Framework for differential distribution in Venture Capital Schemes and Restricted Schemes to facilitate blended finance and other fund structures

PRESS RELEASE Framework for differential distribution in Venture Capital Schemes and Restricted Schemes to facilitate blended finance and other fund structures In alignment with the vision of the Hon’ble Prime Minister of India to make GIFT IFSC “a gateway to global debt and equity capital for sustainable and climate projects”, the International Financial Services Centres Authority (IFSCA) has endeavoured to provide regulatory frameworks which promote sustainable finance products that are true to their label.

Over the past five years, IFSCA has undertaken several measures1 to accelerate sustainable global capital flows, drawing from international best practices while remaining focused on the unique requirements of developing economies, such as India.

In furtherance of these endeavours, IFSCA has issued a circular on September 25, 2026 on the framework for differential distribution in Venture Capital Schemes and Restricted Schemes to facilitate blended finance and other fund structures. The framework issued by IFSCA represents the culmination of an extensive consultative approach followed by the IFSCA, which includes recommendations of the IFSCA’s Expert Committee on Sustainable Finance, representations received from the industry participants, feedback received in response to the public consultation and recommendations of the IFSCA’s Fund Management Advisory Committee.

Blended finance is strategically deployed to combine concessional or philanthropic capital with commercial capital to fund projects which are socially desirable but may be commercially unviable. Blended finance is increasingly globally recognised as a promising approach to bridge the funding gap in such projects.

Some of the salient features of the Regulatory Framework are as under:

1. Differential Distribution Rights: Venture Capital Schemes and Restricted Schemes under IFSCA (Fund Management) Regulations, 2025 are permitted to issue multiple 1 IFSCA Brochure on Sustainable Finance

IFSCA Website: https://www.ifsca.gov.in/classes of units with differential distribution rights. Junior / Subordinate classes of units may carry returns lower than or bear losses higher than their entitlement.

2. Acceptance of Grants: Schemes which are designated as ‘ESG Schemes’ and propose to align their investment strategy with one or more of the United Nations Sustainable Development Goals (“SDGs”) are also permitted to accept grants, subject to certain conditions and compliance with other applicable laws, to such extent that the grant funds do not constitute the majority of the corpus of the scheme. Grants accepted from foreign sources shall be in accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010), to the extent applicable.

3. Minimum investment: As junior or subordinate classes of units of such schemes shall bear risks or losses which are disproportionate to their pro-rata entitlement, the minimum investment for such units is set at USD 1 million for Accredited Investors and USD 2 million for the other investors.

4. Disclosures and investor protection: In view of the unique nature of such schemes, a greater emphasis has been laid on disclosures and additional disclosures, such as those listed below, have also been prescribed:

a. Disclosure of conversion-related milestones, methodology for computing such milestones, triggers, formulae, and conditions, as may be applicable, for such instances where the junior or subordinate units may be converted into a superior class of units, b. Illustration of distribution waterfall under different scenarios, for better understanding of the investors and to aid in their decision-making, c. Details regarding the multiple classes of units to be issued, their rights in distribution along with risks arising due to such differential distribution, d. Policy regarding the acceptance, administration, and deployment of grants, e. Process for calculating Net Asset Value for each class of unit, which is, further, required to be calculated by an independent valuer.

The Circular issued by the IFSCA in this matter may be accessed here.

Gandhinagar September 25, 2026

IFSCA Website: https://www.ifsca.gov.in/