Public Comments on Consultation paper on Regulatory Framework for differential distribution in Restricted Schemes and Venture Capital Schemes to facilitate blended finance and other fund structures

Public Comments on Consultation paper on Regulatory Framework for differential distribution in Restricted Schemes and Venture Capital Schemes to facilitate blended finance and other fund structures The Consultation Paper seeking comments/suggestions from the public on Regulatory Framework for differential distribution in Restricted Schemes and Venture Capital Schemes to facilitate blended finance and other fund structures was issued by IFSCA on October 22, 2025.

The list of comments/suggestions received are placed below:

Sr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper 1 4.3 Mandate that FMEs launching Mandating a Sustainable ESG schemes must publish a Financing Framework aligns with Sustainable Financing global best practice frameworks Framework, externally validated (including EU SFDR, IFC through an independent second Performance Standards, and party opinion. Green/Social/Sustainability- linked Bond Principles). It

Revised clause: communicates the scheme’s “The FME of such ESG Schemes overarching sustainability strategy shall disclose how the and governance. External investments by the scheme are validation by an independent expected to align with the United entity enhances investor Nations Sustainable confidence, supports anti- Development Goals (SDGs). The greenwashing efforts, and FME shall prepare, publish, and facilitates standardised reporting maintain a Sustainable Financing and impact tracking.

Framework vetted through an external second party opinion and made available to investors within the PPM.” Part B – Clarify the rights of Explicitly defining voting rights for before/after subordinate/junior investors. subordinate/junior investors

4.6 reduces ambiguity, enhances Suggested clause (include): investor protection, and “Subordinate/junior investors minimises potential disputes. shall have [equal/ subordinate] voting rights in scheme-related decisions; such rights must be disclosed explicitly and transparently in the PPM.”Sr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper

4.4 Introduce structured caps and a Prevents subsidy stacking and gradual phase-out mechanism for ensures efficient use of concessional elements or junior concessional finance, in line with tranches in ESG schemes. OECD (2025) blended finance guidelines. Supports market

Revised clause: maturity by phasing out “Such eligible schemes may concessional capital as investor accept funds in the form of grants confidence increases. which shall not be more than twenty percent (20%) of the corpus of the scheme. A clearly defined, gradual phase-out mechanism for grant support must be established. The level of support shall be determined through financial modelling or tender processes. Structured caps for the level of concessional support for each tranche can be established. Further, providers of grants shall prioritise junior tranche or subordinate positions within ESG schemes, with senior tranche positions primarily reserved for private sector investors.” Part C (include Strengthen the governance Promotes accountability, investor a clause under framework by defining the protection, and clarity in risk- this section) granular information regarding the sharing mechanisms within scheme and ensuring blended finance structures.

transparency, along with the establishment of an advisory committee.

Suggested clause: “The FME of eligible schemes must clearly define the roles of donors, fund managers and investors in the scheme. This includes mandatory transparency on subsidy allocation mechanisms and conflict resolution processes. As a part of the governance structure, anSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper advisory committee must be established to focus on risk acknowledgements for investors.” Part C (include Adopt a Theory of Change (ToC) Enhances impact integrity, a clause under approach aligned with IFC Impact defines partner roles and this section) Principles, along with a responsibilities, and ensures monitoring and evaluation clear pathways to achieving framework. sustainable outcomes.

Recommended by OECD (2025), it

Suggested clause: maps out how each “The FME of ESG schemes shall project/investment undertaken by adopt a Theory of Change (ToC) a scheme contributes to the framework aligned with IFC scheme’s broader sustainability Impact Principles, mapping goals.

inputs, outputs, outcomes, and impact for each project under a scheme, including risk identification and mitigation planning. A monitoring and evaluation framework with clear methodologies, measurement techniques, and data management processes shall be maintained. The framework shall be maintained for each project/investment under a scheme.” Part C – Expand to a standardised, Standardised and independently Disclosures verifiable reporting framework, verified disclosures build investor (include a aligned with OECD and DFI trust by ensuring consistent, clause under disclosure practices. Include comparable, and reliable this section) independent verification/audit reporting.

and periodic reporting intervals.

