The Second Amendment, 2026 to the IFSCA FM Regulations: what changed for FMEs

The IFSCA (Fund Management) Regulations, 2025 have now been amended twice. The first amendment, effective 30 January 2026, rewrote the KMP eligibility rules and made VC scheme PPM extensions repeatable. The Second Amendment goes deeper into how schemes are run. The consolidated text records it as effective from 10 September 2026; some summaries refer to 7 September 2026, so check the Gazette notification for the date you rely on.

This note walks through the changes an FME's compliance team will feel first.

1. FME contribution is now "whichever is lower"

The old tiered bands based on the targeted corpus are gone. For a VC scheme and a close-ended restricted scheme, the FME (with its associates) must contribute the lower of 2.5% of the corpus or USD 750,000. For an open-ended restricted scheme, it is the lower of 5% of the corpus or USD 1.5 million. Retail schemes continue at the lower of 1% of AUM or USD 200,000.

The 10% ceiling on contribution stays, with two exceptions: a non-resident FME with no Indian-resident beneficial owner whose scheme puts no more than one-third of corpus in one investee and its associates; and a resident FME whose scheme invests only in IFSC or foreign jurisdictions, which may go up to 25%. New exemptions cover index schemes and funds of funds that invest in passive ETFs. We work through examples in a separate post.

2. Certificates of deposit are out of the parking list

Money awaiting deployment can no longer be parked in certificates of deposit; they have been removed from the permitted list for VC, restricted and retail schemes. A related new rule covers money received before first close (or before USD 1 million is raised in an open-ended scheme): it may go only into capital-preserving, liquid investments disclosed in the PPM, such as bank deposits or overnight funds.

3. Disclosure clocks start when investing starts

NAV and portfolio disclosure obligations now run from the period in which the scheme begins investment activities, not from the PPM date. For close-ended restricted schemes, NAV stays at least half-yearly, but can move to yearly with the prior approval of at least 75% of investors by value.

4. The valuation carve-out is wider

Independent valuation for NAV purposes is still the rule, but the carve-out now covers any scheme that invests in other regulated, independently valued schemes, not just funds of funds. The provisions also now open with the words "for the purpose of computation and disclosure of NAV", which makes their purpose explicit.

5. PPM extensions for close-ended restricted schemes

Close-ended restricted schemes now get the same repeatable 6-month PPM extensions that VC schemes and open-ended restricted schemes received in January: 25% of the fresh-scheme fee for the first extension and 50% for each later one, applied for while the PPM is still valid. Retail open-ended schemes and SSFs keep the one-time extension at 50%.

6. Six months for the annual report

The scheme annual report deadline moves from four months to six months from the financial year end, which takes pressure off the post-audit period.

7. A new checklist for fiduciaries

Trustees and other fiduciaries now have a "before the first investor agreement" checklist: auditors, a fund administrator (or satisfaction about in-house capability), an independent valuer and, where Regulation 132 applies, a custodian must be appointed before any investor agreement is signed. A further clause asks fiduciaries to ensure that investor approvals or prominent disclosures are in place where the regulations on associate investments, related-party trades and yearly NAV require them.

8. Smaller changes worth noting

The definition of "associate" now covers any person, with a carve-out for fiduciaries who hold no direct economic interest. FME-level ESG obligations apply above USD 3 billion of AUM excluding fund of funds AUM. Internal policies must be approved by the board, designated partners or trustees (or a delegated committee or official), and kept as records. VC schemes may make follow-on investments in companies older than 10 years, provided the scheme's stake does not rise. A senior and junior unit framework, to be specified by IFSCA, has been inserted. Government and SWF-owned FMEs that are the sole contributor get relief on auditor independence.

What to do now

Update PPMs and investor agreements for the contribution formula and the parking list; re-check treasury instructions for undeployed money; reset disclosure calendars to the date investing began; confirm that every policy has a recorded approval; and put the six-month annual report deadline in the calendar. The portal's amendments page lists all 47 changes with old and new text.