capital commitments. Similar to REITs, InvITs distribute earnings to unit holders in the form of dividends and interest payouts. InvITs are regulated under transparency and compliance frameworks, ensuring investor protection.

Registration Requirements for Fund Managers

Fund managers must obtain mandatory registration with IFSCA before commencing operations. The key requirements include:

• Eligibility Criteria: The applicant must be a corporate entity with a minimum net worth and demonstrate compliance with fit and proper criteria.
• Governance and Compliance: Fund managers must establish robust governance structures including independent directors, compliance officers, and risk management teams.
• Investment Policies and Strategies: Fund managers must disclose investment strategies, risk frameworks, and asset allocation plans to investors.
• Operational and Technology Infrastructure: Implement secure IT systems for real-time monitoring, trading, and reporting.
• Capital Adequacy Requirements: Ensuring adequate reserves to manage financial risks effectively.
• Disclosure of Conflict of Interest: Fund managers must provide full transparency regarding potential conflicts in investment decisions.

Fund Governance and Compliance Framework

The regulations establish a strong governance framework for fund managers to: Maintain independent risk oversight committees. Ensure detailed investor disclosures on risks, fees, and fund performance. Implement anti-money laundering (AML) and Know Your Customer (KYC) protocols. Submit periodic compliance reports and risk assessments to IFSCA. Conduct regular third-party audits and financial disclosures. Establish internal compliance review processes to monitor regulatory adherence. Maintain strict ethical standards for fund operations and portfolio management.

Fund Governance and Compliance Framework

1. Governance Structure for Fund Managers

• The regulations require fund management entities to establish a robust governance structure that ensures transparency, accountability, and investor protection.
• Board Composition: Fund managers must appoint a minimum number of independent directors to ensure unbiased decision-making.
• A dedicated compliance officer must be appointed to oversee regulatory adherence and report directly to IFSCA.
• Fund managers must create investment committees responsible for approving and monitoring fund strategies.
• Clear policies on conflict of interest must be documented and disclosed to investors.

2. Risk Management Framework

• Comprehensive risk assessment procedures must be in place to evaluate market, credit, liquidity, and operational risks.
• Periodic stress testing is mandatory to ensure that funds can withstand market volatility.
• Fund managers must establish internal control systems to monitor compliance with investment policies and regulatory requirements.
• Implementation of derivative exposure limits and leverage restrictions to prevent excessive risk-taking.

3. Transparency and Disclosure Requirements

• Investment policies, risk factors, and fund strategies must be clearly outlined in the fund prospectus and disclosed to investors.
• Regular financial statements and performance reports must be submitted to IFSCA and made available to investors.
• Quarterly and annual reports detailing fund performance, asset allocation, and compliance status must be publicly accessible.
• Fund managers are required to conduct independent third-party audits to verify financial statements and ensure compliance.

4. Compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) Norms

• Strict AML guidelines must be followed to prevent money laundering and fraudulent transactions.
• Fund managers must establish a KYC verification system to verify investor identities before allowing participation.
• Suspicious transaction reporting (STR) must be implemented, requiring fund managers to flag and report any unusual transactions.
• Periodic compliance reviews and training for staff on AML and KYC procedures.

5. Fund Valuation and Asset Pricing Standards

• Standardized valuation methods must be followed for accurate fund performance reporting.
• The use of third-party valuation agencies is encouraged to ensure fair asset pricing.
• Daily Net Asset Value (NAV) disclosures are required for open-ended funds to maintain transparency.
• IFSCA mandates the use of globally accepted accounting standards for financial reporting.

6. Investor Protection Measures

• Fund managers must implement a grievance redressal system to handle investor complaints and disputes.
• Investment advisory disclosures must be made, detailing risks, fees, and fund objectives.
• Regulatory action and penalties will be imposed for fund mismanagement or violation of investor protection norms.
• Mandatory segregation of client funds from operational funds to prevent misuse of investor capital.

7. Periodic Compliance Monitoring and Reporting

• Fund management entities must submit compliance certificates and regulatory filings on a periodic basis.
• IFSCA retains the right to conduct on-site inspections and audits to verify compliance adherence.
• Non-compliance with governance and compliance regulations may result in penalties, suspension, or revocation of fund licenses.
• Mandatory self-assessment compliance reports must be filed annually to ensure ongoing adherence to governance standards.

