How India's Proposed VCC Framework Could Transform GIFT City into a Global Fund Domicile

India's Finance Ministry has proposed a Variable Capital Company framework for GIFT City, a structural reform that could rewrite the rules of global fund domiciliation and make India a serious competitor to Singapore, Luxembourg, and Mauritius.

A Five-Year Wait That Could Pay Off Enormously

For the better part of five years, India's alternative investment fund industry has been waiting for a legal structure that speaks the language of global institutional investors. On June 5, 2026, that wait moved significantly closer to its end. India's Finance Ministry proposed a dedicated legal framework for Variable Capital Companies (VCCs) in GIFT City, a move that industry experts say could make India's International Financial Services Centre a credible rival to the world's most established fund domiciles.

The draft framework, proposed as a standalone chapter within the International Financial Services Centres Authority (IFSCA) Act of 2019, is currently open for public consultation. If enacted in its proposed form, it would introduce a globally recognised corporate structure for investment funds into India, one already well established in Singapore, Luxembourg, Mauritius, the Cayman Islands, and the United Kingdom.

Decoding the VCC: What Makes It Different

A Variable Capital Company is a purpose-built corporate entity designed exclusively for investment funds. Its most important characteristic is structural: it allows multiple investment strategies or sub-funds to exist under a single legal umbrella, while maintaining complete separation of assets and liabilities at the sub-fund level. This means that investors in Sub-Fund A are entirely insulated from any losses, risks, or liabilities incurred by Sub-Fund B, even though both operate within the same VCC.

This segregation is not merely a technical legal distinction; it has profound practical consequences for fund management, investor protection, and capital flows. In India's current landscape, the predominant fund structure is the trust. While trusts are legally valid, they come with a critical limitation: there is no statutory mechanism to ring-fence assets and liabilities across schemes within an umbrella trust. Institutional LPs are therefore sometimes reluctant to sit alongside other schemes under a single trust, introducing friction and hesitation into the fundraising process.

 Currently, in India, trust is the most prevalent fund structure. It has to be explained to first-time LPs investing in India, as it is unfamiliar to most offshore institutional investors.

This is the gap the VCC structure directly addresses. By providing legal recognition at the sub-fund level and ring-fencing all liabilities, VCCs give LPs the segregation comfort they expect, and that comfort is a prerequisite for many of the world's largest pension funds, sovereign wealth funds, and endowments.

The Singapore Benchmark  And Why GIFT City Can Compete

Singapore launched its VCC framework in 2020 and has since attracted hundreds of fund registrations, reinforcing the city-state's position as Asia's premier fund domicile. Luxembourg's SICAV structure and the UK's Protected Cell Company regime have performed a similar function in their respective jurisdictions. The common thread: international fund managers flock to structures they know, trust, and can explain to their investors.

GIFT City's proposed VCC regime is modelled on these global best practices. If successfully enacted, it positions India's IFSC as a structurally comparable and potentially cost-competitive alternative to Singapore, eliminating one of the most persistent objections raised by offshore fund managers when evaluating India as a base.

Re-Domiciliation: The Killer Feature

Perhaps the most commercially significant aspect of the proposed VCC framework is its re-domiciliation pathway. Offshore funds currently domiciled in Mauritius, Cayman, or Singapore can re-domicile into GIFT City with structural continuity, meaning they do not need to wind up and rebuild from scratch. This dramatically lowers the switching cost for fund managers who are already considering India, particularly those with an India-focused or Asia-focused investment mandate.

Industry experts have highlighted that this feature is especially attractive for open-ended evergreen capital funds and for fund managers looking to raise capital from LPs who have familiarity with the VCC mechanism. For these managers, the ability to move their existing vehicle to GIFT City without legal disruption is a compelling proposition.

Broader Implications for India's Financial Ecosystem

The VCC framework is not merely a technical legal reform; it is a signal. It signals that India is serious about competing for global capital at an institutional level, and that GIFT City is being developed as a genuine international financial centre, not merely a domestic regulatory sandbox. Combined with IFSCA's broader regulatory developments, including its rules for Alternative Investment Funds, family offices, and global in-house financial centres, the VCC proposal represents another brick in the architecture of a world-class financial hub.

The public consultation phase is critical. Feedback from fund managers, legal practitioners, tax advisors, and institutional LPs will shape whether the final framework is genuinely workable in a global capital markets context or whether it retains the structural friction that has historically made India a difficult fund domicile. The industry is watching closely, and the opportunity to get this right has never been greater.

The proposed VCC framework has the potential to strengthen GIFT City's position as a preferred global fund domicile by offering greater flexibility, efficiency, and international competitiveness for investment funds.

Whether you are a fund manager, investor, family office, or institution exploring opportunities in GIFT IFSC, expert guidance can help you navigate the evolving regulatory landscape and structure investments effectively.

Connect with CA Gaurav Kanudawala, Founder of GIFT CFO, for insights on fund structuring, AIFs, global fund management, and GIFT City opportunities. +91 9726372715 | info@giftcfo.com

DISCLAIMER

This article is published for informational, educational, and analytical purposes only. It does not constitute legal advice, tax advice, investment advice, or a solicitation to invest in any fund, financial product, or security.

The Variable Capital Company (VCC) framework described herein is a draft proposal published by India's Finance Ministry for public consultation as of June 5, 2026. It has not been enacted into law. All proposed features, provisions, and timelines are subject to change based on consultation feedback, regulatory review, and legislative process.

Investments in alternative investment funds, private equity vehicles, venture capital funds, and other pooled investment structures involve substantial risk, including the potential for total loss of capital. Such structures are typically available only to eligible, sophisticated, or institutional investors as defined under applicable regulations.

Expert opinions and legal analysis cited in this article are sourced from publicly available media reports dated June 5, 2026, and represent the views of the quoted individuals, not of the publisher. The publisher does not independently verify legal or regulatory claims made by third parties.

IFSCA regulations, the IFSCA Act 2019, and all related legislative instruments are subject to amendment. Readers should refer to official IFSCA publications and gazette notifications for authoritative and up-to-date regulatory information.

Readers are strongly advised to seek independent legal, tax structuring, and investment advice from qualified professionals before making any decisions relating to fund formation, re-domiciliation, or investment in GIFT IFSC-regulated entities.

The publisher is not a law firm, SEBI-registered investment advisor, or IFSCA-regulated entity. Nothing in this publication should be construed as legal or financial advice.