Consultation Paper on Amendments to IFSCA (Fund Management) Regulations, 2025

CONSULTATION PAPER on Amendments to IFSCA (Fund Management) Regulations, 2025 Published on: October 17, 2025 A. Background 1. The International Financial Services Centres Authority (IFSCA), as the unified regulator for International Financial Services Centres (IFSCs) in India, has been consistently striving to nurture a world-class financial ecosystem at India’s first IFSC, the Gujarat International Finance Tec-City (GIFT-IFSC). The confluence of a strong domestic economy, various policy measures taken by IFSCA, a conducive taxation regime accorded by the Government of India, policy initiatives undertaken by other domestic regulators, and the growing confidence of market participants and investors has contributed to the remarkable expansion of the fund management industry at GIFT-IFSC. Within a short span of three and a half years, the industry has exhibited a significant upward trajectory. 2. The fund management industry in GIFT-IFSC has been growing at a healthy pace and has attracted several domestic and foreign Fund Management Entities (FMEs) to set up their fund management business in IFSC. As on June 30, 2025, there are 177 FMEs registered with IFSCA, which have collectively launched 272 schemes. These schemes have garnered cumulative commitments of USD 22.11 billion and have made cumulative investments of USD 11.27 billion. In rupee terms, the cumulative investments have crossed INR 95,000 Crore. The largest share (~85%) of these investments has been channelled to India, a testimony of IFSCA’s commitment to ‘onshore the offshore’, while also creating a seamless conduit for Page 1 of 56the foreign investors, Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), looking to invest into and participate in the growing Indian economy. 3. Out of the 272 schemes, there are 16 Venture Capital Schemes (including Angel Schemes), 88 Category I & Category II Restricted Schemes, and 166 Category III Restricted Schemes. Further, 2 (two) Retail Schemes have also obtained authorisation, marking a major milestone in the broadening of the funds landscape in IFSC. 4. The IFSCA (Fund Management) Regulations, 2022, which were notified in April 2022, effectively laid the regulatory foundation of the fund management industry in IFSC. To further strengthen the regulatory ecosystem at IFSC, and as part of its continued commitment to streamlining regulatory processes, enhancing ease of doing business, and reducing compliance burden, IFSCA undertook a comprehensive review of the IFSCA (Fund Management) Regulations, 2022. Following a robust consultation process, the IFSCA (Fund Management) Regulations, 2025 (FM Regulations) were published in official gazette on February 19, 2025. 5. While the overarching principle of registering an FME with it being permitted to undertake a host of fund management activities and the overall regulatory framework remains the same, changes were undertaken to usher in further ease of doing business, clarify the intent of certain regulatory provisions and introduce safeguards as are deemed necessary for the protection of investors' interest. 6. Further, in its endeavour to position GIFT-IFSC as the preferred jurisdiction for fund management activities, several other measures have been taken by IFSCA subsequently, as demonstrated below: Page 2 of 56a. IFSCA has introduced a reform on Third-Party Fund Management Services, enabling FMEs in IFSC to launch and manage Restricted Schemes on behalf of third-party fund managers with certain additional safeguards. b. A dedicated framework permitting co-investment through Special Purpose Vehicles has also been introduced to provide a regulated mechanism for co-investments related activities. 7. Further, analysis of and data related to the fund management activities in GIFT- IFSC is presented in Annexure 1. B. Agenda of the Consultation Paper 1. In pursuit of its mandate to develop a robust, transparent, and globally competitive fund management ecosystem, and as part of its continuous endeavour to streamline regulatory processes, IFSCA actively seeks suggestions from market participants during several round-table discussions and industry conclaves. 2. Further, as one of its outreach initiatives, IFSCA has organised Chintan Shivir 2025, where several leaders from the fund management and allied industry were invited to share their outlook and suggestions, which have provided IFSCA with additional suggestions for its consideration. 3. Moreover, taking into consideration the key suggestions received as above, the Consultation Paper encapsulates a series of proposals for amendments to the FM Regulations. These proposals have been broadly categorised under the following 3 categories (or a combination of these): Page 3 of 56i. Proposals aimed at enhancing Ease of Doing Business (EoDB): In IFSCA’s interactions with the industry participants, some of the areas have been identified where the FMEs in IFSC are likely to experience operational hassles. Such proposals have been categorized as ‘EoDB’. These proposals are aimed towards bringing in efficiency by streamlining processes/timelines, reducing operational issues and the compliance burden. ii. Proposals aimed at introducing additional Safeguards: Given the notable pace of growth of fund management activities in IFSC, it is imperative that a healthy culture of compliance is nurtured amongst the FMEs by, inter alia, ensuring adequate regulatory safeguards. These proposals are expected to lead to better protection of the investors in IFSC funds and orderly growth of business activities in IFSC. Such proposals have been categorized as ‘Safeguard’. iii. Proposals aimed to provide Clarifications: The proposals are aimed to address drafting related issues, enhance readability of the FM Regulations or provide clarity of the regulatory intent. Such proposals have been categorized as ‘Clarification’. 4. The list of the provisions of the FM Regulations which are proposed to be amended and the rationale for the same, along with the proposed text of amendment, is placed at Annexure 2. Each of these proposals are specifically tagged under one or more of these categories – “EoDB”, “Safeguard” and “Clarification”, to adequately represent the intent behind the proposal. 5. In addition to the above, IFSCA, in order to facilitate innovation and support investments in sectors which are socially desirable, is planning to separately issue a Consultation Paper with the proposal to institute a regulatory framework for Page 4 of 56differential distribution in Restricted Schemes and Venture Capital Schemes with a view to facilitate blended finance and other fund structures. The Comments on the same may be provided to IFSCA in the manner as provided in the said Consultation Paper. C. Public Comments 1. Comments and suggestions from the public are invited on the amendments proposed to the FM Regulations, as listed in Annexure 2. 2. Comments may be sent by email to Mr. Bharat Singh, Assistant Manager, IFSCA at bharat.singh@ifsca.gov.in and Mr. Abhineet Panwar, Assistant Manager, IFSCA at abhineet.panwar@ifsca.gov.in with a copy to Mr. Aditya Sarda, Deputy General Manager, IFSCA at aditya.sarda@ifsca.gov.in, latest by November 06, 2025. 3. The comments may be provided in the following format (MS Word or MS Excel only): Name and Details of the Person / Entity [Organization name (if applicable), Contact No., Email address] Sr. No. Paragraph Regulation Comments / Detailed No. No. Suggestions rationale (as per (along with revised text in line (along with supporting Annexure-2) with the suggestion) information) ---xxx--- Page 5 of 56Annexure 1 Fund Management Activities in GIFT-IFSC 1. The Fund Management industry has been growing at a healthy pace, which is reflected in the rising number of FMEs, schemes and the commitments / funds raised, or investments made by them, as depicted below. The remarkable expansion in a short span highlights the rapid evolution of the industry. 