8. Adoption of Technology for Compliance and Risk Management

• Fund managers are encouraged to integrate AI and automation tools to improve compliance monitoring.
• Real-time transaction monitoring systems must be deployed to detect fraudulent activities.
• Implementation of blockchain-based fund tracking systems for greater transparency and security.
• Cybersecurity protocols must be adopted to protect investor data and prevent financial crimes.

Investor Protection and Grievance Redressal

The regulations introduce multiple safeguards to protect investor interests: Clear risk disclosures on investment structures and potential losses. Compulsory investor agreements detailing rights and obligations. Mandatory grievance redressal mechanisms within fund management entities. Segregated client accounts to prevent fund mismanagement. Independent custodian oversight for investor fund security. Provision for dispute resolution through arbitration or legal proceedings. Strict enforcement of fiduciary responsibilities for fund managers handling investor assets.

Investor Protection and Grievance Redressal

1. Robust Investor Protection Framework

Investor protection is a core component of the IFSCA Fund Management Regulations, 2025, ensuring that investors’ rights are safeguarded while promoting transparency and accountability. The regulations enforce several protective measures to mitigate risks and enhance trust in fund management entities operating within IFSCs.

• Strict Fiduciary Responsibilities: Fund managers are required to act in the best interest of investors, ensuring that all investment decisions are made with due diligence, integrity, and fairness.
• Clear and Transparent Disclosure Policies: All fund managers must provide detailed investment disclosures, including fund objectives, asset allocation, associated risks, and performance history.
• Regulatory Oversight and Audits: Regular inspections and third-party audits ensure fund managers comply with all legal and regulatory standards to protect investors from fraudulent or misleading activities.
• Independent Custodian Arrangements: To safeguard investor funds, all client assets must be held with regulated and independent custodians, ensuring that fund managers do not have direct access to investor funds.
• Prohibition on Misuse of Client Funds: Strict segregation of investor funds from the operational capital of fund management entities prevents any mismanagement or misuse of client investments.

2. Investment Risk Disclosures and Transparency

• Mandatory Risk Disclosures: All fund offerings must include a risk assessment summary to inform investors of potential financial, operational, and market risks.
• Fee Structure Transparency: Fund managers are required to disclose all charges, including fund management fees, performance fees, and exit load charges, ensuring transparency.
• Periodic Performance Reports: Investors must receive quarterly and annual reports that detail fund performance, asset allocation, and benchmark comparisons.
• Liquidity and Redemption Policies: Clear guidelines on how and when investors can exit from the fund, along with potential liquidity risks, must be disclosed at the time of investment.

3. Establishment of a Grievance Redressal Mechanism

A structured Grievance Redressal Mechanism (GRM) has been mandated to address investor complaints efficiently. The framework includes:

• Dedicated Investor Helpdesk: Every fund management entity must establish an investor helpdesk to address queries, complaints, and issues.
• Complaint Resolution Timelines: Investors must receive acknowledgment of their complaint within 24-48 hours, and fund managers must provide a resolution within 30 days.
• Escalation to IFSCA: If investors are not satisfied with the resolution provided by the fund management entity, they can escalate their complaints to IFSCA’s regulatory grievance redressal authority.
• Independent Review Committees: Fund managers must establish an independent review panel to assess investor grievances and ensure fair treatment.
• Online Grievance Portal: IFSCA will maintain a centralized online portal where investors can submit complaints and track the resolution process in real time.

4. Penalties and Enforcement for Non-Compliance

To ensure adherence to investor protection norms, strict penalties and regulatory actions will be taken against fund management entities that violate these provisions:

• Financial Penalties: Heavy fines will be imposed on fund managers who engage in misleading advertising, non-disclosure of risks, or misrepresentation of fund performance.
• License Suspension or Revocation: Fund management licenses may be revoked if a firm is found to have violated investor protection guidelines repeatedly.
• Compulsory Compensation to Investors: In cases of fund mismanagement or financial misconduct, fund managers will be required to compensate affected investors.
• Public Disclosures of Violations: Non-compliant entities may be publicly listed on IFSCA’s website to warn potential investors about fund managers who fail to meet regulatory standards.

5. Financial Education and Investor Awareness

IFSCA has also emphasized the need for financial literacy among investors to empower them to make informed decisions. The initiative includes:

• Investor Education Programs: Regular workshops, webinars, and campaigns will be conducted to educate investors about fund management practices, risk assessment, and regulatory compliance.
• Online Knowledge Portal: A dedicated Investor Awareness Portal will provide insights on fund performance, best investment practices, and fraud prevention techniques.
• Standardized Investment Guidelines: IFSCA will issue investment guidelines and best practice frameworks to help investors identify credible and well-regulated funds.

