IFSCA Introduces Framework for Co-Investment by Venture Capital and Restricted Schemes

Pursuant to the International Financial Services Centres Authority (IFSCA)’s circular dated May 21, 2025 (Circular), a fund management entity (FME) registered with the International Financial Services Centres Authority (IFSCA) and operating a venture capital scheme or a restricted scheme (or both) may launch a special scheme for co-investment (Special Scheme).

The Special Scheme (constituted as a company, LLP, or trust) will be classified as Category I, II, or III alternative investment funds (AIFs) in line with the classification of the existing scheme. The existing scheme must hold at least 25% of equity in the Special Scheme at all times. The Special Schemes are permitted to invest only in a single portfolio company, except where multiple holdings may arise from corporate actions or restrictions at the portfolio company level. Further, the Special Schemes tenure must be co-terminus with that of the existing scheme (unless liquidated earlier).

Other Key highlights of the Circulars are as follows:

• Eligibility, Documentation, and Disclosures

Any person meeting minimum contribution requirements under the IFSCA (Fund Management) Regulations, 2025 (FM Regulations) may co-invest in the Special Scheme. Further, the FME must file a detailed term sheet with IFSCA (as specified in Annexure A) and declaration cum undertaking (as specified in Annexure B) within 45 days of investment. Investors of the existing scheme must be informed of the Special Scheme before seeking capital contributions.

• Leverage, Contribution, and Control

Special Schemes may undertake leverage within the limits specified in the existing scheme’s placement memorandum. Both the existing scheme and Special Scheme investors may create encumbrances over their ownership interests. The FME may, at its discretion, choose to contribute to the Special Scheme and retain controlling authority and decision making over it.

• Compliance, Reporting, and Miscellaneous Provisions

Activities of the Special Scheme may be consolidated with the reporting of the Existing Scheme.  No separate know your customer (KYC) is required for existing investors, but new investors must undergo KYC in accordance with IFSCA guidelines.

• Additional Requirement

Each Special Scheme must obtain relevant special economic zone approval before filing the term sheet with the IFSCA.

Conclusion

The framework provides a structured approach for co-investments through SPVs by ensuring regulatory oversight and establishing clear guidelines on leverage and reporting requirements.