Research and Articles

---

• IFSCA notifies the framework to enable Third-Party Fund Management Services

• Global and Indian GPs can now manage funds in GIFT City through partnerships with regulated fund managers without setting up local presence

---

INTRODUCTION

The International Financial Services Centres Authority (“IFSCA”) has introduced a framework for third-party fund management services (“TFMS”) by amending the IFSCA (Fund Management) Regulations, 2025 (“FM Regulations”) through a notification dated July 24, 2025.¹ The amendment introduces a new Part D in Chapter VI of the FM Regulations which governs how a Fund Management Entity (“FME”) may offer TFMS (“TFMS Framework”). The TFMS Framework came into effect on July 30, 2025.

The introduction of the TFMS Framework follows IFSCA’s 24th Authority Meeting held on June 24, 2025² (“Authority Minutes”), where TFMS, commonly referred to as ‘platform play’, was formally approved. Please find our analysis of the TFMS provisions as approved by the Authority Minutes here.

Broadly, the TFMS Framework enables existing fund managers who are already set up in Gujarat International Finance Tec-City International Financial Services Centre (“GIFT IFSC”) and registered with IFSCA as Registered FMEs (“Registered FME”) to launch funds managed by Third-Party Fund Managers (as defined below). Under the TFMS Framework, the Registered FME is responsible for obtaining regulatory approvals and ensuring compliance, while the Third-Party Fund Manager manages the fund, including formulating the investment strategy, engaging with investors, and making portfolio investment and exit decisions, without the need to establish its own fund management entity in the GIFT IFSC.

This “platform play” structure is widely used in global fund hubs like Singapore, Mauritius and Luxemburg, where it serves as a regulatory bridge, allowing external fund managers to enter new markets quickly, access cross-border capital, or run pilot strategies with minimal local presence or infrastructure.

In this GIFT City Express we have set out the key provisions notified under the TFMS Framework, and analyzed their impact.

ANALYSIS

The TFMS Framework introduced by IFSCA allows third-party fund managers to participate in the GIFT IFSC fund ecosystem without requiring physical presence or registration with IFSCA, thereby positioning India as a more competitive and accessible cross-border fund management hub. Under the newly notified TFMS Framework, a ‘third-party fund manager’ is defined to mean (i) an entity that is registered or regulated by the relevant financial sector regulator in its home jurisdiction for fund management, portfolio management, investment advisory, or any similar activity, regardless of the specific title, and (ii) which avails third-party fund management services from a Registered FME under the FM Regulations (“Third-Party Fund Manager”).

Eligibility Criteria: A Gatekeeper to the TFMS Framework?

The TFMS Framework defines and sets out clear eligibility requirements for the Third-Party Fund Managers. While conditions such as incorporation conditions, allocation of resources, experience, and ‘fit and proper’ requirements are in line with industry standards³, the key restriction lies in the requirement that the Third-Party Fund Manager must be registered or regulated by a financial sector regulator in its home jurisdiction for fund management, investment advisory, or similar activities⁴. This effectively limits access to only those entities that are already operating under formal regulatory oversight.

By doing so, the TFMS Framework excludes unregulated entities, such as family offices or new fund managers, who may have the requisite experience in asset management, but have not secured any regulatory registration. This raises the entry threshold and confines the TFMS Framework to participants already embedded in the regulated financial ecosystem.

This restriction suggests that the TFMS Framework is not intended to act as a gateway for new or untested managers to enter fund management in GIFT IFSC, but rather as a controlled mechanism for regulated and experienced managers to establish a presence and gain familiarity with GIFT IFSC as a suitable and credible jurisdiction for asset management. In other words, the TFMS Framework seems to be designed to encourage reliable, regulated players to test the waters in GIFT IFSC without undertaking the full burden of fund setup themselves. It is not intended to act as an enabling platform whereby fresh entrants or unregulated GPs can avail benefits afforded to funds set up in GIFT IFSC without having to be regulated by IFSCA or meet minimum substance requirements which would otherwise be applicable if they had set up the fund directly.

While this approach supports regulatory accountability and helps to mitigate systemic risk, it also narrows the pool of potential participants. Newer or smaller entrants, including entrepreneurial fund managers and family offices, may find themselves locked out unless they undertake the additional step of obtaining registration in India or their home jurisdiction first. Consequently, it may limit the TFMS Framework’s reach and exclude innovative or early stage players from entering the GIFT IFSC fund ecosystem.

USD 50 Million Cap: Risk Control or Growth Constraint?

While the FM Regulations allows FME to launch various types of funds, including Venture Capital Schemes, Retail Schemes, Exchange Traded Funds, etc., the TFMS Framework permits Registered FMEs to only launch Restricted Schemes, which typically include strategies aligned with those of SEBI registered Category I, Category II and Category III AIFs. Further, the TFMS Framework imposes a USD 50 million corpus cap on each scheme launched by the Registered FME.