Reporting and Regulatory Oversight

IFSCA will monitor fund management entities through: Quarterly and annual reporting on fund performance and compliance. On-site and off-site inspections to prevent malpractices. Real-time trade monitoring for suspicious activities. Strict enforcement of penalties for non-compliance. Continuous supervision of high-risk investment funds to mitigate market risks. Ongoing collaboration with international regulators for cross-border fund activities.

Reporting and Regulatory Oversight

1. Periodic Reporting Requirements

Fund management entities are required to adhere to strict reporting obligations under the IFSCA Fund Management Regulations, 2025. These reports ensure transparency, accountability, and compliance with regulatory standards. The key reporting requirements include:

• Quarterly Reports: Fund managers must submit quarterly financial statements detailing assets under management (AUM), investment performance, and risk exposure.
• Annual Audited Financial Reports: Fund managers must prepare and file annual audited financial statements to ensure financial accuracy and compliance with accounting standards.
• Portfolio Valuation Reports: Regular reports on portfolio valuation and asset classification must be provided to investors and regulatory authorities.
• Capital Adequacy Reports: Fund managers must disclose details regarding their capital reserves and financial health to prevent liquidity crises.
• Fund Performance Reports: Investors must receive detailed performance evaluations, including returns, risk analysis, and expense ratios.

These reports must be submitted to IFSCA and other relevant stakeholders in the prescribed format to maintain full transparency in fund operations.

2. Regulatory Compliance Filings

To ensure adherence to fund governance and risk management protocols, fund management entities are subject to various regulatory compliance filings, including:

• Know Your Customer (KYC) & Anti-Money Laundering (AML) Reports: Fund managers must verify investor identities and submit reports regarding suspicious transactions and AML compliance.
• Leverage and Risk Exposure Reports: Entities employing leverage must report their total debt, risk exposure, and risk mitigation strategies.
• Conflict of Interest Disclosures: Fund managers must disclose any potential conflicts of interest arising from related-party transactions or dual roles.
• Regulatory Self-Assessment Reports: Annual self-assessment reports must be submitted to ensure compliance with IFSCA’s evolving regulatory standards.

3. On-Site and Off-Site Supervision

IFSCA employs a two-pronged supervisory approach to monitor fund management entities:

On-Site Supervision: Regulatory officers conduct physical inspections and audits of fund management firms to evaluate compliance with operational and governance requirements. Off-Site Surveillance: IFSCA collects and analyzes financial data remotely to track fund performance, detect irregularities, and ensure proactive compliance.

Key areas assessed during these supervisory reviews include:

• Fund investment strategies and adherence to regulatory limits.
• Investor fund segregation and safekeeping protocols.
• Trading activities, financial stability, and stress test results.
• Compliance with risk management and disclosure norms.

4. Regulatory Enforcement and Penalties

Failure to comply with reporting and regulatory requirements can result in strict enforcement actions under IFSCA regulations. Penalties for non-compliance include:

Monetary Fines: Financial penalties will be imposed on fund managers who fail to submit reports or comply with disclosure obligations. License Suspension or Revocation: Persistent violations may lead to the suspension or cancellation of fund management licenses. Investor Compensation Mandates: Fund managers found guilty of misrepresenting fund performance or mishandling client funds may be ordered to compensate affected investors. Legal Proceedings and Blacklisting: Severe cases of regulatory violations may result in legal action and public blacklisting of fund managers to warn potential investors.

5. Adoption of Technology for Regulatory Oversight

IFSCA has introduced technology-driven oversight mechanisms to improve compliance monitoring and risk management. These include:

Automated Data Analytics: AI-powered tools analyze fund performance trends to detect fraud, insider trading, or market manipulation. Blockchain-Based Fund Auditing: Blockchain technology ensures tamper-proof recordkeeping for fund transactions and investor data. Real-Time Reporting Dashboards: A centralized compliance monitoring system allows IFSCA to track fund operations in real time. Cybersecurity Protocols for Investor Data Protection: Fund managers must adopt strong cybersecurity measures to prevent data breaches and financial fraud.

