Investing in IFSC funds
A financial institution in an IFSC is treated as a person resident outside India under the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, and deals in foreign currency. An NRI or OCI investing in an IFSC scheme therefore invests offshore to offshore, without the rupee accounts and repatriation limits that apply to investments in mainland India.
NRIs and OCIs invest on the same terms as other investors. They must meet the scheme's eligibility rules: the USD 250,000 or USD 150,000 minimum for venture capital and restricted schemes unless they are accredited investors, and the scheme's own minimum for retail schemes. NRIs are also expressly permitted clients of an IFSC portfolio manager, with a minimum of USD 75,000. See scheme types and portfolio management.
Investing into Indian securities through an IFSC fund
An IFSC scheme that invests in listed Indian securities must register with SEBI as a foreign portfolio investor (FPI). FPIs elsewhere face a cap on the aggregate contribution of NRIs, OCIs and resident Indians. IFSCA's FAQs put it at 50% of corpus. Following SEBI's board decision of 30 April 2024, IFSCA's circular of 2 May 2024, the SEBI (Foreign Portfolio Investors) (Second Amendment) Regulations, 2024 and SEBI's circular of 27 June 2024, an IFSC-based FPI may take up to 100% of its corpus from these investors through one of two routes:
- Route 1. The FPI gives its designated depository participant the PAN (or other suitable document) of every NRI, OCI and resident Indian individual constituent, with their economic interest.
- Route 2. No such look-through is needed, but the scheme must meet conditions set by IFSCA and SEBI. The FME must meet SEBI's eligibility test; IFSCA's FAQs describe it as a subsidiary or branch of a SEBI-registered mutual fund asset management company sponsored by an RBI-regulated bank. The FME must take investment decisions independently of investors. All money must be in a single pool with pari passu rights, with no segregated portfolios or co-investment. The scheme must have at least 20 investors, none above 25% of corpus, and invest no more than 20% of AUM in one investee company, curing any breach within three months.
Indian managers and sponsors
The SEBI (Foreign Portfolio Investors) (Second Amendment) Regulations, 2025 were made on 1 December 2025 and took effect on 1 June 2026. They allow a resident Indian non-individual that is the FME, or its associate, to be a constituent of an FPI that is an IFSC retail scheme or AIF, up to 10% of the FPI's assets under management. SEBI's annual report for 2025-26 confirms that IFSC retail schemes with a resident Indian sponsor or manager may now register as FPIs. This matters to Indian asset managers building IFSC funds for diaspora investors, because the sponsor's own contribution no longer blocks FPI registration.
Practical points
- Tax depends on the fund and the income. Units of a specified fund, Indian-source gains and foreign-source income are treated differently, and the investor's country of residence matters. See tax for non-resident investors.
- Residence can change. An NRI who returns to India becomes subject to resident rules. Some IFSC fund reliefs limit units held by investors who later become resident.
- Route 2 constrains the product. No side pockets, no co-investment and a diversified investor base. A fund for a small group of related NRIs will usually need Route 1 or a different structure, such as a family investment fund. See family investment funds.
- Know-your-customer still applies. The FME's AML and KYC duties apply to every investor regardless of the FPI route. See AML and CFT.