The Four Fund Vehicles in GIFT IFSC, Compared: Venture Capital, Restricted, Retail & Special Situation Funds

A practitioner’s guide to choosing the right scheme under the IFSCA (Fund Management) Regulations, 2025 — as amended up to 30 January 2026.

Every fund manager who looks seriously at GIFT City eventually hits the same fork in the road. The IFSCA (Fund Management) Regulations, 2025 don’t give you “an AIF licence.” They give you a Fund Management Entity (FME)registration — and then ask you to pick the scheme you actually want to run. Get that choice wrong and you’ve over-capitalised your FME, locked yourself into the wrong investor profile, or filed under a route that adds weeks to your launch.

There are four scheme vehicles under Chapter III: the Venture Capital Scheme (VCS) (Reg. 18–29), the Restricted Scheme (Non-Retail) (Reg. 30–41), the Retail Scheme (Reg. 42–52), and the Special Situation Fund (SSF) (Reg. 53–60). They look similar on a slide. They are not similar in practice — they differ on investor caps, minimum cheques, structure, leverage, NAV cadence, and the FME registration tier you need before you can launch one.

This is the comparison every GP asks for in the first meeting. Here it is, end to end.

Quick answer: which GIFT IFSC fund vehicle fits which manager?

• Venture Capital Scheme (VCS) — a lean, closed-end vehicle for early-stage / startup investing, up to 50 investors, that the lightest FME tier (Authorised FME, USD 75,000 net worth) can run. Best for first-time and boutique GPs.
• Restricted Scheme (Non-Retail) — the workhorse private-placement vehicle. Up to 1,000 investors, open- orclosed-ended, and the only route that maps to all three AIF categories (I, II and III), so it houses everything from PE and credit to long-short and derivative strategies.
• Retail Scheme — the mutual-fund-style vehicle for the public. Daily NAV, strict diversification limits, an offer-document filing route, and the heaviest FME tier (Registered FME (Retail), USD 1,000,000 net worth).
• Special Situation Fund (SSF) — a specialised, closed-end credit vehicle that invests only in stressed assets and can act as a resolution applicant under the IBC. It’s GIFT City’s answer to SEBI’s onshore SSF.

If you remember one thing: the scheme you want determines the FME tier you must register as — not the other way round (the three tiers are set out in Reg. 3(4)). Plan it backwards from the scheme.

The comparison table GPs actually want

(All figures are from the IFSCA (Fund Management) Regulations, 2025, as amended to 30 January 2026. Items “as specified by the Authority” are deliberately left to circulars — see the SSF section.)

1. Venture Capital Scheme (VCS) — the boutique GP’s entry point

The VCS is the only scheme an Authorised FME — the lightest, USD 75,000 net-worth tier (Reg. 3(4)(a) read with the Second Schedule) — can launch. That single fact is why it exists. IFSCA wanted a low-barrier on-ramp for first-time and emerging managers running genuine early-stage strategies, without forcing them into the heavier Non-Retail tier.

What you’re getting is a deliberately tight box:

• Closed-ended only (Reg. 21(1)), minimum three-year tenure, extendable by two years with a two-thirds-by-value investor vote (Reg. 21(3)), and beyond that only with willing investors plus an exit for dissenters (Reg. 21(4)).
• Maximum 50 investors (Reg. 20(1)), each writing at least USD 250,000 (USD 60,000 for the FME’s own people; accredited investors exempt) (Reg. 20(2)).
• A corpus band of USD 3M to USD 200M (Reg. 23(1)) — note the ceiling. The VCS is the only one of the four with a hard maximum. Cross USD 200M and you’ve outgrown the vehicle.
• An 80% deployment rule (Reg. 23(3)): at least 80% of corpus must go into investee companies incorporated within the last ten years. This is what makes it a venture scheme and not a generic PE fund.

It files as a Category I AIF (“venture capital fund”) under Reg. 18, and the Explanation there carries that status through for Income-tax Act, FEMA and other statutory purposes — the take-on-record communication is expressly to be construed as the Certificate of Registration for income-tax purposes (Reg. 19(2), Explanation).