2. Since March 2023, the fund management industry in GIFT-IFSC has continued to expand at a remarkable pace. The number of FMEs has nearly tripled from 65 in March 2023 to 177 as on June 30, 2025, reflecting an average half-yearly growth rate of approximately 26%. Correspondingly, the number of schemes launched in the IFSC has increased more than five-fold to 272 as of June 2025, as against 50 schemes recorded on March 31, 2023, underscoring the investor confidence in the jurisdiction’s regulatory framework. Number of Schemes 272 229 168 120 68 50 Mar-23 Sep-23 Mar-24 Sep-24 Mar-25 Jun-25 Page 6 of 56Number of FMEs 177 162 128 114 65 73 Mar-23 Sep-23 Mar-24 Sep-24 Mar-25 Jun-25 3. The cumulative commitments have also witnessed a substantial increase from USD 8.4 billion as at the end of March 2024 to USD 22.11 billion by March 2025. In the previous quarter (Q1 of FY 2025–26), commitments rose by an additional USD 6.41 billion, reflecting a noteworthy 40.5% growth over the previous quarter. Cumulative commitments raised (USD Billion) 22.11 15.7 12.13 8.4 5.5 4.7 Mar-23 Sep-23 Mar-24 Sep-24 Mar-25 Jun-25 4. The cumulative investments made by the schemes has reached USD 11.27 billion, registering a 39.6% growth from March to June 2025, and the cumulative fund raised increased from USD 7.9 billion to USD 10.5 billion, demonstrating a 31.9% increase Page 7 of 56QoQ growth, underscoring investor confidence and efficient fund mobilisation. Furthermore, the cumulative funds raised, and the cumulative investments have also grown by 101.7% and 118% respectively, during the previous year. Cumulative funds raised (USD Billion) 10.49 7.95 5.58 3.94 2 1.16 Mar-23 Sep-23 Mar-24 Sep-24 Mar-25 Jun-25 Cumulative investments made (USD Billion) 11.27 8.07 5.14 3.7 1.69 1.13 Mar-23 Sep-23 Mar-24 Sep-24 Mar-25 Jun-25 Page 8 of 565. The growth of the fund management ecosystem in GIFT-IFSC is further evidenced by the number of global schemes relocated to this jurisdiction. Under a tax-neutral and seamless relocation mechanism provided by the Government of India, as of June 2025, a total of 22 schemes have relocated to GIFT-IFSC from other international financial centres, reflecting the rising confidence of fund managers in the regulatory stability, operational efficiency, and long-term growth potential offered by the jurisdiction, reinforcing its emergence as a globally competitive hub for fund management activities. Schemes relocated to GIFT-IFSC (as of June 2025) Number of Cumulative Cumulative funds Cumulative schemes commitments raised (USD Bn) investments made (USD Bn) (USD Bn) 22 5.87 2.95 3.67 6. As of June 2025, the number of investors in IFSC funds has crossed 3,500. Investors such as Sovereign Wealth Funds, Pension Funds, Endowment Funds, University Funds, large Family Offices, etc. from more than 60 countries have invested in IFSC Funds, which shows the rising acceptance of GIFT-IFSC as a jurisdiction for domiciling funds amongst the investor community. This diversified participation underscores the growing recognition of GIFT-IFSC as a credible and preferred jurisdiction for fund management activities. Page 9 of 56Annexure 2 Amendments proposed to IFSCA (Fund Management) Regulations, 2025 (“FM Regulations”) # Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) CHAPTER I PRELIMINARY 1 2(1)(d) “associate” means- 2(1)(d) “associate” means- The concept of ‘associate’ has been Safeguard (i) a company or a limited liability (i) a company or a limited liability relied upon at several instances in partnership (LLP) or a body corporate partnership (LLP) or a body corporate the regulations to ensure that the in which a director or trustee or partner a person in which a director or trustee related-party transactions carried out of the FME or the FME or any or partner of the FME or the FME or under a scheme by the FME are fiduciaries as defined in regulation 17 of any fiduciaries as defined in undertaken only with the prior these regulations, either individually or regulation 17 of these regulations, consent of the investors. This is collectively, hold twenty per cent. (20%) either individually or collectively, hold intended to ensure integrity of FME’s or more of its paid-up equity share twenty per cent. (20%) or more of its dealings with its associates and capital or partnership interest, as the paid-up equity share capital or transparency of fund management case may be; partnership interest, as the case may operations. Therefore, expanding the (ii) a company or a limited liability be beneficial interest; scope of ‘associate’ and making it partnership or a body corporate, either (ii) a company or a limited liability more holistic in nature is expected to individually or collectively, hold twenty partnership or a body corporate a Page 10 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) per cent. (20%) or more of its paid-up person, either individually or bring further transparency in the equity share capital or partnership collectively, hold twenty per cent. FME’s related-party dealings. interest, as the case may be in the (20%) or more of its paid-up equity FME; share capital or partnership interest, (iii) Any other company or a limited liability as the case may be the beneficial partnership or a body corporate, in interest in the FME; which the entity referred in clause (ii) (iii) Any other company or a limited above holds twenty per cent. (20%) or liability partnership or a body more of its paid-up equity share capital corporate person, in which the entity or partnership interest, as the case may person referred in clause (ii) above be; holds twenty per cent. (20%) or more of its paid-up equity share capital or partnership interest, as the case may be the beneficial interest; CHAPTER II REGISTRATION OF FUND MANAGEMENT ENTITY (FME) 2 7(5)(b) In addition to the qualifications 7(5)(b) In addition to the qualifications The extant eligibility criteria for the EoDB mentioned under clause (a), an experience mentioned under clause (a), an KMPs have been prescribed with the of at least five (5) years in related activities experience of at least five (5) years in intent to allow FMEs to readily Page 11 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) in the securities market or financial related activities in the securities market appoint professionals with a products including in a portfolio manager, or financial products including in a reasonable work experience in a fund manager, investment advisor, broker portfolio manager, fund manager, relevant profile and adequate dealer, investment banker, wealth investment advisor, broker dealer, educational qualifications without manager, research analyst, credit rating investment banker, wealth manager, having to undergo any additional agency, market infrastructure institution, research analyst, credit rating agency, certification. financial sector regulator or consultancy market infrastructure institution, financial experience in areas related to fund sector regulator or consultancy However, the industry participants management, such as deal due diligence, experience in areas related to fund have expressed challenges in finding transaction advisory or similar activities: management, such as deal due diligence, and retaining individuals with the transaction advisory or similar activities: extant eligibility criteria and have Provided that the consultancy experience suggested to include an alternative in areas related to fund management, such Provided that the consultancy experience criteria providing for lower threshold as deal due diligence, transaction advisory, in areas related to fund management, of work experience which may be etc. shall be considered for a maximum such as deal due diligence, transaction additionally supplemented through period of 2 years and experience in other advisory, etc. shall be considered for a certification. areas as mentioned in sub-regulation (b) maximum period of 2 years and shall be required for at least 3 years: experience in other areas as mentioned in Page 12 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Provided further that for the KMP referred sub-regulation (b) shall be required for at under sub-regulation (2), the experience least 3 years: mentioned in clause (b) shall be required for a minimum period of 3 (three) years, if Provided further that for the KMP referred such KMP possesses a professional under sub-regulation (2), the experience qualification and has experience in mentioned in clause (b) shall be required compliance or risk management in a listed for a minimum period of 3 (three) years, if company or an entity regulated by a such KMP possesses a professional financial sector regulator. qualification and has experience in compliance or risk management in a Explanation. – For the purposes of this listed company or an entity regulated by a regulation, the professional qualification financial sector regulator. shall include membership of Institute of Chartered Accountants of India, Institute of Provided also that individuals with a post- Company Secretaries of India, Institute of qualification experience of at least 3 Cost Accountants of India or any institution (three) years in a financial institution in equivalent thereto in a foreign jurisdiction, IFSC, India or any foreign jurisdiction and and for KMP referred under sub-regulation who holds a valid certification in such (2) it shall also include Bachelor of Laws Page 13 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (LLB) from a university or an institution subject and awarded by such institution recognised by the Central Government or as may be specified by the Authority. any State Government or a recognised foreign university or institution or Explanation. – For the purposes of this association. regulation, the professional qualification shall include membership of Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost Accountants of India or any institution equivalent thereto in a foreign jurisdiction, and for KMP referred under sub-regulation (2) it shall also include Bachelor of Laws (LLB) from a university or an institution recognised by the Central Government or any State Government or a recognised foreign university or institution or association. Page 14 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) CHAPTER III SCHEMES FOR FUND MANAGEMENT PART A: VENTURE CAPITAL SCHEMES 19 (3) The placement memorandum for 19 (3) The placement memorandum for While a one-time option is available EoDB launch of the Venture Capital scheme shall launch of the Venture Capital scheme to the FMEs to extend the validity of be