IFSCA has introduced the Fund Management (Second Amendment) Regulations, 2026, bringing changes across Venture Capital, Restricted and Retail schemes. This blog covers the key updates to pre-close deployment, NAV and portfolio reporting, FME contributions, distribution rights, scheme documentation and governance.
Tanupreet Kaur
Sep 15, 2026
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8
min to read
IFSCA has amended the Fund Management Regulations, 2025 through the International Financial Services Centres Authority (Fund Management) (Second Amendment) Regulations, 2026.
The changes affect several stages of a scheme's lifecycle, from fundraising and first close through investment activity, valuation, investor reporting and governance. They also introduce specific requirements around FME contributions, internal policies, fiduciary oversight and investor disclosures.
The regulations come into force from the date of publication in the Official Gazette.
IFSCA has revised the definition of an "associate" of an FME.
The definition now uses a 20% threshold based on paid-up equity share capital, partnership interest or an equivalent direct economic interest across specified relationships involving the FME, its directors, partners, trustees and certain fiduciaries.
A fiduciary appointed for a scheme under regulation 17(2) will not be treated as an associate solely by virtue of that appointment unless it holds a direct economic interest or control in the FME.
This definition matters across provisions where the FME or its associate is subject to contribution requirements or other scheme-level conditions.
The regulations now set clearer parameters for money received before a scheme reaches first close or the relevant fundraising threshold.
For Venture Capital schemes, contributor money received before first close can only be deployed in permissible investments that support capital preservation and adequate liquidity. The regulations refer to instruments such as bank deposits with premature withdrawal options and overnight funds, subject to disclosure in the placement memorandum.
A similar framework applies to Restricted schemes. For close-ended schemes, it applies before first close. For open-ended schemes, it applies before the scheme raises USD 1 million.
Retail schemes are subject to a comparable requirement before the prescribed minimum size is reached for a close-ended scheme or before USD 1 million is raised for an open-ended scheme. The approach must be reflected in the relevant scheme documentation.
For fund teams, this creates a clearer distinction between capital received during fundraising and capital deployed once the scheme begins its investment programme.
The revised rules address follow-on investments in portfolio companies that have crossed ten years since incorporation.
A Venture Capital scheme may participate in subsequent fundraising rounds of such a company, subject to specified conditions.
The follow-on must remain consistent with the scheme's investment objectives, investment strategy, placement memorandum and the FME's internal policies.
Where an investor has been excluded from an investee company in accordance with the placement memorandum and contribution agreement, that investor cannot participate in later rounds in that company.
The scheme's post-issue beneficial interest, calculated on a fully diluted basis, must also not exceed its pre-issue beneficial interest.
This makes ownership records, investor participation history and scheme-level investment limits more important when evaluating follow-on rounds.
IFSCA has introduced specific provisions for schemes issuing senior, junior or subordinate units with different rights over distributions.
The requirement applies to Venture Capital schemes as well as Restricted schemes.
Senior units are defined as units carrying superior rights over distribution proceeds, while junior or subordinate units, including mezzanine units, carry rights that rank below them.
Any such structure must comply with the framework specified by IFSCA.
For managers using differentiated economics across unit classes, distribution rights will therefore need to remain consistent across fund documents, investor terms and the applicable IFSCA framework.
The amendment revises NAV and portfolio disclosure requirements across scheme categories.
For Venture Capital schemes, NAV must be disclosed to investors at least annually, starting from the financial year in which the scheme begins investment activity. Portfolio information must also be disclosed at least annually, within one month from the end of the financial year.
For Restricted schemes, open-ended schemes must disclose NAV at least monthly, while close-ended schemes must do so at least half-yearly.
A close-ended Restricted scheme may move from half-yearly to annual NAV disclosure where prior approval has been obtained from investors representing at least 75% of the value of investments in the scheme.
Portfolio information for Restricted schemes must be disclosed at least quarterly and within one month from the end of each quarter.