Practitioner note — the January 2026 amendment. The placement-memorandum validity rule in Reg. 19(3) was substituted with effect from 30 January 2026. Previously a VCS got a one-time six-month extension at 50% of the fresh-filing fee if it missed first close. Now you can take rolling six-month extensions — 25% of the fee for the first, 50% for each subsequent one — as long as you apply while the memorandum is still valid. For a manager genuinely close to first close in a slow market, that’s real breathing room. Build the extension fee into your launch budget rather than treating it as a failure cost.

When the VCS is the wrong choice: the moment you want more than 50 LPs, cheques below USD 150,000, or an open-ended structure, you’ve outgrown it — and the regulation itself points you to the Restricted Scheme (Explanation to Reg. 20).

2. Restricted Scheme (Non-Retail) — the workhorse of GIFT City

If GIFT City has a “default” private fund vehicle, this is it. The Restricted Scheme is the most flexible of the four, and the only one that maps to all three AIF categories under Reg. 30(1):

• Category I (Reg. 30(1)(a)) — start-ups, SMEs, social/impact, infrastructure, ESG, and — notably — venture capital funds run without the Part A VCS constraints (Explanation II to Reg. 30(1)(a)).
• Category III (Reg. 30(1)(b)) — complex or leveraged trading strategies, including listed and unlisted derivatives. This is the home of long-short, multi-strategy and hedge-fund-style mandates.
• Category II (Reg. 30(1)(c)) — the residual bucket: everything that isn’t I or III. Most PE, private credit and real-asset funds land here.

That category flexibility is the whole point. A single FME tier — Registered FME (Non-Retail), USD 500,000 net worth (Reg. 3(4)(b)) — can run PE, credit and hedge strategies side by side, each as a separate restricted scheme.

Key parameters:

• Up to 1,000 investors (Reg. 32(1)), minimum cheque USD 150,000 (USD 40,000 for FME staff; accredited investors exempt) (Reg. 32(2)).
• Open- or close-ended (Reg. 33(1)). Categories I and II must be close-ended; only Category III can be open-ended (Reg. 30(2)). A close-ended restricted scheme needs only a one-year minimum tenure (Reg. 33(2)) — the shortest of any close-ended vehicle here.
• Corpus minimum USD 3M, but an open-ended scheme may commence investing on raising USD 1M, provided it reaches USD 3M within twelve months (Reg. 35(2)).
• Leverage is permitted on disclosure and a two-thirds deviation vote (Reg. 37) — which, with Category III, is what makes GIFT City viable for leveraged and derivative strategies the VCS and Retail routes cannot carry.
• A close-ended restricted scheme may also park up to 20% of corpus in physical assets — real estate, bullion, art (Reg. 34(3)) — a flexibility unique to this vehicle.

Practitioner note. Watch the FME commitment in Reg. 40. For a close-ended scheme it tracks the VCS at 2.5% / USD 750k. But for an open-ended scheme it doubles to 5% (or USD 1.5M) (Reg. 40(b)). Managers who reflexively pick open-ended for “liquidity optics” underestimate this — the sponsor commitment on a USD 30M open-ended scheme is USD 1.5M of the manager’s own money, maintained proportionally on an ongoing basis. Unless your LPs genuinely need open-ended liquidity, close-ended is materially cheaper for the GP.

Also note the extension mechanism for restricted schemes (Reg. 31(3)) was not changed in the January 2026 amendment — it remains the older one-time six-month extension at 50% fee. Only the VCS (Reg. 19(3)) and the open-ended-restricted corpus rule (Reg. 35(2)) got the new rolling-extension treatment. Don’t assume parity.

3. Retail Scheme — the public-facing, mutual-fund-style vehicle

The Retail Scheme is a different animal entirely, and most private-fund GPs will never run one. It pools money from the public (Reg. 42) — and the regulations treat it with the seriousness that implies.

The differences start at registration. Only a Registered FME (Retail) — the top tier at USD 1,000,000 net worth (Reg. 3(4)(c)) — can launch one, and it needs prior approval of the Authority specifically to run retail schemes (Reg. 17(4)). The compliance officer for retail schemes must also be kept separate from the one handling non-retail business (Reg. 109/Ch. on obligations).

The launch route is fundamentally different too. There’s no green channel. You file a draft offer document at least 21 working days before launch (Reg. 43(1)), incorporate IFSCA’s comments before going live (Reg. 43(3)), and obtain fiduciary approval (Reg. 43(5)). Compare that to the green-channel vehicles, where a scheme opens for subscription the moment it’s taken on record. Build the extra runway into a retail timeline.