Suggested clause: “A standardised, verifiable reporting framework, aligned with OECD and DFI disclosure practices, will be created. It shall include requirements for independent verification or audit of disclosures and adherence to periodic reporting intervals. TheSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper FME of each scheme shall ensure compliance with the prescribed framework.” 2 Part A: The draft circular specifies that ESG is an umbrella term and can Eligibility ESG schemes with differential encompass a wide range of (ESG unit classes must disclose how objectives. There are investors schemes) the investments by the scheme who may have specific mandates Para 4.2 - 4.4 are expected to align with the to invest in a certain subset of United Nations Sustainable ESG. Specifying end use in a Development Goals (SDGs). granular manner would be helpful in attracting such investors by

1. In addition to the above, they giving them confidence. could also clearly specify proposed end uses of funds in a Funds/ schemes with differential granular manner. For example, unit classes are intended to segregation between E, S, and G. allocate blended finance to underserved segments, and a

2. Further, ESG schemes with minimum threshold would be differential classes could also effective in enhancing access to consider specifying a minimum capital for borrowers in such amount of fund to be earmarked segments.

for investment into certain categories of investees (underserved segments).

Part B: The draft circular specifies the This makes the junior/subordinate Structures conditions that may be applicable investments more attractive. A under to junior/subordinate classes of pre-determined set of milestones differential units. that trigger a conversion would return allow junior/subordinate investors Para 4.6 1. In addition, the draft circular to share in (for example) super may consider a provision for returns.

allowing junior/subordinate classes of units to convert to senior units upon the achievement of certain milestones (NAV).

Part C: The draft circular specifies This framework for differential Disclosures disclosures that Part A and Part B distribution mechanism for Para 4.7 – 4.8 schemes with differential unit Schemes has been introduced to classes must make. provide flexibility to raise funds from investors with varied risk

1. In addition to the above, they appetite and to support financing could also clearly specify the to projects which are sociallySr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper proposed end use of funds in a desirable but may be granular manner. For example, the commercially less attractive to particular kind of social impact investors.

the fund intends to focus on.

2. The disclosures could also There are investors who may have include expected impact metrics, specific mandates to invest in a if applicable, related to the end certain subset of social impact. uses, as extra-financial risks Specifying end use in a granular (such as climate-related risks) as manner would be helpful in part of required disclosures. attracting such investors by giving them confidence.

Including a pre-determined set of impact metrics can help strengthen the case for differential unit classes, and provide the required momentum for this mechanism.

Additional The IFSCA Fund Management A specification on permissible comments Entity (FME) Regulations 2025 investments (including specify a list of permissible instruments and entities) could be

Subject: instruments or entities in IFSC, a useful lever to effectively direct Permissible India or foreign jurisdiction, for investments towards intended investments Part A and Part B schemes investees.

(venture capital companies and restricted schemes).

1. The draft circular issued could specify whether these permissible investment categories remain unchanged in the case of schemes with differential unit classes.

3 4.11 The FME of such Eligible Schemes The valuation of different classes while adhering to Regulations 26, of investor is based on the 27, 38 and 39 of the FM position in the waterfall. The Regulations concerning valuation independent valuer confirms the and computation of NAV, shall net asset valuation of an further ensure that the NAV for asset/fund. The net asset value of each class of investors takes into each class of investor is based on account the disclosures in the the waterfall run by fund PPM. administrators who have the necessary tools to perform suchSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper function. Having an independent valuer confirming net asset value for each class of investor will raise the cost of managing a blended finance vehicle.

4.5 Eligible Schemes other than ESG Achievement of diversification is a Schemes shall be permitted to matter for the market and is issue multiple classes of units based on investment with differential distribution environment.

wherein not more than 25% of the corpus of the scheme is invested in an investee company and its associates.

4.5 Clarify that the 25% single- Grants are non-repayable and investee cap applies post-grant non-return-seeking contributions adjustment (i.e., calculated on that serve catalytic or enabling capital at risk excluding grants). functions in blended finance structures. Including grants within the 25% single-investee exposure cap could artificially constrain fund managers from deploying concessional or philanthropic funds where they are most needed — for instance, to unlock investments in sectors or geographies with higher developmental additionality but lower commercial attractiveness.

4.4 Such eligible schemes may The proportion of grant should be accept funds in the form of grants based on the investment thesis. which shall be determined based Some sectors might require more on the need of the sector. grants to attract commercial investors.

4.9 Lower minimum investment Several impact and family offices threshold for junior/subordinate specializing in catalytic capital units from USD 2 million to USD 1 operate at USD 1 million ticket million for all investors, subject to sizes. A lower bar increases a suitability assessment by the mobilisation without FME. compromising safeguards.