valid for twelve (12) months from the shall be valid for twelve (12) months from PPM, FMEs have expressed the date of communication from the Authority the date of communication from the need for greater flexibility in this to the FME that the placement Authority to the FME that the placement regard to tackle the dynamic memorandum has been taken on record, memorandum has been taken on record, conditions for fund raising. during which period the FME shall declare during which period the FME shall declare the first close of the scheme by achieving the first close of the scheme by achieving Related Provisions at least the minimum size of corpus as at least the minimum size of corpus as Similar amendments are also specified under sub-regulation (1) of specified under sub-regulation (1) of proposed for Restricted Schemes regulation 23: regulation 23: (Regulation 31(3)). Provided that if a FME fails to achieve the Provided that if a FME fails to achieve the minimum size of corpus, as specified under minimum size of corpus, as specified sub regulation (1) of regulation 23, within under sub regulation (1) of regulation 23, the specified time period, it shall have the within the specified time period, it shall Page 15 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) one-time option to extend the validity of the have the one-time option to extend the placement memorandum for a further validity of the placement memorandum period of six (6) months by paying fifty per for a further period of six (6) months, cent. (50%) of the fee as applicable for wherein each such extension shall be filing of a fresh scheme. filed to the Authority at such time when the placement memorandum is still valid and accompanied with a fee which is equal to by paying fifty per cent. (50%) of the fee as applicable for filing of a fresh scheme. 22 (1) Subject to other provisions of these 22 (1) Subject to other provisions of these Since Certificate of Deposit is a Clarification, regulations, a Venture Capital scheme may regulations, a Venture Capital scheme money market instrument which is Safeguard invest only in the following instruments or may invest only in the following already provided, the same may be entities in IFSC, India or foreign instruments or entities in IFSC, India or omitted for brevity. jurisdiction:- foreign jurisdiction:- (a) Unlisted securities; (j) Unlisted securities; Presently a bouquet of avenues has (b) Securities listed or to be listed or traded (k) Securities listed or to be listed or been provided to the FMEs for on stock exchanges; traded on stock exchanges; parking of capital pending (c) Money market instruments; (l) Money market instruments; deployment. There is, however, a (d) Debt securities; (m) Debt securities; heightened risk in such parking when Page 16 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (e) Securitised debt instruments, which are (n) Securitised debt instruments, which the FME has not achieved the either asset-backed or mortgage- are either asset-backed or mortgage- minimum corpus. Any failure to backed securities; backed securities; achieve the minimum corpus within (f) Units of other Venture Capital schemes (o) Units of other Venture Capital the validity or extended validity of subject to appropriate disclosure in the schemes subject to appropriate placement memorandum will require placement memorandum; disclosure in the placement the FME to wind up the scheme and (g) Units of retail schemes and restricted memorandum; return the capital (along with returns schemes or alternative investment (p) Units of retail schemes and restricted generated thereon) to the investors. funds subject to appropriate disclosure schemes or alternative investment Therefore, until the FME has in the placement memorandum; funds subject to appropriate achieved the minimum corpus, (h) Limited liability partnerships; or disclosure in the placement parking of funds needs to be in such (i) Such other securities or financial memorandum; instruments which do not involve risk products/ assets or instruments as (q) Limited liability partnerships; or of loss of capital while also offering specified by the Authority: (r) Such other securities or financial liquidity. products/ assets or instruments as Provided that pending deployment of specified by the Authority: Related Provisions monies, FME may invest in certificates of Similar amendments are also deposit, units of investment schemes such Provided that pending deployment of proposed for Restricted Schemes as overnight, liquid or money market monies, FME may invest in certificates of Page 17 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) schemes, money market instruments, bank deposit, units of investment schemes (Regulation 34 (1)), Retail Schemes deposits or any other securities or financial such as overnight, liquid or money market (Regulation 46 (1)). assets or instruments as may be specified schemes, money market instruments, by the Authority. bank deposits or any other securities or financial assets or instruments as may be specified by the Authority. Provided further that any monies received from the contributors prior to the first close of the scheme shall be deployed only in bank deposits with option for premature withdrawal and such other securities or financial products/ assets or instruments as specified by the Authority. 23(3) Venture Capital schemes shall invest 23(3) Venture Capital schemes shall While VC Schemes are intended to EoDB, at least 80 per cent. (80%) of the corpus in invest at least 80 per cent. (80%) of the invest primarily in such companies Safeguard Investee Companies where not more than corpus in Investee Companies where not which are recently incorporated, ten (10) years have elapsed since more than ten (10) years have elapsed which demonstrates their nature as since incorporation of such companies, or start-ups, emerging or early-stage Page 18 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) incorporation of such companies, or other other schemes which meet such venture capital undertakings, there is schemes which meet such requirement. requirement: also a requirement for them to protect their stake in the investee companies Provided that a Venture Capital scheme as such companies raise more may invest during the subsequent capital in subsequent rounds. The round(s) of fund raising by such investee proposal is expected to allow the company even if 10 (ten) years have FMEs to protect the beneficial elapsed since the incorporation of such interest of the investors of the VC company, subject to the following schemes from dilution and maintain conditions: the same as the investee companies achieve higher valuation. Notably, a i. The subsequent investment(s) in similar provision has been provided such investee company shall be in by IFSCA to Angel Schemes under its accordance with the investment Circular dated July 01, 2022. objectives and investment strategy of the scheme, provisions of its placement memorandum and internal policies of the FME in this matter; Page 19 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) ii. If, in accordance with the placement memorandum and contribution agreement, any investor has previously excused itself or the FME has excluded certain investors from investing in an investee company, such investor(s) will not be allowed to participate in the subsequent round(s) of investment in that company; iii. The contribution by the scheme in any subsequent round should be limited to the extent that the post-issue beneficial interest (on a fully diluted basis) of the scheme in that investee company remains the same as its pre- issue beneficial interest (on a fully diluted basis) therein. Page 20 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Proposed insertion 23 (5) FME shall ensure that all investors The proposal is intended to clarify the Clarification, in a Venture Capital scheme are accorded regulatory expectation regarding the EoDB same rights. rights of the investors in a Venture Capital scheme. Provided that FME may offer differential rights to select investors, if the same is in Further, this also provides for accordance with the disclosures in the enablement of schemes with placement memorandum and the rights of differential distribution, which will be other investors are not affected. detailed in a separate Consultation Paper to be issued by IFSCA. (6) The rights of the investors in the distributions from a Venture Capital scheme shall be pari-passu in all aspects Related Provisions and in the same proportion as the Similar amendments are also amounts invested by them, except in the proposed for Restricted Schemes cases of excuse and exclusion as per the (insertion proposed at Regulation 35 placement memorandum, or in such (6) and 35(7)) cases and in such manner as may be specified by the Authority. Page 21 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) 24(2) The FME shall ensure that the Net 24(2) The FME shall ensure that the Net The proposed amendment provides Clarification Asset Value (NAV) is disclosed to the Asset Value (NAV) is disclosed to the clarification regarding the timeline for investors at least on a yearly basis within investors at least on a yearly basis, commencement of disclosures. such time period as disclosed in the starting from the