The USD 50 million cap under the TFMS Framework marks a calibrated shift from the USD 10 million threshold initially proposed in the consultation paper dated August 17, 2024⁵. While the higher limit is welcomed, such fund-level caps are not typically seen in other global fund jurisdictions, where investor protection is ensured through disclosure, governance and compliance frameworks, not monetary limits. The cap implicitly signals that GPs wishing to manage larger or more complex funds are expected to establish their own FME within the GIFT IFSC.

FME Contribution: Who Holds the Risk Capital?

The requirement under the FM Regulations for the FME or its Associate to contribute a minimum amount to each fund (the "FME Contribution"), commonly referred to as the ‘skin in the game’ obligation, is intended to ensure alignment between the fund manager and investors. This FME Contribution reinforces investor confidence by ensuring that the manager shares the fund’s risks and rewards. Naturally, this expectation of alignment is best fulfilled when the contribution is made by the GP or the actual investment team responsible for managing the fund’s portfolio. However, in the case of a TFMS Framework, the Third-Party Fund Manager, who actually manages the portfolio of the fund, would not be the FME itself, nor would it qualify as an Associate of the FME.

As the Authority Minutes did not clarify who would be responsible for making the FME Contribution in the context of TFMS Framework, there was uncertainty as to whether the FME itself would be required to make this contribution for each fund it launched on behalf of Third-Party Fund Manager. From a commercial standpoint, it would have been unreasonable to expect the FME to commit risk capital without having any discretion over investment decisions.

The TFMS Framework resolves this issue by expressly deeming the Third-Party Fund Manager to be an ‘Associate’ of the FME for the purpose of the FME Contribution requirement, thereby enabling the Third-Party Fund Manager, who exercises investment authority, to make the required FME Contribution. This solution not only removes ambiguity but also ensures that the ‘skin in the game’ requirement is met in both form and substance, by placing the obligation on the party that is actually responsible for managing investor capital.

Flexibility in structuring the commercial terms

The TFMS Framework leaves room for commercial flexibility by not imposing restrictions on commercials such as fee-sharing, carried interest, operational delegation, or branding rights. This allows FMEs and Third-Party Fund Managers to freely negotiate and tailor their arrangements to suit specific business needs, fostering innovation within a legally compliant structure.

However, the TFMS Framework clarifies that FMEs cannot provide such services in intra-group situations where the FME’s parent or associate is the Third-Party Fund Manager, limiting TFMS to only genuine third-party structures.

Uncertainty Around Standalone TFMS Structures

The consultation paper dated August 17, 2024 had defined TFMS in a manner that appeared to require FMEs to manage both their own scheme(s) as well as those of third parties, thereby limiting the feasibility of a pure platform model. This created ambiguity as to whether an FME could operate exclusively as a third-party fund management provider without launching its own fund.

The TFMS Framework now resolves this issue by defining ‘TFMS’ as an activity wherein a Registered FME manages schemes on behalf of a third party. Read with the other enabling provisions, this clarifies that an FME may act solely as a hosting platform for Third-Party Fund Managers, without the need to launch or manage its own scheme. However, in the event that the FME also manages its own scheme, it is important to note that the USD 500,000 net worth requirement for an FME undertaking TFMS activities will be in addition to the net worth requirement applicable to the FME for managing its own scheme.

Regulatory and Reputation Risks for FMEs

This TFMS Framework creates two key risks for the Registered FME. First, the FME remains fully liable for all obligations and liabilities under the TFMS Framework despite the fact that day-to-day investment decisions are made by the Third-Party Fund Manager. Second, it assumes reputational risk, as investors may associate the fund’s performance or actions of the Third Party Fund Manager (especially in cases where returns are poor) with the FME, even in the absence of any real involvement in decision making or control over the Third-Party Fund Manager.

To address these risks and provide comfort to FMEs, the TFMS Framework includes several safeguards. The key measures are summarised below: 

• Terminate the TFMS at any time

  The TFMS Framework empowers the FME to terminate the third-party fund management arrangement at any time, either in the interest of investors or upon direction from the IFSCA. This termination right is unilateral and does not require prior investor consent, making it a broad and potentially powerful tool in the hands of the FME. However, in practice, it may be possible to contractually introduce thresholds, such as requiring 75% investor approval, to create a more balanced exit framework.

• Indemnity by the Third-Party Fund Manager

  The amended FM Regulations mandate that the Third-Party Fund Manager must indemnify the FME against any liabilities arising from the schemes managed under the TFMS Framework. This provides the FME with an essential layer of financial protection in the event of any mismanagement or regulatory breaches by the Third-Party Fund Manager. Since the IFSCA does not have direct regulatory control over the Third-Party Fund Manager, this indemnity clause, typically a purely commercial term, is now embedded within the FM Regulations.