4.7 & 4.8 Require inclusion of scenario- Helps investors understand risk based illustrations showing exposure clearly; reduces chances of mis-selling and alignsSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper impact on returns for each class with global disclosure standards, under stress conditions. consistent with best practices of SEBI AIF PPM templates.

4.10 Clarify that “obligations or Without clarification, ordinary liabilities towards investors or business transactions may be their associates” exclude arms- construed as breach. A safe- length commercial transactions harbour provision would such as sale of goods or services. encourage participation of corporate investors who also supply to portfolio companies.

Accordingly, Clause 4.10 may be suitably modified.

General Consider introducing recognition Currently, IFSCA’s Fund of first-loss and guarantee Management Regulations structures within IFSCA AIF recognise differential distribution guidelines for alignment with but do not explicitly codify first- international blended-finance loss, mezzanine, or guarantee practice. structures. Explicit recognition

would: -Provide legal clarity to FMEs and investors on the treatment of subordinated capital; -Facilitate participation of DFIs and philanthropic partners who require recognition of their subordinated position for concessional accounting; and -Enable local fund managers to design multi-tranche structures without resorting to offshore SPVs, thus reinforcing the “onshore the offshore” objective.

4 4.2 The clause allows for ESG The purpose of a blended finance Schemes being permitted to issue structure permitting differential multiple classes of units with returns, would hold great merit differential returns. when being channelised towards activities which otherwise have It is suggested that for schemes limited interest from return- that aim to achieve seeking capital. Climate environmentally focused adaptation and resilience is oneSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper objectives, a small portion of the such theme. Earmarking a certain scheme corpus be carved out by portion of the fund towards the FME, as a mandatory adaptation and resilience focused investment towards business activities would ensure that the activities focused on climate environmental objectives sought adaptation and resilience. from the scheme, also follow the principle of ‘Do No Significant Scope and definition of ‘climate Harm to other environmental adaptation and resilience’ to be objectives’, defined in the draft considered in line with the scope Climate Finance Taxonomy of ‘ESG schemes’ defined vide the published by the Ministry of 2023 IFSCA circular. Finance. This would also align with international best practice – The Investment Framework of the Green Climate Fund requires investment portfolios to maintain a 50:50 balance of adaptation and mitigation funding over time.

Further, the approach of mandating a certain portion of investable corpus towards activities of environmental significance, is also aligned with IFSCA’s thrust towards sustainability linked sectors. The 2022 IFSCA circular requires IBUs and FC/FUs undertaking lending to have at least five per cent of their gross loans and advances directed towards green/social/sustainable/sustaina bility-linked sectors/facilities.

4.3 The clause states that the FME of The basic premise of deploying such ESG Schemes shall disclose catalytic capital into a blended how the investments by the structure, is to encourage capital scheme are expected to align with into themes of developmental and the United Nations Sustainable environmental priority.

Development Goals (SDGs).

It is suggested that the Having a clearly articulated disclosures be made more results-based framework would results-oriented than intent- build greater accountability on the oriented by requiring the FME to part of the FME and ensure explicitly specify via the PPM, alignment between the motivations of the investor andSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper • The objective of the scheme investee.

• The related impact outcomes it aims to achieve This would also be in line with the • Specific KPIs related to the tenets of the 2023 circular that outcomes requires FMEs to disclose ESG- • Corresponding timeline related related performance and to the KPIs compliance with the stated ESG- • UN SDG(s) that each of the related investment objectives.

KPI(s) aligns with The specification of a results- The FME would also be required to based framework along with an publish periodic reports (as audited process for relatively specified in the 2023 circular), on larger funds, would also align with its performance. Schemes other regulatory guidelines and beyond a certain threshold fund international best practices.

size may additionally be required to have their reporting For example, SEBI vide its independently verified by an Framework for the Social Stock accredited auditor. Exchange (SSE), mandates the requirement of a Social Audit for social enterprises raising funds/ registered on SSE.

Likewise, the International Finance Corporation (IFC), in its principles for Blended Finance, also places emphasis on the importance of a sound governance process, that ensures transparency regarding the use of concessional resources.