financial year in which placement memorandum of the scheme. the first close is declared for the scheme, (3) The FME shall ensure that the portfolio and within such time period as disclosed under the scheme is disclosed to the in the placement memorandum of the investors at least on a yearly basis and not scheme. later than one (1) month of the end of each (3) The FME shall ensure that the portfolio financial year. under the scheme is disclosed to the investors at least on a yearly basis, starting from the financial year in which the first close is declared for the scheme, and not later than one (1) month of the end of each financial year. 26(2) In line with the investment valuation 26(2) For the purpose of computation and NAV computation is as such Clarification norms, the assets of the scheme shall be disclosure of NAV to the investors and in inherently linked to portfolio valued by an independent service provider, line with the investment valuation norms, valuation. However, for abundant such as a fund administrator, a custodian, the assets of the scheme shall be valued clarity, it is proposed to clarify the Page 22 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) a credit rating agency registered with the by an independent service provider, such relation between the exercise of Authority or a valuer registered with as a fund administrator, a custodian, a portfolio valuation and NAV Insolvency and Bankruptcy Board of India credit rating agency registered with the computation. or such other person as may be specified Authority or a valuer registered with by the Authority: Insolvency and Bankruptcy Board of India Related Provisions or such other person as may be specified Similar amendments are also Provided that this requirement shall not by the Authority: proposed for Restricted Schemes apply in case of a fund of funds scheme (Regulation 38(2)), Retail Schemes that invests in scheme(s) regulated by a Provided that this requirement shall not (Regulation 50(2)). financial sector regulator, directly or apply in case of a fund of funds scheme through a manager, in IFSC, India or that invests in scheme(s) regulated by a foreign jurisdiction(s), which are valued by financial sector regulator, directly or any independent entity. through a manager, in IFSC, India or foreign jurisdiction(s), which are valued by any independent entity. 27(1) The FME shall compute the NAV of 27(1) The FME shall compute the NAV of Proposal to clarify the timeline for Clarification each Venture Capital scheme at least on an each Venture Capital scheme at least on commencement of disclosures. annual basis. an annual basis, starting from the Page 23 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) financial year in which the first close is declared for the scheme. 28(1) Under a Venture Capital scheme, the 28(1) Under a Venture Capital scheme, Proposal is intended to simplify the EoDB, FME or its associate shall invest:- the FME or its associate shall invest an language of the regulations for better Clarification (a) at least 2.5% of the targeted corpus amount which shall be at least 2.5% of the readability and understanding. and not exceeding 10% of the targeted corpus and not exceeding 10% of the corpus in a scheme with targeted corpus:- Further, this also aims to allow FME corpus up to USD 30 Million; (a) at least 2.5% of the targeted corpus or its associates to invest a higher (b) at least USD 750,000 and not and not exceeding 10% of the amount in the schemes which are not exceeding 10% of the targeted corpus targeted corpus in a scheme with investing into India. The same is in a scheme with targeted corpus more targeted corpus up to USD 30 Million; being done with the objective to allow than USD 30 Million: the FMEs to develop track record of (b) at least USD 750,000 and not their performance and demonstrate a exceeding 10% of the targeted corpus Provided that the contribution by the FME greater skin-in-the-game to the in a scheme with targeted corpus or its associate shall not be mandatory in investors in such schemes. The more than USD 30 Million: case of relocated schemes established or contribution by the FME or its incorporated or registered outside India to Provided that the contribution by the FME associates, if based in India, in any IFSC. or its associate shall not be mandatory in case, shall also be governed in terms case of relocated schemes established or Page 24 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Provided further that the ceiling of 10% incorporated or registered outside India to of the norms specified by the RBI in shall not apply for Venture Capital schemes IFSC. this regard. if: (i) the FME and its associate Provided further that the ceiling of 10% investing in the scheme, are shall not apply for Venture Capital persons resident outside India and schemes if: do not have any person resident in (i) the FME and its associate India as their ultimate beneficial investing in the scheme, are owners; and persons resident outside India (ii) not more than one-third of the and do not have any person corpus of the scheme is invested in resident in India as their ultimate an Investee Company and its beneficial owners; and not more associates. than one-third of the corpus of the scheme is invested in an investee (2) The said contribution in proportion to company and its associates, or investment by the investor(s) in the scheme (ii) not more than one-third of the shall be made by the FME or its associate corpus of the scheme is invested within forty-five (45) days and be in an Investee Company and its maintained on an ongoing basis: associates. the investments under Page 25 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Provided that the period of forty-five (45) the scheme are made in IFSC or days may be extended, subject to the foreign jurisdictions and the said satisfaction of the Authority. contribution does not exceed 25% of the corpus of the scheme. (3) The contribution, if brought in by FME, may be taken into consideration for the (2) The said contribution in proportion to purpose of net-worth requirements as investment by the investor(s) in the detailed under the Chapter II. scheme shall be made by the FME or its associate within forty-five (45) days and be maintained on an ongoing basis: Provided that the period of forty-five (45) days may be extended, subject to the satisfaction of the Authority. (3) The contribution, if brought in by FME, may be taken into consideration for the purpose of net-worth requirements as Page 26 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) detailed under the Chapter II specified under these regulations. CHAPTER III SCHEMES FOR FUND MANAGEMENT PART B: RESTRICTED SCHEMES (NON-RETAIL SCHEMES) 35 (1) In case of an open-ended scheme, 35 (1) In case of an open-ended scheme, Open-ended Restricted Schemes are EoDB, the maximum investment in unlisted the maximum investment in unlisted permitted to invest a certain portion Safeguard securities should not exceed twenty-five securities should not exceed twenty-five of their corpus in unlisted securities. per cent. (25%) of the corpus of the per cent. (25%) of the corpus of the However, if they fail to achieve the scheme: scheme: minimum corpus of USD 3 Million within the period of validity or Provided that in case of an open-ended Provided that in case of an open-ended extended validity of the PPM, the fund of funds scheme, this requirement fund of funds scheme, this requirement FME will be forced to wind up the shall not be applicable if such scheme is shall not be applicable if such scheme is scheme and return the capital (along investing in other open-ended scheme(s) investing in other open-ended scheme(s) with returns generated thereon) to which shall not have investment in unlisted which shall not have investment in the investors. In such situation, securities in excess of twenty-five per cent. unlisted securities in excess of twenty-five liquidating the investments in unlisted (25%) of their corpus. per cent. (25%) of their corpus. securities may pose a significant challenge to the FMEs and may also Page 27 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Provided further that the investments by cause loss to the investors due to the an open-ended scheme in unlisted forced distress-sale of such securities shall be undertaken only upon securities. Therefore, investment in achieving the minimum corpus of USD 3 unlisted securities is proposed to be Million. undertaken only pursuant to achieving the minimum corpus. (2) The minimum size of corpus of the (2) The minimum size of corpus of the restricted schemes shall be USD 3 Million: restricted schemes shall be USD 3 Further, while a one-time option is Million: available to the FMEs to extend the Provided that an open-ended scheme may validity of PPM, FMEs have commence investment activities upon Provided that an open-ended scheme expressed the need for greater raising at least USD 1 Million in funds and may commence investment activities flexibility in this regard to tackle the shall achieve the minimum corpus of USD upon raising at least USD 1 Million in dynamic conditions for fund raising. 