IFSCA has posted the public comments on its October 2025 consultation paper that proposed letting Venture Capital Schemes and Restricted Schemes in GIFT City issue units with different distribution rights, to support blended finance. The proposal includes grants of up to 20% of an ESG scheme’s corpus and a USD 2 million minimum for junior units. No final circular is in our library yet.
How does a blended-finance fund work?
Blended finance uses concessional or philanthropic capital to bring private investors into projects that are socially useful but may not pay enough on their own. Figures here are for illustration only.
The consultation paper says common approaches include first-loss capital, guarantees, or priority in distribution for certain investors. A fund might issue senior units to private investors and junior units to a development body that absorbs losses first. Today an alternative investment fund (AIF) works on pro-rata and pari-passu rights, so every investor shares in distributions equally. The proposal would let the two scheme types below issue multiple classes of units with differential distribution rights.
What did IFSCA propose?
The draft covers Venture Capital Schemes and Restricted Schemes under Parts A and B of Chapter III of the IFSCA (Fund Management) Regulations, 2025.
| Topic | Proposal in the consultation paper |
|---|---|
| Eligible schemes | Venture Capital Schemes and Restricted Schemes may issue multiple classes of units with differential distribution rights, with safeguards |
| Disclosure | The placement memorandum sets out each class, its distribution rights, tabular examples and the risks of the structure |
| Grants | ESG schemes may accept up to 20% of the corpus as grants |
| Minimum investment | USD 2 million for junior or subordinate units; USD 1 million for an accredited investor |
| Investment restrictions | ESG schemes disclose how investments align with the UN Sustainable Development Goals. Other schemes put no more than 25% of the corpus in a single investee company and its associates. Scheme money must not be used, directly or indirectly, by an investee company to meet obligations to the scheme’s investors or their associates |
| Valuation | The independent valuer also computes the net asset value for each class of units |
What concerns does IFSCA raise, and how would it address them?
| Concern | Proposed safeguard |
|---|---|
| Ever-greening: a lender subscribes to the junior class to avoid recognising a stressed loan as a non-performing asset | Investee money may not be used to pay obligations to the scheme’s investors or their associates |
| Valuation: multiple classes make net asset value for junior units hard to compute consistently | Independent valuer computes net asset value for each class, in line with the placement memorandum |
| Mis-selling: investors may not grasp the extra risk of junior units | Junior units limited to accredited investors above a threshold, plus illustrated risk disclosures |
As context, the paper says that on 30 June 2025 IFSCA had registered 177 fund management entities, which had launched 272 schemes with USD 22.11 billion in commitments and more than USD 11 billion invested, about 85% of it in India.
What did commenters ask for?
The compilation lists comments by paragraph of the draft. Examples include:
- Require ESG schemes to publish a Sustainable Financing Framework backed by an external second-party opinion.
- Spell out the voting rights of junior or subordinate investors and disclose them in the placement memorandum.
- Add caps and a gradual phase-out for grant support, with grant providers prioritising junior positions.
- Set up an advisory committee, define the roles of donors, managers and investors, and adopt a theory-of-change and monitoring framework.
- Lower the minimum for junior units from USD 2 million to USD 1 million for all investors, subject to a suitability assessment.
- Clarify that the 25% single-investee cap is measured after adjusting for grants.
- Reconsider who computes class-wise net asset value, citing the cost of the requirement and the role of fund administrators.
What happens next?
The consultation paper includes a draft circular with a blank file number and date, so it is not final. The Neurasix library holds the paper and the comments compilation but no final circular as of 21 October 2026. Until IFSCA issues one, the proposals are not rules.
Who is affected?
Fund management entities
Those running or planning Venture Capital Schemes and Restricted Schemes in GIFT City.
Impact and catalytic investors
Development finance bodies, family offices and others that would hold junior units or give grants.
Valuers and fund administrators
Those who would compute net asset value by class.
Legal basis
- Regulations
- IFSCA (Fund Management) Regulations, 2025, Chapter III, Part A (Venture Capital Schemes) and Part B (Restricted Schemes)
- Related circular
- IFSCA circular of 18 January 2023 on disclosures for ESG schemes
- Draft
- Draft circular F.No. XXX/IFSCA/XXX/2025-26, Annexure 1 to the consultation paper
Key facts
| Authority | International Financial Services Centres Authority (IFSCA) |
|---|---|
| Instrument | Consultation paper on a regulatory framework for differential distribution in Restricted Schemes and Venture Capital Schemes, and the public comments on it |
| Consultation issued | 22 October 2025 |
| Comments due | 11 November 2025 |
| Applies to | Fund management entities and investors in Venture Capital and Restricted Schemes in GIFT City |
| Status | Consultation closed No final circular in the library |
| Official source | IFSCA website, ifsca.gov.in |
| Last verified | 21 October 2026, against the consultation paper and the comments compilation |
Frequently asked questions
Are the proposals in force?
No. They come from a consultation paper with a draft circular. Current IFSCA rules apply until a final circular is issued.
What is the proposed minimum for junior units?
USD 2 million, or USD 1 million for an accredited investor, in the consultation paper. Some commenters asked for USD 1 million for all investors.
Can ESG schemes accept grants?
The paper proposes up to 20% of the corpus as grants. Commenters asked for caps and a phase-out mechanism.
Who computes net asset value for each class?
The paper proposes that the independent valuer does. Some commenters questioned the cost and pointed to fund administrators.
Sources (official)
- IFSCA, Consultation paper on Regulatory Framework for differential distribution in Restricted Schemes and Venture Capital Schemes to facilitate blended finance and other fund structures, 22 October 2025 https://ifsca.gov.in/
- IFSCA, Public comments on the consultation paper, compilation posted October 2026 https://ifsca.gov.in/
- India
- GIFT City
- IFSCA
- Alternative investment funds
- Blended finance
- ESG schemes
- Capital Market Regulations
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