Who may offer it, and to whom
Portfolio management is open to Registered FMEs, both Non-Retail and Retail, under Part A of Chapter VI of the IFSCA (Fund Management) Regulations, 2025. It is a stand-alone activity: the FME need not run any scheme. A multi-family office may also be served under a portfolio management agreement (regulation 81).
The permitted clients are (regulation 73(2)):
- persons resident outside India;
- non-resident Indians;
- non-individual Indian residents eligible under FEMA to invest offshore, to the extent of their permitted outward investment; and
- resident individuals eligible under FEMA to invest offshore, within the Liberalised Remittance Scheme.
No client may be accepted for less than USD 75,000 in funds or securities, except an accredited investor (regulation 77(1)). Advisory services under the portfolio management licence also need a portfolio of at least USD 75,000 and compliance with the IFSCA (Capital Market Intermediaries) Regulations, 2025.
What the portfolio may hold
The FME may invest in securities and financial products in the IFSC, India or any foreign jurisdiction (regulation 73(3)). Under a discretionary mandate it is limited to securities listed, to be listed or traded on stock exchanges, money market instruments, units of investment schemes and other products IFSCA specifies. Derivatives need the client's express consent, and the FME may not borrow on a client's behalf.
For Indian resident clients, the permission to buy Indian securities is narrower in practice than the text suggests. Money remitted under the LRS is meant for investment outside India, and routing it back into Indian securities raises round-tripping questions. Our booklets recommend designing an IFSC mandate for resident clients as outbound only, with Indian holdings managed onshore. See the two-entity model.
Client documents, money and custody
- Disclosure document before the agreement is signed, covering services, risks, fees, performance, taxation, grievance redressal and regulatory actions. A copy must be on the FME's website.
- Written agreement setting out objectives, risks, fees and term. The client may withdraw early on termination, on suspension or cancellation of the FME's registration, or on its insolvency.
- Fees may be fixed, return-based or both. No return may be guaranteed unless the FME guarantees it in full and discloses how.
- Client money is kept in a specific account of the FME with an IFSC Banking Unit, or of the client with an IFSC, Indian or foreign bank or a regulated broker-dealer, which the FME is authorised to operate.
- Segregation and custody. Each client's holdings are kept separately and never in the FME's own name, except through an omnibus account in a jurisdiction that permits it and with the client's consent. A custodian must be appointed for all non-advisory mandates.
- Reporting and audit. Periodic reports may be given online. Portfolio accounts are audited each year and the certificate is given to the client.
Decisions must be taken in GIFT City
The principal officer and compliance officer must be based out of the IFSC. The proposal on portfolio composition must be initiated by a person in the IFSC office (regulation 7(7)), and the FME declares at registration that investment decisions and portfolio management will be undertaken from the IFSC. A discretionary manager must manage each client's funds individually and independently (regulation 79(2)).
Group research, model portfolios and house views may come from abroad as inputs. The client-specific decision must be made, and documented, in GIFT City. A foreign manager operating as a branch receives those inputs within the same legal entity. Parent or associate support is also expressly outside the third-party framework (regulation 107M). IFSCA checks presence by unannounced visits. In 2025 it issued a warning order to a branch FME whose principal officer and KMPs were repeatedly absent.
One question remains open: whether orders decided in GIFT City may be executed through the parent's trading desks abroad. It is a good candidate for informal guidance.
Tax in outline
The FME's management and performance fees are business income that may qualify for the section 147 deduction. Indian payers of an FME's professional fee need not deduct tax once the FME gives them Form No. 1(N). See TDS relief. A non-resident client's income from the portfolio may be exempt to the extent it accrues outside India and is received in an Offshore Banking Unit account. Resident clients are taxed in India on their worldwide income in the ordinary way.
Our Booklet IV, Setting up a GIFT City PMS, and Research Vol. I, Discretionary Portfolio Management from GIFT City, cover set-up in detail.