3 Million within 12 months from the date of funds and shall achieve the minimum Accordingly, an option to extend the communication from the Authority that the corpus of USD 3 Million within 12 months validity of PPM without any restriction placement memorandum of the scheme from the date of communication from the on number of occurrences is has been taken on record. Authority that the placement proposed. memorandum of the scheme has been taken on record. Page 28 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Further, a provision of winding Provided further that if a FME fails to scheme in cases where minimum achieve the corpus size of USD 3 Million corpus is not being achieved and within 12 months from the date of PPM is not extended is now communication from the Authority that the proposed at Regulation 131. placement memorandum of the scheme has been taken on record, it shall have the option to extend the validity of the placement memorandum for further period of 6 months, wherein each such extension shall be filed to the Authority at such time when the placement memorandum is still valid and accompanied with a fee which is equal to 50 per cent. (50%) of the fee as applicable for filing of a fresh scheme. 36 (3) The FME shall ensure that the NAV 36 (3) The FME shall ensure that the NAV The proposal is expected to reduce EoDB, is disclosed to the investors at least on a is disclosed to the investors at least on a the operational cost of the FMEs and Clarification monthly basis in case of an open-ended monthly basis in case of an open-ended streamline their operations. Further, Page 29 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) scheme and half-yearly in case of a close scheme, starting from the month in which the same is in line with the provisions ended scheme within such time period as the first close is declared for the scheme, for venture capital schemes in IFSC disclosed in the placement memorandum. and half-yearly in case of a close ended and the provisions specified by SEBI scheme, starting from the half-year period for Category I and II AIFs in India. (4) The FME shall ensure that the portfolio in which the first close is declared for the The same shall be effective only after under the scheme is disclosed to the scheme, and within such time period as approval by investors. investors at least on a quarterly basis within disclosed in the placement memorandum. one month from the end of the quarter. Further, the proposed amendment Provided that such period may be also provides clarification regarding enhanced to one year in case of a the timeline for commencement of Category I scheme or a Category II disclosures. scheme on prior approval of at least seventy-five per cent. (75%) investors in the scheme by value of their investments. (4) The FME shall ensure that the portfolio under the scheme is disclosed to the investors at least on a quarterly basis, starting from the quarter in which the first Page 30 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) close is declared for the scheme, within one month from the end of the quarter. 39 (1) FME shall compute the NAV of each 39 (1) FME shall compute the NAV of Proposal to clarify the timeline for EoDB restricted scheme at least on a monthly each restricted scheme at least on a commencement of disclosures. basis: monthly basis, starting from the month in which the first close is declared for the Further, as a consequential change Provided that in case of a close ended scheme: to the amendment proposed in restricted scheme the computation of NAV Regulation 36(3) above, an shall take place at least half-yearly. Provided that in case of a close ended amendment is proposed in regulation restricted scheme the computation of 39(1) as well. NAV shall take place at least half-yearly, starting from the half-year period in which the first close is declared for the scheme. Provided further that for such Category I schemes or Category II schemes for which the FME has obtained prior approval from investors in terms of proviso to sub-regulation (3) of regulation Page 31 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) 36, the computation of NAV shall take place at least yearly, starting from the financial year in which the first close is declared for the scheme. 40 (1) Under a restricted scheme, the FME 40 (1) Under a restricted scheme, the Proposal is intended to enhance the EoDB, or its associate shall invest :- FME or its associate shall invest:- scenarios in which an FME may Clarification (a) In case of a close ended scheme, (a) In case of a close ended scheme, obtain exemption from the (i) at least 2.5% of the targeted corpus (i) at least 2.5% of the targeted requirement of skin-in-the-game and not exceeding 10% of the corpus and not exceeding 10% of contribution. By inclusion of such targeted corpus in a scheme with the targeted corpus in a scheme schemes in the exempted list where targeted corpus up to USD 30 Million; with targeted corpus up to USD 30 the FME does not exercise (ii) at least USD 750,000 and not Million; managerial discretion and, therefore, exceeding 10% of the targeted (ii) at least USD 750,000 and not the necessity of skin-in-the-game corpus in a scheme with targeted exceeding 10% of the targeted contribution is diminished, the capital corpus more than USD 30 Million: corpus in a scheme with targeted requirement for the fund (b) In case of an open-ended scheme, corpus more than USD 30 Million: management business in IFSC gets (i) at least 5% of the targeted corpus (b) In case of an open-ended scheme, further reduced, making it more and not exceeding 10% of the (i) at least 5% of the targeted corpus economically efficient for the FMEs. targeted corpus in a scheme with and not exceeding 10% of the Page 32 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) targeted corpus less than USD 30 targeted corpus in a scheme with This also aims to simplify the Million; targeted corpus less than USD 30 language for better readability and (ii) at least USD 1,500,000 and not Million; understanding. exceeding 10% of the targeted (ii) at least USD 1,500,000 and not corpus in a scheme with targeted exceeding 10% of the targeted Further, this also aims to allow FME corpus more than USD 30 Million: corpus in a scheme with targeted or its associates to invest a higher corpus more than USD 30 Million: amount in the schemes which are not Provided that the contribution by the FME investing into India. The same is or its associate shall not be mandatory in Provided that the contribution by the FME being done with the objective to allow case of relocated funds /schemes or its associate shall not be mandatory in the FMEs to develop track record of established or incorporated or registered case of relocated funds /schemes their performance and demonstrate a outside India to IFSC: established or incorporated or registered greater skin-in-the-game to the outside India to IFSC: investors in such schemes. The Provided further that ceiling of 10% shall contribution by the FME or its not apply for restricted schemes if: Provided further that ceiling of 10% shall associates, if based in India, shall be, (i) the FME and its associate investing not apply for restricted schemes if: in any case, governed in terms of the in the scheme, are persons resident (i) the FME and its associate norms specified by the RBI in this outside India and do not have any investing in the scheme, are regard. persons resident outside India Page 33 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) person resident in India as their and do not have any person ultimate beneficial owners; and resident in India as their ultimate (ii) not more than one-third of the beneficial owners; and not more corpus of the scheme is invested in than one-third of the corpus of the an Investee Company and its scheme is invested in an Investee associates. Company and its associates, or (ii) not more than one-third of the (2) The said contribution in proportion to corpus of the scheme is invested investor’s investment in the scheme shall in an Investee Company and its be made by the FME or its associate within associates. the investments under forty-five (45) days and maintained on the scheme are made only in ongoing basis: IFSC or foreign jurisdictions and the said contribution does not Provided that the period of forty-five (45) exceed 25% of the corpus of the days may be extended subject to the scheme. satisfaction of the Authority. (2) The said contribution in proportion to (3) The said contribution, if brought in by investor’s investment in the scheme shall FME, may be taken into consideration for be made by the FME or its associate Page 34 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) the purpose of net-worth requirements as within forty-five (45) days and maintained detailed under the Chapter II. on ongoing basis: (4) The said contribution shall be exempted if :- Provided that the period of forty-five (45) (a) at least two-thirds (2/3rd) of the days may be extended subject to the investors in the scheme by value satisfaction of the Authority. permits waiver of such contribution; (b) at least two-thirds (2/3rd) of the (3) The said contribution, if brought in by investors in the scheme are accredited FME, may be taken into consideration for investors; or the purpose of net-worth requirements as (c) The scheme is a fund of funds scheme detailed under the Chapter II specified investing in scheme(s) with