Valuation Requirements under IFSCA Fund Management Entity (FME) Regulations, 2025

Valuation as a Core Regulatory Obligation under the FME Framework

Valuation occupies a central position in the regulatory architecture governing Fund Management Entities (FMEs) operating in India’s International Financial Services Centres (IFSC), particularly under the IFSCA (Fund Management) Regulations, 2025. Unlike traditional compliance requirements that focus primarily on registration, reporting, or capital adequacy, valuation directly influences investor outcomes, Net Asset Value (NAV) reporting, fee calculations, and exit decision-making.

IFSCA’s regulatory philosophy treats valuation not as a mechanical accounting exercise, but as a fiduciary responsibility intrinsic to fund governance. Accurate and defensible valuation is critical to maintaining investor confidence, ensuring equitable treatment of investors, and safeguarding the credibility of IFSC as a globally competitive fund jurisdiction.

Accordingly, valuation requirements under the FME Regulations apply across Venture Capital Schemes, Restricted Schemes, and Retail Schemes, with varying degrees of frequency and disclosure obligations. These requirements derive statutory backing from the IFSCA Act, 2019, the IFSCA (Fund Management) Regulations, 2025, and most importantly, the Sixth Schedule – Investment Valuation Norms, which serves as the cornerstone of the valuation framework for IFSC funds.

Regulatory Architecture Governing Valuation under FME Regulations, 2025

The valuation framework under the FME Regulations is deliberately designed as principle-based but enforceable. Rather than prescribing rigid valuation formulas, IFSCA mandates adherence to core valuation principles supported by strong governance, documentation, and independent oversight.

The Sixth Schedule to the FME Regulations lays down investment valuation norms applicable to all FMEs, irrespective of the fund strategy or asset class. These norms are intended to ensure that asset values reported by IFSC funds reflect fair value, supported by reasonable assumptions and professional judgment.

A critical regulatory principle under the FME framework is that responsibility for valuation rests squarely with the FME, even when valuation functions are outsourced to third-party service providers. IFSCA retains supervisory and inspection powers over valuation processes, including the ability to examine valuation methodologies, assumptions, documentation, and governance controls during regulatory reviews or inspections.

This architecture places valuation firmly within the risk and compliance perimeter of the fund manager, rather than treating it as a peripheral back-office function.

Scope of Assets Covered under Valuation Requirements

The valuation requirements under the FME Regulations apply to a wide spectrum of financial instruments and investment structures, reflecting the diverse strategies permitted in IFSC.

Assets subject to valuation include:

• Listed and unlisted equity instruments, including early-stage and growth investments
• Debt instruments, private credit, mezzanine instruments, and structured debt
• Hybrid and convertible securities, such as CCPS and CCDs
• Derivatives and complex financial products
• Illiquid and hard-to-value assets, where observable market data may be limited

Special consideration is given to Fund-of-Funds (FoF) structures. In such cases, FMEs may rely on valuations performed at the master fund level, provided independence and robustness of the valuation process are demonstrable.

For cross-border investments, valuation consistency and appropriate treatment of currency effects become critical. FMEs are expected to ensure that foreign currency valuations are transparent, consistently applied, and adequately disclosed.

Valuation Framework and Methodological Expectations under the Sixth Schedule

The Sixth Schedule establishes a principles-driven valuation framework centred on fair value measurement. Fair value is expected to reflect the price that would be received to sell an asset in an orderly transaction between market participants at the valuation date.

IFSCA expects FMEs to adopt valuation methodologies that are:

• Appropriate to the nature of the asset
• Consistently applied across reporting periods
• Supported by reasonable and defensible assumptions

The commonly accepted valuation approaches include:

• Market Approach – based on observable market prices or comparable transactions
• Income Approach – discounted cash flow (DCF) or earnings-based valuation techniques
• Cost Approach – typically used where income or market data is not readily available

For illiquid or early-stage investments, greater reliance on professional judgment is inevitable. In such cases, IFSCA places significant emphasis on documentation, calibration, and periodic review. Valuation models must be revisited regularly to reflect new information, market developments, or changes in business fundamentals.

Regulatory focus is not on achieving valuation precision—which is often impossible for private assets—but on ensuring that valuations are defensible, transparent, and consistently applied.

Independent Valuer Requirement and Governance Safeguards

A key feature of the FME valuation regime is the requirement for independent valuation. To mitigate conflicts of interest and ensure objectivity, assets must be valued by an independent party such as:

• Fund administrators
• Custodians
• IFSCA-registered credit rating agencies
• IBBI-registered valuers, where applicable

Independence is not merely a formal criterion but a substantive expectation. FMEs must implement safeguards to identify and manage conflicts of interest, particularly where valuation providers have commercial relationships with the fund manager or its affiliates.

Governance oversight is equally important. The governing body or board of the FME is expected to approve valuation policies, review valuation outcomes, and oversee escalation mechanisms where valuation judgments involve heightened uncertainty.

Importantly, outsourcing valuation does not absolve the FME of responsibility. Regulatory accountability for valuation integrity remains with the fund manager at all times.

Valuation Frequency, NAV Computation, Disclosure and Compliance

Valuation frequency under the FME Regulations varies depending on the type of scheme:

• Venture Capital Schemes typically require periodic valuation, at least annually, with additional event-based valuations
• Restricted Schemes require valuation at intervals specified in scheme documents and upon material events
• Retail Schemes are subject to more frequent valuation aligned with NAV disclosure requirements

Event-based valuation triggers include exits, impairments, significant corporate actions, or any development materially impacting asset value.

Valuation outcomes must be appropriately disclosed in offer documents, private placement memoranda, and investor reports, including explanations of methodologies, assumptions, and material changes in valuation.

From a compliance perspective, valuation practices form part of regulatory reporting to IFSCA and are subject to supervisory review. Weak valuation governance can expose FMEs to regulatory action, investor disputes, and reputational damage—making valuation a key risk area under the IFSC regime.

Conclusion

The valuation framework under the IFSCA Fund Management Entity Regulations, 2025 elevates valuation from a technical exercise to a core governance and fiduciary function. FMEs operating in IFSC must embed robust valuation policies, independent oversight, and disciplined documentation into their operating models.

By aligning valuation practices with global standards while maintaining strong regulatory accountability, IFSCA reinforces IFSC’s positioning as a credible and investor-friendly fund jurisdiction. For FMEs, getting valuation right is not only about compliance—it is central to trust, transparency, and long-term sustainability.