Basic Understanding of AIF in IFSC: A Beginner’s Guide
What is AIF?
An Alternative Investment Fund (AIF) is a privately pooled investment vehicle that collects capital from investors to invest in non-traditional assets like private equity, venture capital, real estate, hedge strategies, and structured credit. AIFs provide diversification opportunities and are suitable for sophisticated investors.
As per SEBI (AIF Regulations, 2012):
“Alternative Investment Fund” means any fund established or incorporated in India which is a privately pooled investment vehicle that collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.”
Categories of Alternative Investment Funds
- Category I AIF – Startups, early-stage VC, infrastructure, social ventures, SMEs
- Category II AIF – Private equity, debt funds, real estate, distressed assets
- Category III AIF – Hedge funds, long-short strategies, high-leverage or complex trades
What is a Fund Management Entity (FME)?
In the context of GIFT City IFSC, a Fund Management Entity (FME) is a registered structure (Company, LLP, or Trust) responsible for setting up and managing AIFs and other fund products.
- In India, domestic AIFs are regulated by SEBI, but in GIFT IFSC, only the FME is regulated by IFSCA under the Fund Management Regulations, 2025.
- Unlike SEBI, which regulates both the fund and the manager, IFSCA simplifies the process by focusing regulatory oversight solely on the FME.
Key Regulatory Requirements (Simplified)
Under IFSCA (Fund Management) Regulations, 2025:
- FMEs must register with IFSCA before launching any fund
- Must meet minimum net worth and fit-and-proper criteria
- Submit fund documents like Private Placement Memorandum (PPM)
- Establish compliance systems, risk controls, and third-party agreements
- Ensure regular reporting and investor disclosures
Categories of Fund Management Entities (FME)
| Feature | Authorised FME | Registered FME (Non-Retail) | Registered FME (Retail) |
| Investor Type | Single / Family office | HNIs / Accredited Investors | Retail / Public Investors |
| Permitted Funds | Captive AIFs | Category I, II, III (Non-retail) | Category I, II, III (Retail & Non-retail) |
| Fundraising Scope | No public fundraising | No public fundraising | Public fundraising allowed |
| Minimum Net Worth (USD) | $75,000 | $500,000 | $1,000,000 |
| Compliance Level | Low | Medium | High |
Why Set Up an AIF in GIFT IFSC?
- Global Capital Access
AIFs in GIFT IFSC can raise foreign currency capital from global investors, NRIs, FPIs, and family offices.
- Tax Efficiency
- No capital gains tax for non-residents
- Tax holiday under Section 80LA for FMEs
- 100% repatriation permitted
- Regulatory Simplicity
IFSCA acts as a unified regulator, removing the need to interact separately with SEBI, RBI, or IRDA.
- Cost-Effective and Scalable
Operate multiple funds (AIF, PMS, MF) under a single license, reducing operational costs.
- World-Class Ecosystem
Access to custodians, fund administrators, global exchanges, and banking partners within GIFT City.
Choosing the Right FME Category
| Profile | Ideal FME Category |
| Family Office | Authorised FME |
| PE/VC Sponsor | Registered FME (Non-Retail) |
| Mutual Fund House | Registered FME (Retail) |
Conclusion
Setting up an AIF in GIFT IFSC offers unmatched advantages in terms of global capital access, taxation, and operational ease. The Fund Management Entity (FME) is the key regulatory link, enabling fund managers to structure and scale seamlessly under IFSCA’s unified framework.
Talk to Nexpective Advisors today to explore your AIF setup in GIFT City IFSC.