similar under these regulations. requirements. (4) The said contribution shall be exempted if:- (a) at least two-thirds (2/3rd) of the investors in the scheme by value permits waiver of such contribution; Page 35 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (b) at least two-thirds (2/3rd) of the investors in the scheme are accredited investors; or (c) The scheme is a fund of funds scheme investing in scheme(s) with similar requirements. Provided that for such scheme in IFSC there is no active management undertaken by the FME and the details of inter-se allocation of the underlying schemes are disclosed in the placement memorandum of the scheme; (d) The scheme is an index scheme; or (e) The scheme is a fund of funds scheme investing in index schemes or Page 36 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) passive ETFs, and the details of inter- se allocation of such index schemes and ETFs are disclosed in the placement memorandum of the scheme. CHAPTER III SCHEMES FOR FUND MANAGEMENT PART C: RETAIL SCHEMES 47 (4) Retail schemes shall not invest more 47 (4) Retail schemes shall not invest The extant provision may hinder EoDB than twenty-five per cent. (25%) of its AUM more than twenty-five per cent. (25%) of creation of such fund of funds in a single sector: its AUM in a single sector: schemes in IFSC wherein the underlying schemes do not have Provided that in case of financial services Provided that in case of financial services such sectoral limits, although it is sector, the amount shall not exceed fifty per sector, the amount shall not exceed fifty regulated by a financial sector cent. (50%) of the AUM of the scheme: per cent. (50%) of the AUM of the regulator and permitted for scheme: distribution to the retail investors in Provided further that the limit on sectoral the home jurisdiction. For example, caps shall not apply in case of a sectoral or for SEBI registered Mutual Funds in thematic or an Index Scheme: India, sectoral caps are not Page 37 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Provided further that the limit on sectoral applicable if the scheme is Provided also that in case of a fund of funds caps shall not apply in case of a sectoral categorised as an equity scheme. scheme, the limit on sectoral cap shall not or thematic or an Index Scheme: be applicable if such scheme is investing in Therefore, amendment is proposed other scheme(s) which does not have Provided also that in case of a fund of to enable FoF Retail schemes in investment in a single sector in excess of funds scheme, the limit on sectoral cap IFSC to invest in any regulated 25% of their AUM, or 50% of their AUM in shall not be applicable if such scheme is schemes permitted for offering to case of financial services sector or when investing in other scheme(s) which does retail investors. such scheme(s) are sectoral or thematic or not have investment in a single sector in index scheme(s). excess of 25% of their AUM, or 50% of their AUM in case of financial services sector or when such scheme(s) are sectoral or thematic or index scheme(s) are regulated by the concerned regulatory authority in its home jurisdiction, and are permitted for offering to retail investors in their home jurisdiction. 48 (2) The disclosures in the offer 48 (2) The disclosures in the offer The proposal is aimed at inclusion of Safeguard document shall inter-alia include document shall inter-alia include such other matters in the indicative Page 38 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) disclosures regarding the investment disclosures regarding the investment list of contents of offer document objective, the targeted investors, proposed objective, the targeted investors, which are deemed to be material in size, investment style or strategy, proposed size, investment style or nature. investment methodology, proposed tenure strategy, investment methodology, of the scheme fees and expenses, risk proposed tenure of the scheme, management practices, KMPs of the FME methodology of computation and and other relevant details of the FME and disclosure of NAV, fees and expenses, the scheme. conflicts of interest, risk management practices, KMPs of the FME and other relevant details of the FME and the scheme. 52 (1) Under a retail scheme, the FME or 52 (1) Under a retail scheme, the FME or Proposal is intended to enhance the EoDB its associate shall invest at least one per its associate shall invest at least one per scenarios in which an FME may cent. (1%) of the AUM of the retail scheme cent. (1%) of the AUM of the retail scheme obtain exemption from the or USD 200,000, whichever is lower: or USD 200,000, whichever is lower: requirement of skin-in-the-game contribution. By inclusion of such Provided that the contribution by the FME Provided that the contribution by the FME schemes in the exempted list where or its associate shall not be mandatory in or its associate shall not be mandatory in the FME does not exercise case of relocated funds /schemes case of relocated funds /schemes managerial discretion and, therefore, Page 39 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) established or incorporated or registered established or incorporated or registered the necessity of skin-in-the-game outside India to IFSC. outside India to IFSC. contribution is diminished, the capital requirement for the fund Provided further that the contribution by the Provided further that the contribution by management business in IFSC gets FME or its associate shall not be the FME or its associate shall not be further reduced, making it more mandatory in case of a fund of funds mandatory in case of a fund of funds economically efficient for the FMEs. scheme investing in scheme(s) which has scheme investing in scheme(s) which has similar requirements. similar requirements, wherein the scheme in IFSC does not involve active management by the FME and the details of inter-se allocation of the underlying schemes are disclosed in the placement memorandum of the scheme; Provided also that the contribution by the FME or its associate shall not be mandatory in case of an index scheme or a fund of funds scheme investing only in index schemes or passive ETFs, and the Page 40 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) details of inter-se allocation of such index schemes and ETFs are disclosed in the offer document of the scheme. CHAPTER V ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) 72 (1) A FME managing AUM above USD 3 72 (1) A FME managing AUM above USD FM Regulations require the FMEs of EoDB billion as at the close of a financial year or 3 billion, excluding the AUM of fund of significant size to become more any other threshold of AUM as may be funds schemes, as at the close of a transparent in their sustainability- specified by the Authority, shall: financial year or any other threshold of related posture. Accordingly, the (a) establish policy on governance AUM as may be specified by the Authority, threshold of AUM of USD 3 Billion around material sustainability- shall: has been laid down for the additional related risks and opportunities; (a) establish policy on governance disclosures. (b) disclose in its annual report how the around material sustainability- FME identifies, assesses and related risks and opportunities; It is observed that several FMEs, as manages material sustainability- (b) disclose in its annual report how part of their internal initiatives or related risks; the FME identifies, assesses and contractual arrangement with their (c) establish and disclose in its annual manages material sustainability- investors, are mindful of their report the process of factoring related risks; sustainability impact and have sustainability related risks and internal frameworks in this regard. Page 41 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) opportunities into fund manager’s (c) establish and disclose in its investment strategies and annual report the process of However, for such FMEs which are processes, including, where factoring sustainability related largely engaged in managing of relevant, data and methodologies risks and opportunities into fund FoFs, having such additional used; and manager’s investment strategies frameworks and disclosures could be (d) comply with any other sustainability and processes, including, where considered to be burdensome and related requirements as may be relevant, data and methodologies inefficient, and they may have limited specified by the Authority. used; and control over the underlying (d) comply with any other investments. sustainability related requirements as may be specified by the Authority. CHAPTER VI OTHER FUND MANAGEMENT ACTIVITIES PART C: FAMILY INVESTMENT FUND 104 (5) A Family Investment Fund may set 104 (5) A Family Investment Fund may The proposal is aimed to clarify the Clarification, up additional investment vehicles after set up additional investment vehicles after procedure to be followed by the EoDB filing documents for such vehicles with the filing documents for such vehicles with Authority in taking a FIF or investment vehicle on record. This is Page 42 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Authority and payment of applicable fee as the Authority and payment of applicable expected to provide greater certainty specified by the Authority. fee as specified by the Authority. to industry participants and FIF applicants in determining the Explanation I.