FME Regulatory Intelligence, Learning & Practice · IFSCA (Fund Management) Regulations, 2025
Contribution by the FME in the scheme

Regulation 40

Contribution by the FME in the scheme

IFSCA (Fund Management) Regulations, 2025Amended in 2026Chapter III · Schemes for Fund Management

Chapter III · Schemes for Fund Management

Regulation 40 – Contribution by the FME in the scheme
Amended 2026 Critical importance about 4 min

Restricted (non-retail) schemes: The core non-retail scheme regime — corpus, investors, disclosure, valuation and contribution.

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In plain English

FME/ must contribute to every ">Restricted scheme — as amended, at least 2.5% of or USD 750,000 (close-ended) or at least 5% of corpus or USD 1.5 million (open-ended), whichever is lower in each case, capped at 10% of corpus, with the same resident/non-resident ceiling carve-outs as Reg 28, plus new index-scheme and index/passive-ETF fund-of-funds exemptions.

In plain English
Close-ended: ≥2.5%/USD 750k; Open-ended: ≥5%/USD 1.5m (lower), cap 10%
Restricted scheme — FME contribution
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The rule, in its own words

Read the exact text of Regulation 40
40. (1) 26[Under a restricted scheme, the FME or its associate shall contribute an amount, - (a) In case of a close - ended scheme, at least 2.5% of the corpus or USD 750,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus; (b) In case of an open-ended scheme, at least 5% of the corpus or USD 1,500,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus: Provided that the contribution by the FME or its associate shall not be mandatory in case of relocated schemes established or incorporated or registered outside India to IFSC: Provided further that ceiling of 10% shall not apply to a restricted scheme if: (i) the FME and its ass…
Show the full text
40. (1) 26[Under a restricted scheme, the FME or its associate shall contribute an amount, - (a) In case of a close - ended scheme, at least 2.5% of the corpus or USD 750,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus; (b) In case of an open-ended scheme, at least 5% of the corpus or USD 1,500,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus: Provided that the contribution by the FME or its associate shall not be mandatory in case of relocated schemes established or incorporated or registered outside India to IFSC: Provided further that ceiling of 10% shall not apply to a restricted scheme if: (i) the FME and its associate investing in the scheme, are persons resident outside India and do not have any person resident in India as their ultimate beneficial owners and not more than one-third of the corpus of the scheme is invested in an Investee Company and its associates; or (ii) the FME and its associate investing in the scheme, are persons resident in India or have any person resident in India as their ultimate beneficial owner, the investments under the scheme are made only in permissible investments, as per sub-regulation (1) of regulation 34, in IFSC or foreign jurisdictions and the said contribution does not exceed 25% of the corpus of the scheme.] (2) The said contribution in proportion to investor’s investment in the scheme shall be made by the FME or its associate within forty-five (45) days and maintained on ongoing basis: Provided that the period of forty-five (45) days may be extended subject to the satisfaction of the Authority. (3) The said contribution, if brought in by FME, may be taken into consideration for the purpose of net-worth requirements as 27[specified under these regulations]. (4) The said contribution shall be exempted if :- (a) at least two-thirds (2/3rd) of the investors in the scheme by value permits waiver of such contribution; (b) at least two-thirds (2/3rd) of the investors in the scheme are accredited investors; 28[***] (c) 29[The scheme is a fund of funds scheme investing in scheme(s) with similar requirements, wherein the scheme in IFSC does not involve active management by the FME and the details of inter-se allocation of the underlying scheme(s) are disclosed in the placement memorandum of the scheme;] 30[(d) The scheme is an index scheme; or (e) The scheme is a fund of funds scheme investing in index schemes or passive ETFs, and the details of inter-se allocation of the underlying schemes are disclosed in the placement memorandum of the scheme.]
Statutory text — Principal Regulations, 2025, consolidated as amended up to 10 September 2026 (including the Second Amendment, 2026). The notified Gazette text prevails. Tap a highlighted word for how it functions.
Amendment history (1 note)

Footnotes from the consolidated text. They record earlier wording and are not operative law.