The investor and portfolio rules reflect a retail-protection logic absent from the private vehicles:

• Minimum 20 investors; no single investor above 25% (Reg. 44) — the opposite of the VCS’s concentrated 50-LP book.
• Diversification caps with teeth (Reg. 47): max 10% in a single company, 15% with fiduciary approval (Reg. 47(3)); 25% in a single sector, 50% for financial services (Reg. 47(4)); 25% in an associate (Reg. 47(5)).
• Unlisted limits: 15% for open-ended (Reg. 47(1)); up to 50% for close-ended, with a USD 10,000 minimum cheque once it crosses 15% unlisted (Reg. 47(2)).
• Derivatives for hedging only (Reg. 46(1)(g)) — no speculative or leveraged positions.
• Borrowing only for temporary liquidity to meet redemptions, capped at 20% of AUM and six months (Reg. 49).
• Daily NAV (open) or weekly (close) (Reg. 51) — the most demanding operational cadence of the four, and a real fund-administration cost.

One structural quirk: a Retail Scheme can only be a Company or a Trust — not an LLP (Reg. 45(4)). The three private vehicles all allow LLPs. If your structuring rests on an LLP, the retail route is closed to you.

Two upsides distinguish the Retail tier. First, the FME commitment is the lightest of all — 1% of AUM or USD 200,000, whichever is lower (Reg. 52(1)) — because retail capital funds the scheme. Second, this is the only tier that can launch ETFs and act as investment manager for public offers of REITs and InvITs (Reg. 3(4)(c)(ii)). If your ambition is a listed, retail-distributed product set, you have to climb to this tier.

4. Special Situation Fund (SSF) — GIFT City’s stressed-asset vehicle

The SSF is the newest and most specialised of the four, best understood as GIFT City’s mirror of SEBI’s onshore Special Situation Fund. It exists for one purpose: investing in stressed and distressed assets (Reg. 53, defined at Reg. 54).

The defined “special situation assets” (Reg. 54(1)) are narrow and specific:

• Stressed loans acquired under Clause 58 of the RBI (Transfer of Loan Exposures) Directions, 2021, or under a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (Reg. 54(1)(a)).
• Security receipts issued by an RBI-registered Asset Reconstruction Company (Reg. 54(1)(b)).
• Securities of investee companies that are themselves stressed — under CIRP, with loans available for transfer, with ARC-issued security receipts against them, or in 90-day-plus payment default with a credit rating downgraded to “D” (Reg. 54(1)(c)).

Crucially, an SSF may itself act as a resolution applicant under the IBC (Reg. 54(2)). That makes it a genuine acquisition vehicle for distressed Indian assets sourced through an onshore-IFSC platform — a structuring proposition that didn’t cleanly exist before.

The mechanics are deliberately conservative:

• Closed-ended only, minimum three-year tenure (Reg. 56).
• Invests only in special-situation assets (Reg. 57) — no general portfolio.
• Effectively no leverage: borrowing only to meet day-to-day operational requirements (Reg. 59) — the tightest borrowing rule of all four vehicles.

Here’s the part practitioners must internalise: the SSF is legally a sub-category of the restricted scheme (Reg. 60(2)). Its disclosure, valuation, NAV and FME-contribution norms are simply the close-ended restricted scheme norms borrowed wholesale (Reg. 60(1)). And its corpus, eligible investors and additional investment conditions are not hard-coded— they are “as specified by the Authority” (Reg. 58). So before you model an SSF, pull the latest IFSCA circular for the live numbers; the base regulation deliberately leaves them open. Treat the regulation as the frame and the circulars as the fill.

You launch an SSF through a Registered FME (Non-Retail) — the same USD 500,000 tier as the restricted scheme.

How to choose: a decision framework for GPs

Don’t start from “which AIF category am I?” Start from three questions in this order.

Question 1 — Who are my investors? Public / retail money forces you up to the Retail tier and the offer-document route (Reg. 43). Private, accredited or large-ticket investors keep you in the green-channel private vehicles. This single answer eliminates one of the four immediately.

Question 2 — What’s my strategy and instrument set?