- Such additional investment Explanation I.- Such additional regulatory and taxation treatment of vehicles in the form of companies, limited investment vehicles in the form of FIFs and investment vehicles. liability partnerships, trusts or any other companies, limited liability partnerships, form as may be specified by the Authority, trusts or any other form as may be shall be considered in conjunction for the specified by the Authority, shall be purpose of meeting the condition specified considered in conjunction for the purpose under sub-regulation (3). of meeting the condition specified under sub-regulation (3). Explanation II. - The Family Investment Fund or the investment vehicle may be Explanation II. - The Family Investment construed as Category I Alternative Fund or the investment vehicle may be Investment Fund, Category II Alternative construed as Category I Alternative Investment Fund or Category III Alternative Investment Fund, Category II Alternative Investment Fund depending on the Investment Fund or Category III investment strategy adopted in accordance Alternative Investment Fund depending with regulation 30. on the investment strategy adopted in Page 43 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) accordance with regulation 30, and shall accordingly be taken on record by the Authority. CHAPTER VIII GENERAL OBLIGATIONS AND RESPONSIBILITIES 119 (2) Every FME shall maintain and 119 (2) Every FME shall maintain and The proposal is aimed to clarify the Clarification, preserve at least the following books of preserve at least the following books of requirement of maintaining the Safeguard accounts, records and documents, in accounts, records and documents, in records pertaining to internal policies, electronic retrieval form for a minimum of electronic retrieval form for a minimum of frameworks, plans or standard eight years, namely: eight years, namely: operating procedures prepared by (a) a copy of the balance sheet at the (a) a copy of the balance sheet at the FME in compliance with these end of each accounting period; the end of each accounting regulations. As such records are (b) a copy of profit and loss account for period; considered to be of supervisory each accounting period; (b) a copy of profit and loss relevance, their maintenance and (c) a copy of the auditor’s report on the account for each accounting preservation is deemed essential. accounts for each accounting period; period; (c) a copy of the auditor’s report (d) a statement of net worth for each on the accounts for each accounting period; quarter; Page 44 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (e) documents relating to compliance (d) a statement of net worth for with AML and CFT guidelines; each quarter; (f) documents relating to account (e) documents relating to opening of each client and any compliance with AML and CFT power of attorney or signature guidelines; authority forms of the clients; (f) documents relating to account (g) relevant records and documents opening of each client and any relating to its activities under these power of attorney or signature regulations; and authority forms of the clients; (h) such other books of accounts, (fa) records pertaining to internal policies, frameworks, plans or records and documents as may be standard operating procedures specified by the Authority from time prepared by the FME in to time. compliance with these regulations; (g) relevant records and documents relating to its activities under these regulations; and Page 45 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (h) such other books of accounts, records and documents as may be specified by the Authority from time to time. 131 (1) A scheme of the FME may be 131 (1) A scheme of the FME may be Considering the nature of Clarification, wound up:- wound up:- investments of open-ended Safeguard (a) When the tenure of the scheme, as (a) When the tenure of the scheme, as schemes, FM Regulations allow mentioned in the placement memorandum mentioned in the placement them to commence investment / offer document, is over; memorandum / offer document, is over; activities at a lower threshold of USD (b) If seventy-five per cent. (75%) of the (b) If seventy-five per cent. (75%) of the 1 Mn and achieve the minimum investors, by value of their investment in investors, by value of their investment in corpus of USD 3 Mn within a period the scheme, pass a resolution at a meeting the scheme, pass a resolution at a of 12 months or 18 months, if one- of investors that the scheme be wound up. meeting of investors that the scheme be time extension has been opted by the wound up; FME. (c) If the scheme fails to achieve the minimum corpus during the validity of the However, to address such situations placement memorandum or offer where the validity has expired and document, as applicable, and the FME the FME does not intend to extend it further, a clear direction for winding Page 46 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) has not filed for extension of the validity up of such scheme is proposed to be with the Authority. inserted. Appointment of Custodian Appointment of Custodian The appointment of an IFSC-based EoDB 132. The FME shall appoint an 132. The FME shall appoint an custodian is considered to be of independent custodian to provide the independent custodian to provide the importance to the Authority as this custodial services for the following custodial services for the following aids the Authority in its regulatory schemes:- schemes:- supervision and also brings in (a) Retail schemes; (d) Retail schemes; substance to the FMEs’ operations in (b) Open ended restricted schemes; (e) Open ended restricted schemes; IFSC. and and (c) All other schemes managing AUM (f) All other schemes managing AUM However, industry participants have above USD 70 Million. above USD 70 Million. represented that they are facing challenges in appointing an IFSC- Provided that the requirement of Provided that the requirement of based custodian due to the lack of appointment of custodian shall not be appointment of custodian shall not be their capability in serving different mandatory for fund of funds schemes mandatory for fund of funds schemes jurisdictions where the FMEs intend where the underlying scheme(s) have where the underlying scheme(s) have to invest as well as the cost of such appointed independent custodian(s). appointed independent custodian(s). services, which have been told to be disproportionately higher than that Page 47 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Explanation I. – The Custodian appointed Explanation I. – The Custodian appointed charged for similar services in foreign under this regulation shall be based in under this regulation shall be based in jurisdictions. IFSC, unless the local laws of the IFSC, unless the local laws of the jurisdiction where the securities have been jurisdiction where the securities have Due to these constraints observed in issued mandate appointment of a been issued mandate appointment of a the local ecosystem, it is proposed custodian in that jurisdiction, in which case, custodian in that jurisdiction, in which that FMEs may be permitted to the FME may appoint a custodian based in case, the FME may appoint a custodian appoint regulated custodians in other that jurisdiction regulated by the financial based in that jurisdiction regulated by the jurisdictions with suitable sector regulator in that jurisdiction for such financial sector regulator in that arrangement for providing securities and make necessary jurisdiction for such securities and make information to the Authority for a arrangement to provide such information to necessary arrangement to provide such further period of 2 years. It is Authority whenever directed to do so. information to Authority whenever expected that the in the interim the directed to do so. IFSC based custodians shall be able Explanation II. - In case of schemes which to develop competencies and are required to appoint custodian in IFSC Explanation II. - In case of schemes which efficiency to offer competitive in terms of the abovementioned provision, are required to appoint custodian in IFSC facilities within IFSC. if any agreement has been entered into in terms of the abovementioned provision, with a custodian which is not based in IFSC if any agreement has been entered into as on the date of notification of these with a custodian which is not based in Page 48 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) regulations, such schemes shall be IFSC as on the date of notification of required to appoint custodian in IFSC these regulations, such schemes shall be within twelve (12) months from the date of required to appoint custodian in IFSC notification of these regulations. within twelve (12) months from the date of notification of these regulations. In case of schemes which are required to appoint custodian in IFSC in terms of the abovementioned provision, such appointment may be made within twenty- four (24) months from the date of notification of the amended regulations, during which period the FMEs may appoint an independent custodian in India or any foreign jurisdiction which is