4.4 The clause states that eligible Certain themes, especially those schemes may accept funds in the focused on developmental and form of grants which shall not be environmental outcomes, more than twenty percent (20%) naturally align themselves to grant of the corpus of the scheme. capital, as opposed to return- seeking capital.

It is suggested to amend the said

clause to: “Eligible schemes may A flexibility with the ESG scheme accept funds in the form of grants to accept grant capital up to 50%, which shall not be more than fifty will enable greater deployment of percent (50%) of the corpus of the catalytic capital to such schemes.

scheme”. This in turn, could potentially encourage other investors toSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper assume a senior tranche position.

The suggestion to enhance catalytic grant contribution to the extent of 50% of the scheme corpus, also draws from the RBI’s draft Partial Credit Enhancement guidelines (August 2025). It allows for Regulated Entities to provide Partial Credit Enhancement (PCE) to corporate bonds, with the permissible PCE limit enhanced from 20% to 50% of the bond issue size.

4.9 The clause specifies that the The eligibility criteria for minimum investment for an accredited investors as per the investor to subscribe to the Junior 2024 IFSCA circular includes / Subordinate classes of units of Trusts among other permitted the eligible schemes shall be USD entities.

2 million, with the minimum investments to be USD 1 million if Extending the definition to the investor is an accredited explicitly include ‘charitable, non- investor. profit organisations’ and ‘charitable, non-profit private It is suggested to extend the foundations’ will make it clearer to definition of an ‘accredited enable such entities to subscribe investor’ to explicitly include a to the junior classes of the ‘charitable, non-profit schemes; given that the organisation’ and a ‘charitable, contribution to such units is non-profit private foundation’. expected to come from philanthropy.

Overall 1. A typical situation in the context observation of sustainability-themed blended finance structures is likely to be that the concessional capital is

provided by an overseas funder (DFI or philanthropic foundation) while the commercial portion is

provided by a domestic Indian entity (NBFC, bank, fund, etc.), since the transaction sizes are quite often likely to be small (say, USD 3 to 10 mn). OverseasSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper commercial funds or other investors may not find it viable to engage for such small deal sizes.

This results in the need to blend overseas funds (concessional portion) with domestic funds (commercial portion).

Unfortunately, this is not possible, and might continue to be a limitation, despite the proposed framework.

2. Another limitation might be that despite the proposed framework permitting grants to be accepted, domestic for-profit social enterprises may still not be able to utilise this route since FCRA and Income Tax Act only envisage non-profit entities to be beneficiaries of grants. To remove any grey area, there might need to be a clarification on this front under both FCRA and ITA, on the treatment of grants, received (via the fund) by a for-profit entity.

5 v on page 11 Regulation needs to include Currently the words used are Sponsor and Manager as well to "discharge any of its obligations or avoid evergreening misuse liabilities towards the investors of the schemes or their associates".

It is not clear if the Manager /Sponsor are included in this. Also because there may be NO investment by the FME basis exemption and hence technically the FME may not be an "investor". vi on page 11 Independent valuer "may" be The italic underlined statement is mandated to also compute NAV, to ensure there is no ambiguity on in case there is no other an RTA or FA computing the NAV.

independent third party already mandated for NAV computation.

Clause 4.1 The eligibility criteria for the said While the preamble of the read with 4.11 circular to clearly spell out that proposed circular intends for theSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper the circular shall only be guardrails to be applied by funds applicable to those Venture set up in IFSCA following a Capital Schemes and Restricted Blended Finance model, the Schemes which follow a Blended 'Eligibility' criteria cover all Finance model. Accordingly, the Venture Capital Schemes and conditions to be complied with by Restricted Schemes. IFSCA Eligible Schemes shall apply only should clarify that the proposed to those schemes which have a circular will only apply to those Blended Finance model. Venture Capital Schemes or Restricted Schemes which adopt a Blended Finance model and issue junior / subordinate class of units.

6 1 Blended Finance is strategically The suggested edit is for explicit deployed to combine clarity. concessional or philanthropic capital with private investment to fund development projects which are socially desirable irrespective of commercial viability. but may be commercially unviable.

Blended finance is increasingly recognised as a promising approach to bridge the gap in development funding.