For Retail schemes, NAV must be disclosed daily for open-ended schemes and at least weekly for close-ended schemes. Portfolio information must be disclosed at least quarterly, within one month from the end of the quarter.
The reporting requirement is therefore increasingly scheme-specific. Fund managers will need reporting calendars that reflect scheme category, open-ended or close-ended structure, commencement of investment activity and any investor approvals that affect frequency.
The revised regulations also change the amount that an FME or its associate must contribute to certain schemes.
For a Venture Capital scheme, the contribution must be at least 2.5% of corpus or USD 750,000, whichever is lower, subject generally to a ceiling of 10% of corpus.
For Restricted schemes, the requirement now depends on structure:
A 10% ceiling generally applies, although the regulations provide specified exceptions based on factors including relocation to IFSC, residency, ultimate beneficial ownership and where the scheme invests.
For fund managers, the contribution position now needs to be assessed against the individual scheme rather than applied as a standard house-level rule.
The amendment also introduces targeted provisions for certain scheme structures.
FME or associate contribution is not mandatory for specified schemes established, incorporated or registered outside India and subsequently relocated to IFSC.
The regulations also provide specific treatment for certain Fund of Funds structures where the FME does not actively manage allocation between underlying schemes and the inter-se allocation is disclosed in the placement memorandum or offer document.
Index schemes and Fund of Funds schemes investing in index schemes or passive ETFs are also expressly covered under the revised provisions.
For these structures, the treatment depends not only on legal form but also on how the underlying allocation is managed and disclosed.
Where an FME does not achieve the prescribed minimum corpus within the required period, it can extend the validity of the placement memorandum.
Each extension can run for six months, provided the application is made while the existing placement memorandum remains valid.
The first extension attracts a fee equal to 25% of the fee applicable to filing a fresh scheme. Each subsequent extension attracts 50% of the applicable fresh-scheme filing fee.
For fund launch teams, this makes placement memorandum validity another date that needs active monitoring alongside fundraising milestones and first close.
The revised regulations strengthen the governance around policies and internal frameworks maintained by an FME.
Records relating to internal policies, frameworks, plans and standard operating procedures prepared under the regulations must be maintained.
The Third Schedule also requires these policies and frameworks to receive approval from the FME's board, designated partners or trustees, as applicable, or from an appropriately authorised committee or senior management official where the authority has been delegated.
The practical requirement is broader than maintaining a policy document.
Fund teams need to retain the current version, the approval record and the authority under which it was approved.
The revised Third Schedule also sets out checks that fiduciaries must complete before an agreement is entered into with an investor.
These include ensuring that the scheme has:
Fiduciaries must also ensure, where specified provisions require it, that the FME either obtains investor approval or makes adequate and prominent disclosure in the placement memorandum and includes the relevant matter in the investor agreement.
This brings fund documentation, service-provider appointments and investor onboarding into a more closely connected readiness process.
The amendments cut across several workflows that investment, finance, operations and compliance teams typically manage together.
Managers should review how each scheme is set up across:
The changes reinforce the need for scheme-level records that remain connected across the life of the fund.
A fund operations team may need to bring together scheme terms, corpus, FME contributions, first-close status, investor approvals, NAV records, portfolio reporting, investment ownership, fund documents, internal policies and service-provider appointments.
When these records sit across spreadsheets, email, document folders and separate systems, reviewing the position of a particular scheme can require significant reconciliation.
A connected fund operations layer can help teams maintain fund data, investor records, documents, reporting workflows, approvals and supporting context in one place. Professional regulatory, legal, accounting, valuation and fiduciary responsibilities continue to sit with the relevant fund team and appointed service providers.
The Second Amendment Regulations are effective from publication in the Official Gazette.
The immediate priority for FMEs is to review the amended provisions against the structure and operating model of each scheme.
The impact will differ across Venture Capital, Restricted and Retail schemes, and between open-ended and close-ended structures.
For fund managers, the practical focus should be on getting the underlying operating records right: scheme terms, contribution calculations, reporting calendars, investor approvals, policy governance and the documentation that supports each of them.
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