regulated by the financial sector regulator in that jurisdiction and make necessary arrangement to provide such information to Authority whenever directed to do so. Page 49 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) Scheme Annual Report Scheme Annual Report Industry participants have expressed EoDB 134. (1) FME shall prepare an annual 134. (1) FME shall prepare an annual challenge in meeting the present report of accounts of the schemes and report of accounts of the schemes and timeline of 4 months as in many abridged summary thereof, in respect of abridged summary thereof, in respect of cases the underlying fund has a each financial year and shall submit the each financial year and shall submit the longer time period available to same to the Authority not later than four same to the Authority not later than four complete such audit. months from the end of financial year. six months from the end of financial year. (2) The annual report and abridged (2) The annual report and abridged This may also be seen in light of the summary shall contain details that are summary shall contain details that are Companies Act 2013 which provides necessary for the purpose of providing a necessary for the purpose of providing a a time window of 6 months to true and fair view of the operations of the true and fair view of the operations of the companies in India to complete their scheme. scheme. audited financial statements. (3) An abridged summary of the annual (3) An abridged summary of the annual report of the scheme shall be shared with report of the scheme shall be shared with Therefore, the proposal is aimed to the investors within four months from the the investors within four six months from extend such timeline to align the end of the financial year: the end of the financial year: same with similar requirements under other laws. Provided that if an investor seeks the full Provided that if an investor seeks the full annual report, the FME shall provide the annual report, the FME shall provide the Page 50 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) same within fifteen (15) days from the date same within fifteen (15) days from the of the receipt of such request. date of the receipt of such request. 135. (1) Every scheme launched by FME 135. (1) Every scheme launched by FME The regulatory intent behind the EoDB shall have the annual statement of shall have the annual statement of separation of auditors is to mitigate accounts audited by an auditor who is not accounts audited by an auditor who is not the conflicts as the beneficiaries of in any way associated with the FME. in any way associated with the FME. the scheme and that of the FME are different sets of persons. Provided that such requirement shall not be applicable for the FMEs which are set However, in case of sovereign- up by Government and Government related investors, since the related investors such as central banks, beneficiary of the FME and the sovereign wealth funds, international or scheme is the same entity, such multilateral organizations or agencies conflicts are not expected to arise. including entities controlled or at least Therefore, the requirement of seventy-five per cent. (75%) directly or separation of auditors may be indirectly owned by such Government exempted in case of such FMEs. and Government related investor wherein such investors are the sole contributors, Page 51 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) directly or indirectly, of the schemes launched by such FMEs. THIRD SCHEDULE CODE OF CONDUCT AND OBLIGATIONS PART A: CODE OF CONDUCT AND OBLIGATIONS OF THE FUND MANAGEMENT ENTITY Insertion of provision (o) For all the policies, frameworks, plans, FM Regulations have placed the Safeguard by whatever name called, that the FME requirement for institution of internal prepares in compliance with these policies in areas which are regulations, approval from the board of considered to be of significant directors or designated partners or importance in the operations of the trustees, as may be the case, of the FME FME. It is, however, noted in several shall be obtained prior to their cases where onsite supervision has implementation or amendment. been undertaken that the FME has either failed to establish the policy, created a policy which is vague and lacks specific actionable / outcomes, or there are lapses in the implementation of the policy. Page 52 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) It is, therefore, proposed that all such policies are approved by the governing body of the FME. This is expected to bring the matter to the attention of the senior management and ensure proper implementation of such policies. THIRD SCHEDULE CODE OF CONDUCT AND OBLIGATIONS PART B: CODE OF CONDUCT AND OBLIGATIONS OF FIDUCIARIES (a) Based on the legal structure of the (a) Based on the legal structure of the The proposal is aimed to allow the EoDB, fund/scheme, the Board of Directors in fund/scheme, the Board of Directors in appointment of certain service Clarification case of Company, Designated Partners in case of Company, Designated Partners in providers at a later stage as their role case of LLP and Trustees (including the case of LLP and Trustees (including the typically becomes relevant only after Board in case of a Trustee company) in Board in case of a Trustee company) in the schemes commence their case of a Trust, shall: case of a Trust, shall: investment activities. The proposed … … additional time window for … … appointment of certain service providers is also expected to reduce Page 53 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (ix) ensure before the launch of any (ix) ensure before the launch of any the fund operations cost without scheme that it has,— scheme that it has,— compromising the investors; (a) systems in place for its back office, (a) systems in place for its back interests. dealing room and accounting; office, dealing room and (b) appointed all key personnel; accounting; Further, the responsibility of the (c) appointed auditors to audit its (b) appointed all key personnel; fiduciaries is proposed to be further accounts; (c) appointed auditors to audit its clarified by including other service (d) designated a compliance officer accounts; providers which are critical for fund who shall be responsible for (d) designated a compliance officer activities and mandated under the FM Regulations. monitoring the compliance of the who shall be responsible for Act, rules and regulations, monitoring the compliance of the Also, some provisions of the FM notifications, guidelines, Act, rules and regulations, Regulations mandate the FME to instructions, etc., issued by the notifications, guidelines, obtain prior approval from investors Authority or the Central instructions, etc., issued by the with respect to certain actions. For Government and for redressal of Authority or the Central example, under regulation 23(2) and investors grievances; Government and for redressal of 35(3), for investments in associate by (e) appointed fund administrators investors grievances; a Venture Capital scheme and registered with the Authority or (e) appointed fund administrators Restricted scheme, respectively, registered with the Authority or Page 54 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) capabilities to undertake such capabilities to undertake such activities in-house by the FME activities in-house by the FME Additionally, in terms of existing (f) obtained, wherever required under (f) obtained, wherever required regulations 23(2), 23(4), 35(3) and these regulations, prior in principle under these regulations, prior in 35(4), and proposed regulation 36(3), approval from the recognised stock principle approval from the the FME is required to obtain exchange(s) where units are recognised stock exchange(s) approval from investors when dealing proposed to be listed. where units are proposed to be with associates. If, instead of listed. obtaining approval from investors through a separate voting exercise, (ixa) ensure before the first close of any FME intends to obtain approval by scheme that it has, - way of disclosures, the fiduciary is (a) appointed auditors to audit its expected to ensure that such accounts; disclosures in placement (b) appointed fund administrators memorandum are adequate and registered with the Authority or prominent. Further, in such matters, obtained demonstration from the fiduciary is expected to ensure that that it has the capabilities to specific confirmation from investors undertake such activities in- by way of contribution agreement is house; also obtained. Page 55 of 56# Existing Regulation Proposed Regulation Brief Rationale Amendment (Underlined text indicates proposed insertion and (including data point, global benchmarks, Type struck-through text indicates proposed omission) where applicable) (c) appointed independent valuer for valuation of the portfolio of scheme; (d) appointed the custodian for the scheme, if applicable in terms of regulation 132. … … (xiv) shall ensure that, when required in terms of regulations 23(2), 23(4), 35(3), 35(4) and 36(3), the FME either obtains the approval of the investors or make adequate and prominent disclosures in the placement memorandum and also include in the investor agreement. ---xxx--- Page 56 of 56