4.1 Venture Capital Schemes and This is to further provide explicit Restricted Schemes under Part A clarity. and B, respectively, of Chapter III (together referred to as “eligible Clarity may be provided that while schemes”) of IFSCA (Fund Senior units may differ in fees, Management) Regulations, 2025 currency, timing, or operational (hereinafter referred to as “FM features, there will not be any Regulations”) shall be permitted differentiation between Senior to issue multiple classes of units units in terms of risk, priority, or which have differential loss absorption.

distribution related rights embedded to them (e.g., Senior units or Junior / Subordinate units).

Explanation: “Senior units” indicate such class of units which has superior rights over theSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper distribution proceeds of the eligible scheme, while “Junior units” or “Subordinate units” indicate such classes of units, including Mezzanine units, the rights of which over the distribution proceeds of the eligible schemes would be inferior to that of Senior units. Variation may include variations within Senior units, and within Junior units.

4.3 The FME of such ESG Schemes The FME of such ESG Schemes shall disclose how the shall disclose [Where?] the investments by the scheme are investments by the scheme are expected to align with the United expected to align with the United Nations Sustainable Nations Sustainable Development Goals (SDGs). Development Goals (SDGs).

4.5 Provided that such portfolio Not sure of the relevance of 2 diversification may be achieved by years. We suggest this should be such schemes within 2 years of linked to the commitment period first close. (investment period for Cat-I and Cat-II) Not sure if 2 years is sufficient time. We suggest for more time to be given to enable the FMEs to diversify.

Addition to Clarity required for FME/Associate post 4.12 Contribution since there are varied classes of units, with differential distribution. We understand that the commitment must represent genuine “skin in the game”—i.e., real economic downside exposure, with no preferential protections.

7 Part I, Para V – For all Schemes, allow returns to This will allow more targeted fund- Investment be differentiated not just at the raising while the fund can be more Restrictions portfolio level but at a subset of diversified in its investments.

portfolio levelSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper Part C, Para Require model illustration of Restricted schemes, especially

4.7–4.8 – “distribution waterfall” and credit-based ones, operate with Disclosures stress-test scenarios, but allow interest accrual and NAV-linked flexibility in valuation equalization, which differ from methodology to match fund type. equity funds. Prescriptive waterfall illustrations can create clarity without limiting operational flexibility.

Part C, Para Reduce minimum investment for Allowing lower thresholds

4.9 – Minimum Junior to USD 500,000 and for broadens investor participation Investment accredited investors to USD and improves fund scalability.

Threshold 250,000.

General Introduce a provision for Avoids repeated regulatory automatic filing mechanism for approval cycles for each new issuance of new unit classes post class of units, which can delay initial approval of differential fund-raising and reduce agility.

distribution structure. The initial approval can cover framework compliance, while subsequent filings can be for record purposes.

8 Part B- Additionally, Considering global blended Structures 4.6 (e) finance structure, grants can also under Grants received by the fund in be taken through a loss differential relation to ESG schemes may be reserve/reserve fund, which will return credited to a loss reserve or be a funded bank account,

4.6 (d) Such reserve fund held by the fund. monies from which can be classes of Such reserve funds shall be invoked under certain triggers. units may be maintained as a funded bank Two examples where this has issued in account and may be utilized by been done are the California return of the fund upon occurrence of FreshWorks Fund and the grants predefined triggers or conditions. Community Finance Fund for

provided by a Social Entrepreneurs (CFFSE), contributor in Australia.

ESG Schemes in terms of paragraph 4.4 above.

Part C: Requesting to delink the clause This clause pertains to an issue Disclosures from investments and to consider observed in the "onshore" market, and Other the below framework instead. where domestic regulated lenders Conditions The FME shall ensure that total invested in AIFs to avoid Conditions to unit contributions by fund recognising NPAs. However, GIFT be complied managers and their affiliates, City is predominantly a gatewaySr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper by the FMEs of where such affiliates are entities for offshore investors to invest in Eligible regulated by the Reserve Bank of India, for whom the case isn't Schemes India, do not exceed 10% of the applicable at all.