  By codifying this obligation, IFSCA reinforces the principle that while the Registered FME remains legally responsible for compliance and oversight, it should not bear the financial burden for the actions of an entity it does not fully control. At the same time, the mandatory indemnity structure acts as a regulatory backstop: it places the financial consequences of misconduct squarely on the Third-Party Fund Manager, thereby incentivizing it to maintain high operational and compliance standards. In this way, both investors and the FME are assured that the Third-Party Fund Manager remains accountable even in the absence of a direct supervisory relationship with IFSCA.

• Other Safeguards Introduced under the TFMS Framework

  FMEs are required to include prominent disclosures in the placement memorandum, including the identity and background of the Third-Party Fund Manager, the division of responsibilities between the FME and the Third-Party Fund Manager, potential conflicts of interest, and proposed mitigation measures. These disclosures are essential to ensure transparency for investors and to clarify the scope and mechanics of the delegation arrangement. Such disclosures are also consistent with market practice, as these details would be material to investors and are typically expected in the offering documents of all fund managers regardless of whether the fund is managed directly or through a Third-Party Fund Manager.

  FMEs are required to implement a risk management measure which includes ring fencing of funds and operational independence for all the schemes, extension of grievance redressal mechanisms to investors of such schemes, regular internal audits, and ongoing performance reviews of the Third-Party Fund Manager. These internal controls are expected to strengthen oversight and accountability. Despite delegation, the FME continues to be fully responsible for the schemes and remains liable for any act or omission by the Third-Party Fund Manager.

Key Personnel Requirements and Compliance Structure Under the TFMS Framework

The TFMS Framework requires appointment of a dedicated Principal Officer for each scheme managed by the FME. This is a departure from the typical requirement for FMEs managing their own schemes, where only one Principal Officer is required for the FME regardless of how many schemes it manages.

With respect to Compliance Officers, the regulation differentiates between Registered FME (Retail) and Registered FME (Non-Retail). In the case of a Registered FME (Non-Retail), the same Compliance Officer may oversee both: (i) schemes managed directly by the FME or portfolio management services; and (ii) schemes managed under the TFMS Framework. However, for a Registered FME (Retail), the Compliance Officer for its Retail Schemes must be separate from the Compliance Officer for its own Restricted Schemes (if any), as well as Restricted Schemes managed under the TFMS Framework.

Moreover, under the FM Regulations, any FME having Assets Under Management (“AUM”) of at least USD 1 billion, excluding AUM attributable to fund-of-funds (“FoF”) schemes, are required to appoint an additional key managerial personnel (“KMP”). The TFMS Framework clarifies that, for the purpose of determining this threshold total AUMof all third-party managed schemes must be taken into account. Consistent with the FM Regulations, AUM attributable to FoF schemes is excluded from this calculation.

This exclusion is particularly relevant for feeder structures established in GIFT IFSC that are structured as FoF vehicles investing into Indian AIFs. Such feeders are typically set up to pool offshore capital for onward investment into an Indian AIF. As such, no real investment management decisions are required to be made at the FoF level other than the single decision to invest into the Indian AIF. By excluding AUM attributable to FoF schemes from the KMP threshold, the FM Regulations ensures that FMEs are not burdened with unnecessary personnel requirements that do not correspond to actual portfolio management activity.

This exemption aligns well with the TFMS Framework, which provides a low-substance, cost- and time-efficient solution for Indian GPs seeking to establish offshore feeder vehicles within GIFT IFSC. For managers looking to tap into global LP pools, the TFMS platform offers an attractive alternative to setting up full-fledged fund management operations in the GIFT IFSC. In such cases, the AUM carve-out materially reduces compliance overheads, reinforcing the commercial viability of using GIFT IFSC for global fundraising.

TFMS: A Gateway to Fund Management in GIFT IFSC

By enabling Registered FMEs to launch funds managed by Third-Party Fund Managers, IFSCA has created a cost-efficient and commercially viable mid-shore alternative to traditional offshore fund structures, allowing both Indian and global managers to access the benefits of GIFT IFSC without setting up local entities.

The TFMS Framework also serves as a practical entry point for GPs to gain familiarity with the GIFT IFSC’s operational and regulatory landscape. If this experience instils sufficient confidence, it is likely to encourage GPs to establish their own FMEs over time, thereby reinforcing GIFT IFSC’s position as a leading center for cross-border fund management and a credible alternative to offshore funds jurisdictions.

 

Authors

Akash Shirore, Dhairya Jain and Radhika Parikh

You can direct your queries or comments to the relevant member.

---

¹https://egazette.gov.in/(S(0kcggat1escthcaxp3y5kc41))/ViewPDF.aspx

²https://ifsca.gov.in/Legal/Index?MId=nMTs9Q2JJYU=

³Regulation 107H, IFSCA (FM) Regulations, 2025.

⁴Definition 107B(ii), IFSCA (FM) Regulations, 2025.

⁵International Financial Services Centres Authority, Consultation Paper On Review Of IFSCA (Fund Management) Regulations, 2022. https://ifsca.gov.in/CommonDirect/GetFileView?