Why one entity is not enough
Onshore, the SEBI (Portfolio Managers) Regulations, 2020 confine a portfolio manager largely to Indian securities and bar it from investing client money on the advice of any other entity. SEBI's informal guidance has confirmed that the framework does not envisage advising on or investing in offshore securities. A SEBI portfolio manager therefore cannot run a global mandate, and cannot simply implement a foreign parent's model portfolios.
A Registered FME in GIFT IFSC can manage portfolios across the IFSC, India and foreign markets. Its clients include non-residents, NRIs and Indian residents investing abroad within the Liberalised Remittance Scheme. But it is not the natural home for a resident client's Indian portfolio. LRS money is meant for overseas investment, and routing it back into Indian securities raises round-tripping concerns. Hence two entities: one for each side of the client's wealth.
The usual structure
- IFSC entity. For a foreign manager, typically a branch registered as a Registered FME (Non-Retail), managing global portfolios for resident (LRS), NRI and foreign clients. A branch receives the parent's research within the same legal entity. The client-specific decisions must still be initiated in GIFT City. See portfolio management.
- Onshore entity. An Indian company registered with SEBI, usually as a portfolio manager, managing India-focused portfolios in rupees.
- The link. The onshore entity introduces resident clients to the IFSC FME as a distributor. In informal guidance of 20 August 2025, IFSCA confirmed that a SEBI-registered portfolio manager in Mumbai could distribute the capital market products and services of IFSC regulated entities without separate IFSCA registration, provided it follows the distributor code of conduct in the IFSCA (Capital Market Intermediaries) Regulations, 2025. The FME itself may also register as a distributor if it segregates that function.
The client signs the portfolio management agreement directly with the IFSC FME and remits under the LRS. The distributor is paid by the FME, not by the client.
What may be shared, and what may not
| Area | Position |
|---|---|
| Premises | The FME's office must be dedicated, secured and accessible only to its authorised persons (regulation 10). The onshore entity works from its own premises. |
| Decisions | Portfolio composition for IFSC clients is initiated by IFSC-based staff; Indian portfolios are decided by the SEBI entity. Neither runs the other's book. |
| Data and records | Separate books, client files and systems, with information barriers between them. |
| People | Group staff may visit and support each other. The IFSC KMPs must be based out of the IFSC, which in practice rules out sharing them with the onshore entity. |
| Brand | A common brand is possible. From 1 December 2026 the FME's website must show its IFSC activities distinctly from the group's. |
The servicing and solicitation line needs particular care. Reporting to and answering an existing client is servicing. Recommending new money or new products is distribution, and should go through the registered distributor.
Risks to manage
- Conflicts. The FME must identify, monitor and disclose conflicts and keep its activities at arm's length (Third Schedule, Part D). The distributor must manage the conflicts arising from its commission and its group link.
- Transfer pricing. Fees between the parent, the IFSC branch (a permanent establishment) and the Indian subsidiary must be at arm's length under Chapter X of the Income-tax Act, 2025, particularly while the FME claims the section 147 deduction. See transfer pricing.
- Round-tripping. Keep resident LRS money in the IFSC portfolio invested outside India, and Indian holdings onshore.
- Splitting up an Indian business. If the IFSC entity takes over an existing Indian activity, consider the section 147(5) test. See relocation.
SEBI and IFSCA applications run in parallel with no formal coordination, so they can be filed together. Novel points can be put to IFSCA under its informal guidance scheme. Our Booklet VI, The Two-Entity Model, covers the structure in detail.