Impact of the Regulations on the Fund Management Sector

Enhanced global credibility for IFSC-based fund managers. Attraction of foreign institutional investors (FIIs) and hedge funds. Increased capital inflows into Indian financial markets. Standardized fund management practices aligned with global benchmarks. Stronger investor confidence due to enhanced compliance and governance. Boost to domestic and international wealth management services through regulated fund offerings. Increased transparency in fund disclosures and risk mitigation strategies. Greater diversification opportunities for investors through regulated fund vehicles.

Impact of the Regulations on the Fund Management Sector

The introduction of the IFSCA Fund Management Regulations 2025 is expected to significantly impact the fund management industry, both within Indian IFSCs and globally. These regulations aim to promote market efficiency, investor confidence, and global competitiveness in the fund management sector. Below are the key impacts:

1. Enhanced Global Competitiveness of IFSCs

The new regulations align Indian fund management practices with global best standards, making IFSCs a preferred destination for fund managers, institutional investors, and wealth management firms.

The structured framework will attract more foreign direct investments (FDI), boosting India’s position as an international financial hub.

Compliance with international norms such as AML/KYC, transparency mandates, and corporate governance standards will increase confidence among foreign investors and multinational fund managers.

The framework encourages cross-border fund management, enabling investment firms to access a broader investor base beyond India.

2. Increased Transparency and Investor Confidence

The regulations mandate detailed risk disclosures, fund performance reporting, and compliance requirements, ensuring investors receive complete and transparent information about their investments.

The introduction of independent custodian arrangements will ensure greater security of investor assets, reducing the risk of fund mismanagement.

Fund managers are now required to adhere to strict fiduciary responsibilities, ensuring that investment decisions align with investor interests.

Investors will have access to a centralized grievance redressal system, improving the overall investment experience and dispute resolution mechanisms.

3. Stricter Compliance and Risk Management Practices

The regulations require fund managers to implement robust risk management strategies, including stress testing, liquidity risk assessment, and exposure limits.

Quarterly and annual compliance filings will ensure that fund managers regularly update investors and regulatory authorities on financial performance and governance practices.

The mandatory appointment of compliance officers and risk management committees ensures that funds operate within a regulated and well-governed framework.

Leverage and investment limits will prevent excessive risk-taking, ensuring that funds operate with financial stability and prudence.

4. Expansion of Investment Opportunities and Innovation

The introduction of diverse fund categories (AIFs, mutual funds, ETFs, REITs, InvITs) will expand investment opportunities for both retail and institutional investors.

The regulatory environment encourages the adoption of fintech, blockchain, AI-driven investment strategies, and algorithmic trading, fostering financial innovation in IFSCs.

The structured compliance framework will help Indian fund managers launch and manage international investment products, competing with global financial centers such as Singapore, Dubai, and Hong Kong.

The enhanced framework provides greater flexibility in fund structuring, allowing fund managers to customize investment vehicles based on market demand.

5. Strengthening of Investor Protection Measures

The introduction of compulsory investor disclosures, risk reporting, and grievance mechanisms ensures that investors have full transparency in their investments.

Fund management entities must segregate client funds from operational accounts, ensuring that investor money is protected from fund mismanagement or bankruptcy risks.

Strict action against fraudulent fund managers, misrepresentation of returns, or insider trading strengthens investor confidence and market trust. The introduction of cybersecurity measures and digital compliance monitoring reduces the risk of fraud, cyber threats, and financial misconduct.

6. Boost to the Growth of Alternative Investment Funds (AIFs) and Hedge Funds

The new regulations provide clear operational guidelines for AIFs and hedge funds, leading to increased participation from institutional investors.

The inclusion of foreign institutional investors (FIIs) and high-net-worth individuals (HNIs) under IFSCA regulations will expand the hedge fund market in India.

Tax incentives and reduced compliance burdens for foreign AIFs operating in IFSCs will attract international hedge funds and asset managers to establish operations in India.

The structured approach to alternative investment fund regulation ensures efficient risk mitigation, enhanced liquidity, and sustainable market growth.

7. Job Creation and Economic Growth

The expansion of the fund management industry in Indian IFSCs is expected to generate employment opportunities for financial professionals, compliance experts, and risk analysts.

The fund management ecosystem will encourage the growth of ancillary financial services, including custodians, brokers, fintech firms, and investment advisors.

The increased inflow of foreign capital will strengthen India’s financial sector and support economic development in financial hubs such as GIFT City.

The expansion of structured financial products will create more investment opportunities for domestic and international investors.

8. Increased Revenue Generation for the Government

With the growth of fund management activities in IFSCs, the government can expect higher tax revenues from fund transactions, corporate operations, and capital gains.