  1. 26 Substituted by the International Financial Services Centres Authority (Fund Management) (Second Amendment) Regulations, 2026, w.e.f. September 10, 2026. Prior to the substitution, it read as- “Under a restricted scheme, the FME or its associate shall invest :- (a) “ In case of a close ended scheme, (i) at least 2.5% of the targeted corpus and not exceeding 10% of the targeted corpus in a scheme with targeted corpus up to USD 30 Million; (ii) at least USD 750,000 and not exceeding 10% of the targeted corpus in a scheme with targeted corpus more than USD 30 Million: (b) In case of an open-ended scheme, (i) at least 5% of the targeted corpus and not exceeding 10% of the targeted corpus in a scheme with targeted corpus less than USD 30 Million; (ii) at least USD 1,500,000 and not exceeding 10% of the targeted corpus in a scheme with targeted corpus more than USD 30 Million: Provided that the contribution by the FME or its associate shall not be mandatory in case of relocated funds /schemes established or incorporated or registered outside India to IFSC: Provided further that ceiling of 10% shall not apply for restricted schemes if: (i) the FME and its associate investing in the scheme, are persons resident outside India and do not have any person resident in India as their ultimate beneficial owners; and (ii) not more than one-third of the corpus of the scheme is invested in an Investee Company and its associates.”
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Exceptions and conditions

Taken from the wording of this provision — the carve-outs and conditions worth reading closely.

(1) 26[Under a restricted scheme, the FME or its associate shall contribute an amount, - (a) In case of a close - ended scheme, at least 2.5% of the corpus or USD 750,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus
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What this means in practice

Compliance actions
Applies to
Restricted scheme
Frequency
At scheme launch; monitored through scheme life
Evidence
Contribution computation workpaper; Scheme classification documentation for exemption claims
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What changed in 2026

Now
(1) Under a restricted scheme, the FME or its associate shall contribute an amount, - (a) In case of a close-ended scheme, at least 2.5% of the corpus or USD 750,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus; (b) In case of an open-ended scheme, at least 5% of the corpus or USD 1,500,000, whichever is lower, subject to such contribution not exceeding 10% of the corpus...

Restricted scheme FME/associate contribution restructured: close-ended schemes — at least 2.5% of corpus or USD 750,000, whichever is lower; open-ended schemes — at least 5% of corpus or USD 1,500,000, whichever is lower; in both cases capped at 10% of corpus. Not mandatory for schemes relocating to IFSC from outside India. The 10% ceiling doesn't apply under the same resident/non-resident, one-third/25%-of-corpus conditions as the amended Reg 28(1).

Practical effect
Direct change to the mandatory contribution formula for every Restricted scheme, now differentiated by open-ended vs close-ended structure — mirrors the Reg 28 restructuring for VC schemes.
What to do
Recompute FME/associate contribution for all Restricted schemes under the new open/close-ended-differentiated formula.

Same "detailed under Chapter II" to "specified under these regulations" cross-reference fix as item 12, applied to Reg 40.

Practical effect
Textual cross-reference correction.
What to do
Update citation trails.

Fund-of-funds exemption from mandatory contribution restated (as in item 13); two new exemption categories added — (d) the scheme is an index scheme, and (e) the scheme is a fund-of-funds investing in index schemes or passive ETFs, with inter-se allocation disclosed in the PM.

Practical effect
Extends the mandatory-contribution exemption to index schemes and index/passive-ETF fund-of-funds structures under the Restricted scheme category.
What to do
Confirm classification of any Restricted index scheme or index/passive-ETF fund-of-funds to claim the new exemption.

The contribution exemptions now expressly include index schemes and fund-of-funds investing only in index schemes or passive ETFs, alongside relocated schemes and qualifying fund-of-funds.

What to do
Confirm whether a scheme is an index scheme or index/passive-ETF fund-of-funds before treating the contribution as exempt.
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The numbers that matter

RequirementThresholdOn crossing
Restricted scheme — FME contributionClose-ended: ≥2.5%/USD 750k; Open-ended: ≥5%/USD 1.5m (lower), cap 10%Mandatory contribution unless exempt (incl. index / passive-ETF FoF)
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Where it connects

Refers to / depends on

Referred to by

Read alongside

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Check yourself

Quiz Centre

Test yourself on Regulation 40

17 questions in the unified bank test this regulation. Each explains every option and cites the provision.

For an OPEN-ENDED restricted scheme, what is the amended FME/associate contribution?
Which schemes are now exempt from the mandatory restricted-scheme FME contribution? (Select all that apply)
Select all that apply, then check.
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Your notes

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Restricted (non-retail) schemes
Regulation 40 Chapter III · Part B Amended 2026 Critical · about 4 min