4.10 FME shall scheme's aggregate unit capital. ensure that However, in order to avoid an the amount onshore fund manager having an invested by affiliate who is a domestic the scheme is regulated lender trying to utilise not utilised by evergreening, restrictions can be an investee placed limiting the total unit company, contribution by fund managers to directly or 10%.

indirectly, to discharge any of its obligations or liabilities towards the investors of the schemes or their associates I. Proposal NAV calculation for each class of NAV is almost always computed vi. Valuation units and security valuation may by market-established fund In order to be conducted by separate, accountants, while securities ensure that qualified counterparties as (especially debt securities) are the NAV disclosed in the PPM. valued by specialists such as calculation is rating agencies etc. It will be a in terms of the very niche case, where both NAV disclosures in provider as well as securities the PPM, the valuer is the same counterparty independent and is a reputed name too in the valuer market. Requesting for allowing mandated separate counterparties for under the FM providing NAV and valuing regulations to securities.

undertake valuation of the securities may also be mandated to compute the NAV for each class of units.Sr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper Although the Proposal currently • CLOs are a well-established permits the structuring of equity asset class among global or units into separate tiers for institutional investors, and their blended finance objectives, it introduction to India via GIFT City does not expressly extend the offers a compelling pathway to same provision to the channel international capital into segmentation of debt taken by the Indian corporate debt markets.

fund. Allowing similar flexibility for GIFT City already serves as a debt, as seen in instruments like domicile for AIFs that successfully CLOs, would enhance the fund’s attract international investment ability to manage risk and attract within debt funds; positioning a broader range of investors. CLO structures here is a logical progression to further diversify the types of global capital accessing Indian credit.

• The unique characteristics of CLOs resonate strongly with global insurers and pension funds, which allocate substantial resources to these vehicles worldwide. Notably, such institutions frequently exhibit a preference for CLOs over more conventional debt funds due to regulatory guidelines governing their portfolio allocations.

• To foster the development of CLOs and CDOs, IFSCA can play a catalytic role by allowing CLO/CDO structures that draw on leading practices from advanced jurisdictions such as US and Europe. Tranching is the bedrock to enable such structures and hence needs to be allowed. Such targeted regulatory innovation would not only align India with global standards but also enable the robust deployment of institutional capital into corporate debt via GIFT City.

9 C1 Suggest we make it clear that AIFs in India are mainly "pro rata" andSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper "pari passu", and explain that this proposal is neither.

D3 Reference to MDBs for India may not be very useful as India would not get concessional finance from MDBs as it is a LMIC.

E1 NCQG of $1.3 trillion was not accepted by developed countries in the last COP and it fell to $300 billion, and even the sources of that amount are not clear.

E2 Revised numbers have increased from $10 trillion to $21 trillion.

F1 It is better to mention Credit Guarantees as an item explicitly to avoid regulatory confusion as is the case in India.

G1 All these concerns have been addressed by SEBI subsequently but still Blended Finance does not work in Indian AIFs because differential instruments can only be used by AIF Manager, MDBs, SIDCs, Central banks and SWFs (which is a limiting regulation).

I (III) For grants, it is important to clarify the FCRA regulations for grants and/or the application of FEMA (and also reference them), or else it may not work for foreign philanthropy.

10 Corresponding amendments to The circular will need to be the IFSCA (Fund Management) accompanied by amendments to Regulations, 2025 are required. the IFSCA (Fund Management) Regulations, 2025 to ensure harmony.

4.4 The ESG schemes are permitted Grants are fundamentally to accept grants up to 20% of the different from capital corpus, but circular provides no investments. They are typically framework for how such grants non-repayable, come with donor- should be treated, governed, or imposed conditions, and are notSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper accounted for. subject to the same return expectations as traditional

Suggested Amendment: investments. Grants may also include advisory, capacity

4.4 Acceptance of Grants building, strategic, or technical support, provided either pre- or

(a) Limits on Grant Acceptance post-investment.

The aggregate amount of grants accepted by an ESG Scheme shall Similar to IFSCA in Paragraph 4.6, not exceed twenty percent (20%) SEBI also recognizes this of the total corpus of the scheme distinction in the AIF Regulations at any point in time. For the when it provides for: “social units” purposes of calculating this limit, means units issued by a social "corpus" shall include both grant impact fund or schemes of a funds and all other funds social impact fund to investors accepted by the scheme. who have agreed to receive only social returns or benefits and no

(b) Issuance of Social Units financial returns against their Grants accepted by an ESG contribution. A similar approach Scheme may be issued against a could be tailored for funds raised separate class of units designated through grants, such as as "Social Units" or may be representation in the investment/ accepted without issuance of advisory committees to ensure units, as agreed between the FME alignment with ESG and and the grant contributor. The governance standards.

rights, limitations and restrictions attached to Social Units shall be The circular does not address prominently disclosed in the whether grant funds will be Placement Memorandum. considered part of the "corpus" for the purpose of calculating fees

(c) Fees and Expenses and expenses payable to the FME.

