GIFT City Fund Management Entity (FME) Set-up: IFSCA Guide

GIFT City in Gandhinagar is India's International Financial Services Centre, or IFSC. A fund manager based there works in US dollars, answers to one regulator, the International Financial Services Centres Authority (IFSCA), and can pool money from investors across the world while sitting in India. That manager is called a Fund Management Entity, or FME.

The IFSCA (Fund Management) Regulations, 2025 replaced the 2022 rules and made parts of the set-up lighter: a lower minimum corpus for many schemes, a longer life for the placement memorandum and simpler changes to key people. The work is still real: an office in GIFT City, qualified people on the ground, net worth that matches your licence type and a clear plan for the first scheme.

What an FME is and why it sits in GIFT City

An FME is the manager, not the fund. It registers with IFSCA first and then launches one or more schemes. Each scheme is the pool of investor money, usually a trust with a trustee, though company and LLP forms are allowed. The FME takes the investment decisions, earns the management fee and carries the regulatory responsibility.

The reason to place the manager in GIFT City is the IFSC rulebook. For foreign exchange purposes an IFSC unit is treated as a person resident outside India, so a scheme can take dollars from global investors and invest abroad with far less friction than a domestic fund. For income tax and company law it stays an Indian entity with a PAN and Indian filings.

The three FME types and the platform route

IFSCA sorts managers by who they may take money from and what they may run; the permitted activities are wider than this summary.

Each type has its own net worth floor, and it rises as the investor base widens. Pick the lowest type that fits the first two or three schemes you will actually launch. Moving up later is a filing; carrying capital and people you do not need is a cost every year.

• Authorised FME: the entry level, mainly for venture capital schemes offered to accredited or sophisticated investors.
• Registered FME (Non-Retail): restricted schemes for accredited investors, similar in spirit to Category I, II and III AIFs, plus portfolio management.
• Registered FME (Retail): adds retail schemes, ETFs, REITs and InvITs, with the heaviest capital and governance load.
• Platform route: an existing FME hosts a scheme run by an outside manager. Reported conditions include a scheme corpus of about USD 3 million to USD 50 million, extra net worth of USD 500,000 for the host and a Principal Officer per hosted scheme.

What IFSCA looks at before it registers you

The application is judged on people, money and plan. IFSCA wants a Principal Officer with relevant fund management experience and a Compliance Officer, both based in GIFT City, and fit and proper declarations for the sponsor, directors or partners and key staff.

It wants proof of net worth for your FME type, a physical office in the IFSC and a credible plan: which schemes, which investors, which strategy. It also looks at where the sponsor's money comes from and which FEMA route brings it in.

Step by step: from idea to first scheme

Each approval depends on the one before it, so the order matters. A common sequence is set out below.

Most delays come from the office step and from incomplete key-person documents, not from the regulator. Settle both early.

• Fix the structure: sponsor, entity form (company or LLP), FME type and first scheme.
• Tie up office space with a GIFT City developer and get a letter of intent or allotment.
• Incorporate, obtain PAN and TAN and open bank accounts.
• Apply for IFSC unit approval and FME registration through the IFSCA single-window portal, and attend the approval committee meeting if called.
• Sign the lease, complete GST and other registrations and open the foreign currency account.
• Appoint the Principal Officer and Compliance Officer and line up the administrator, custodian, auditor and trustee.
• File the placement memorandum for the first scheme and start raising commitments once IFSCA takes it on record.

Costs and timelines to budget for

IFSCA charges in US dollars: an application fee, a registration fee on grant, an annual fee and a filing fee per scheme. The schedule changes from time to time, so pull the current fee circular before you fix a budget.

The bigger running cost is people and premises: GIFT City rent, salaries for the two key officers, fund administration, audit and legal drafting. Net worth is locked capital, not an expense.

Practitioners commonly quote about four to six months from start to a registered FME, with the IFSCA stage itself a few weeks once the office and documents are complete. The first scheme then needs its own filing and fund-raising time.

Tax position of the FME and its schemes

An IFSC unit can deduct 100 percent of its business income for 10 consecutive years out of 15 under section 80LA, and Union Budget 2026 was reported to lengthen this window; confirm the enacted text. IFSC units also get relief on minimum alternate tax, GST on services received, securities transaction tax on IFSC exchange trades and stamp duty.

Specified funds in the IFSC have their own exemptions, and non-resident investors can be exempt on specified income from them. The benefit depends on scheme category, investor mix and start date, because several reliefs carry a sunset date that has been extended more than once.

Section numbers follow the Income-tax Act, 1961; the Income-tax Act, 2025, in force from 1 April 2026, renumbers them.

Ongoing compliance after registration

An FME files periodic reports with IFSCA, keeps net worth above the floor, runs KYC and anti-money laundering checks, gets its own and its schemes' accounts audited and reports changes in key people or control. It also files Indian tax returns, claims the IFSC deduction with the required audit report and prices related-party dealings at arm's length.

The substance test runs under all of this. Separate staff and systems, revenue earned in foreign currency and decisions actually taken in GIFT City are what protect the tax holiday if it is questioned. If the benefit is withdrawn, deductions already claimed can come back with interest.

When an FME makes sense, and when it does not

An FME fits when you expect foreign or NRI capital, want to invest outside India from India, or plan several schemes that can share one manager. It rarely fits a single small pool of domestic money that a SEBI-registered AIF already serves well.

Compare it with a domestic AIF, a family investment fund if the money is only your family's, and an offshore manager in Singapore or the UAE. Counsel drafts the documents and the applicant files with IFSCA; the CA work is the structure, the tax position and the numbers.

Frequently asked questions

Can an Indian resident set up an FME in GIFT City?

Yes, subject to the route. An Indian company or LLP can sponsor one, and resident individuals can invest through the Liberalised Remittance Scheme. Each route has its own limits, conditions and filings.

What is the minimum corpus for a GIFT City fund scheme?

Under the 2025 regulations the minimum corpus for venture capital and non-retail restricted schemes was cut from USD 5 million to USD 3 million. Retail schemes and the platform route have their own conditions, so check the category you plan to launch.

How long does FME registration take?

Practitioners commonly quote four to six months end to end, with the IFSCA review itself a few weeks once the office, people and documents are ready.

Is the FME's management fee income tax-free?

Largely, for the holiday period. An IFSC unit can deduct 100 percent of business income for 10 consecutive years out of 15 under section 80LA, subject to conditions and genuine substance in GIFT City.

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