The regulatory framework incentivizes institutional participation, leading to increased financial market activity and revenue collection from fund transactions.

The presence of globally compliant fund management operations in India’s IFSCs will boost the country’s reputation as a competitive and regulated financial market.

Compliance Timeline and Next Steps

Immediate registration required for existing fund managers.

Six-month transition period for compliance with governance and risk management norms.

Ongoing training and regulatory workshops for fund managers to align with global standards.

Future amendments and continuous supervision by IFSCA to enhance market efficiency.

Timely adoption of emerging financial technologies to improve fund operations.

Integration of sustainability-focused investment frameworks within fund strategies.

Regular feedback mechanisms to refine regulatory frameworks based on industry needs.

Compliance Timeline and Next Steps

1. Immediate Compliance Requirements

Fund managers and investment entities operating within IFSCs must ensure immediate compliance with the newly introduced regulations. The key steps include:

Registration with IFSCA: All existing fund managers and new entrants must obtain mandatory registration and licensing approval from IFSCA. Governance and Risk Management Framework Implementation: Firms must establish compliance departments, independent risk management teams, and designated compliance officers. Investor Protection Measures: Fund managers must align their investor disclosure policies, grievance redressal mechanisms, and transparency initiatives with the updated regulations. KYC and AML Compliance: All fund managers must integrate rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) measures to prevent financial crimes. Capital Adequacy and Financial Reporting: Entities must demonstrate financial soundness, capital adequacy, and submit quarterly financial disclosures to IFSCA.

2. Transition Period for Full Regulatory Adherence

IFSCA has provided a six-month transition window for fund management entities to fully comply with the regulations. During this period:

Fund managers must update internal compliance policies and align them with IFSCA governance guidelines. Investment firms are required to conduct staff training and workshops on the new regulatory framework. Mandatory third-party audits and compliance checks must be conducted to ensure adherence to financial reporting and investor protection norms. Fund managers must test and implement technology-driven regulatory compliance systems, such as automated risk monitoring tools and real-time reporting dashboards. Market participants must submit progress reports to IFSCA detailing their compliance milestones and regulatory adjustments.

3. Continuous Compliance and Monitoring

Following the transition period, fund management firms must adhere to continuous compliance monitoring. This includes:

Quarterly and Annual Compliance Filings: Firms must submit periodic reports on fund performance, risk exposure, and governance practices. On-Site Regulatory Inspections: IFSCA will conduct random inspections and audits to assess regulatory compliance. Ongoing Technology Adoption: Firms must integrate cybersecurity protocols, digital reporting platforms, and AI-driven compliance tools to enhance oversight. Investor Awareness and Education Programs: Fund managers are encouraged to conduct investor awareness initiatives to promote financial literacy and informed decision-making. Timely Updates on Regulatory Changes: IFSCA will periodically update its regulatory framework, requiring fund managers to stay informed and make necessary adjustments.

4. Future Amendments and Industry Feedback Integration

IFSCA aims to maintain a dynamic regulatory framework by:

Engaging with fund managers, institutional investors, and industry stakeholders to refine regulations as market conditions evolve. Introducing additional fund structures based on global trends and investor demand. Enhancing cross-border fund management regulations to attract foreign investment into IFSCs. Promoting innovation in digital fund management through blockchain, tokenized investment funds, and AI-driven trading mechanisms. Maintaining flexibility in compliance deadlines for new regulatory amendments, ensuring a smooth transition for industry participants.

Final Thoughts

The IFSCA Fund Management Regulations 2025 are a significant step toward making India’s IFSCs globally competitive in the fund management space. By introducing stringent compliance measures, investor safeguards, and operational best practices, these regulations create a secure, transparent, and efficient fund management ecosystem.

For financial institutions and fund managers looking to establish operations in IFSCs, adherence to these regulations is crucial. Estabizz Fintech Private Limited offers expert advisory on fund management regulations, compliance frameworks, and investor protection strategies.

For regulatory assistance, contact Estabizz Fintech Private Limited today!

Disclaimer:

The content provided in this article is for informational purposes only and does not constitute financial, legal, or investment advice. While every effort has been made to ensure the accuracy of the information, IFSCA regulations are subject to amendments, and it is advised that readers consult with professional financial advisors or regulatory bodies before making any investment decisions. Estabizz Fintech Private Limited assumes no responsibility for any decisions taken based on this article.