Grant funds accepted by an ESG The IFSCA (Fund Management) Scheme shall not form part of the Regulations, 2025 are also silent corpus for the purposes of on this. It would be antithetical to calculating fees and expenses social good if FMEs could treat payable to the FME. grant funds as part of corpus for fee calculations, thereby earning

(d) Conflict of Interest management fees on funds not The FME shall establish and deployed for investment returns. maintain a written policy for the acceptance, administration, and The circular is also silent on how deployment of grant funds, which conflicts of interest arising from shall be disclosed in the donor-imposed conditions on Placement Memorandum. Where grant deployment will beSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper a grant contributor imposes any managed. It is useful to address conditions on the deployment of conflicts of interest between grant grant funds, such conditions shall giver and other unitholders;

be: (i) disclosed in the Placement ensure that grant conditions are Memorandum; (ii) consistent with disclosed; and grants do not the investment thesis of the undermine the fiduciary duties of scheme; and (iii) subject to due the FME.

diligence by the FME to ensure that such conditions do not create As such, there is a significant risk a conflict of interest with the of misalignment between grant FME's fiduciary duties to other providers, other commercial investors in the scheme. investors, and the FME. Grant providers may expect their grants

(e) Reporting and Audit to be deployed with specific Grant funds accepted by an ESG impact objectives, while the Scheme shall be accounted for FME's fiduciary duties to all separately in the books of the investors may conflict with such scheme and the annual audited end use restrictions.

financial statements of the scheme. The independent valuer appointed for the scheme shall, in its annual valuation report, certify

that: (i) grant funds have been accounted for separately and in accordance with the disclosures in the Placement Memorandum; and (ii) the calculation of fees has not included grant funds contrary to the provisions of paragraph (c) above.

(f) Winding Up Subject to Regulation 131 of the IFSCA (Fund Management) Regulations, 2025, if grant funds remain unutilized upon the winding up of the scheme, no part of the unutilized grant funds shall be distributed to the FME or to any other investor of the scheme.

Instead, such funds shall be returned to the grant provider.

4.10 The proposed mitigation is The proposed restriction in insufficient to address the risk of paragraph 4.10 does not prohibit aSr. Paragraph No. Comments/Suggestions/Propos Detailed Rationale No as per Annex ed Amendment 1 of the Consultation Paper evergreening loans. A lender is not scheme from investing in an effectively prohibited from using a investee company that has an subordinate/junior class of units existing loan from one of the to hide a stressed asset. scheme’s investors or require any prior due diligence on the part of

Suggested amendment: the FME. It only prohibits the investee from using the funds to

4.10. Due Diligence for Preventing repay that investor.

Evergreening FMEs should be required to

(a) Due Diligence conduct due diligence on the For every eligible scheme issuing investor-investee relationship multiple classes of units with before investment, creating differential distribution rights, the accountability at the origination FME shall carry out specific due stage.

diligence, prior to making any investment, to prevent the In this regard, attention is drawn circumvention of prudential to SEBI Circular No.: norms specified by any relevant SEBI/HO/AFD/AFD-POD- regulatory authority with respect 1/P/CIR/2024/135 dated October to income recognition, asset 08, 2024 which suggests an classification, provisioning, and alternative approach. Paragraph 6 restructuring of stressed assets. of the SEBI Circular prohibits the The FME shall ensure that the act of investing if due diligence scheme does not make any standards are not met. It requires investment that would result in an either exclusion of the relevant entity regulated by the RBI (or an investor or abstention from equivalent banking, financial or investment.

fund regulator) acquiring or holding, directly or indirectly through the scheme, an interest or exposure in an investee company that such entity is not permitted to acquire or hold directly under applicable law.

(b) Investment Monitoring The FME shall ensure that the amount invested by the scheme is not utilised by an investee company, directly or indirectly, to discharge any of its obligations or liabilities towards the investors of the scheme or their associates.IFSCA Response:

During the public consultation, comments were received from various stakeholders. The proposals were suitably modified based on the comments received from the stakeholders and recommendations of the Fund Management Advisory Committee. The revised proposals were placed before the Authority in the meeting held on July 24, 2026. The comments received from the stakeholders were also placed before the Authority.