🌱 New Co-Investment Framework for AIFs in GIFT City: Empowering Venture Capital with Flexibility and Scale

📅 Issued on: May 21, 2025 📍 By: International Financial Services Centres Authority (IFSCA) 🔍 Focus: Co-investment Framework for AIFs through Special Schemes by Venture Capital and Restricted Schemes

🚀 What’s the Big News?

The IFSCA has introduced a new framework to support co-investments by Venture Capital Schemes (VCS) and Restricted Schemes (RS) in GIFT IFSC. This framework allows Fund Management Entities (FMEs) to create Special Purpose Vehicles (SPVs) — termed “Special Schemes” — for focused investments in individual portfolio companies.

Consider it a strategic partnership model enabling fund managers and selected investors to co-invest with enhanced control, transparency, and regulatory clarity.

🔍 Why Co-Investment Framework in AIF Matters for the Fund Industry

This development is transformative, especially for Alternative Investment Funds (AIFs). Here's why:

• It facilitates focused co-investments in promising companies.

• Allows leverage within controlled limits.

• Ensures regulatory compliance while offering investor flexibility.

• Enhances the funding ecosystem for startups and growth-stage businesses from GIFT City.

🧱 How the Special Scheme Works

✅ Who Can Launch It?

Only FMEs with existing Venture Capital or Restricted Schemes can establish a Special Scheme under this framework.

✅ Structure

• Can be organized as a Company, LLP, or Trust under Indian laws.

• It will be registered under the same AIF category (I, II, or III) as the existing scheme.

✅ Key Investment Rules

• The Special Scheme can only invest in a single company (exceptions allowed in case of corporate actions like mergers).

• The existing scheme must hold at least 25% ownership in the Special Scheme.

💼 Investor Participation & Terms

• Who can invest? Any eligible person, as per IFSCA regulations.

• Minimum Disclosure: A term sheet with key investment and structural details must be filed within 45 days of investment.

• Existing investors don’t need new KYC. New investors will need to comply with IFSCA KYC norms.

💸 Leverage and Control

• Special Schemes can raise debt (leverage) — but only within limits disclosed in the main scheme’s placement memo.

• FMEs retain full decision-making control. Co-investors cannot override FME decisions or regulatory obligations.

📑 Reporting & Compliance

• Reporting of Special Scheme activities can be integrated with that of the main scheme.

• SEZ approval is mandatory before filing the term sheet.

• FMEs must pay applicable fees as per IFSCA’s latest fee circular (April 8, 2025).

📌 Final Takeaway

The Special Scheme framework:

• Brings clarity and ease to co-investment structures.

• Offers a regulated way to tap into focused investment opportunities.

• Strengthens GIFT IFSC as a forward-looking, global fund management hub.

Whether you're a fund manager, investor, or ecosystem player in GIFT City, this new framework is your green light to collaborate, co-invest, and scale under a smart and secure regulatory structure.

Disclaimer:The information in this presentation is for general knowledge only and not professional advice. You shouldn't use it instead of consulting with a qualified professional.