• Stressed and distressed assets → SSF (Reg. 57), full stop.
• Genuine early-stage / venture, ≤ 50 LPs, lightest FME → VCS (Reg. 23(3)).
• Anything leveraged, derivative-heavy, open-ended, or broader than venture (PE, credit, multi-strategy, real assets) → Restricted Scheme (Reg. 30).

Question 3 — What FME net worth and timeline can I fund? The vehicle dictates the tier, and the tier dictates the capital you lock up (Second Schedule): USD 75,000 (VCS) → USD 500,000 (Restricted / SSF) → USD 1,000,000 (Retail). The retail route also adds weeks for offer-document review. If your strategy could sit in two vehicles, the cheaper tier and the green channel usually win.

A common structuring trap: managers default to “open-ended for flexibility.” Remember open-ended doubles your sponsor commitment under a restricted scheme (5% vs 2.5%, Reg. 40) and is unavailable for VCS and SSF entirely. Liquidity is rarely free.

Frequently asked questions

Which GIFT IFSC fund vehicle has the lowest minimum investment? The Retail Scheme — it has no general minimum because it pools public money; a USD 10,000 floor applies only to close-ended schemes investing more than 15% in unlisted securities (Reg. 47(2)). Among the private vehicles, the Restricted Scheme is lowest at USD 150,000 (Reg. 32(2)), versus USD 250,000 for the VCS (Reg. 20(2)).

What is the difference between a Venture Capital Scheme and a Restricted Scheme in GIFT City? A VCS is capped at 50 investors (Reg. 20(1)), closed-ended only (Reg. 21(1)), must deploy 80% into companies under ten years old (Reg. 23(3)), has a USD 200M corpus ceiling (Reg. 23(1)), and runs on the lightest FME tier. A Restricted Scheme allows up to 1,000 investors (Reg. 32(1)), can be open- or close-ended (Reg. 33(1)), has no corpus ceiling, maps to all three AIF categories including leveraged Category III (Reg. 30(1)), but requires the USD 500,000 Registered FME (Non-Retail) tier.

Can a Special Situation Fund in GIFT IFSC use leverage? No. An SSF may borrow only to meet day-to-day operational requirements (Reg. 59) — it cannot use leverage as a strategy. This is the strictest borrowing rule of the four.

Which fund vehicle can a first-time fund manager launch in GIFT City? The Venture Capital Scheme, through the Authorised FME registration (Reg. 3(4)(a)), which requires only USD 75,000 of net worth (Second Schedule) — the lowest barrier to entry of any scheme.

Is a Special Situation Fund a separate vehicle or a type of Restricted Scheme? Legally it is a sub-category of the restricted scheme (Reg. 60(2)). It borrows the close-ended restricted scheme’s disclosure, valuation, NAV and sponsor-commitment norms (Reg. 60(1)), but its investment universe (Reg. 57), corpus and eligible investors (Reg. 58) are defined separately — several set by IFSCA circular rather than in the regulation.

Do GIFT IFSC fund schemes have to be set up as a trust? No. The VCS, Restricted Scheme and SSF can each be a Company, LLP or Trust (Reg. 21(5), 33(5), 56(3)). Only the Retail Scheme is restricted to a Company or a Trust — it cannot be an LLP (Reg. 45(4)).

What changed for fund schemes in the January 2026 amendment? The most significant change was the placement-memorandum extension regime for the VCS (Reg. 19(3)) and the open-ended restricted-scheme corpus rule (Reg. 35(2)). Managers who miss first close can now take rolling six-month extensions (25% of the fresh-filing fee for the first, 50% thereafter) instead of a single one-time extension — provided they apply while the memorandum is still valid.

The bottom line

The four vehicles aren’t four flavours of the same product — they’re four different regulatory bargains. The VCS (Reg. 18–29) trades flexibility for a low barrier to entry. The Restricted Scheme (Reg. 30–41) trades a heavier FME tier for genuine breadth. The Retail Scheme (Reg. 42–52) trades operational intensity and capital for access to public money and listed products. The SSF (Reg. 53–60) trades a narrow mandate for a purpose-built stressed-asset and IBC-resolution platform.

The managers who get GIFT City right reverse-engineer the decision: define the investor and the strategy first, let that fix the scheme, and let the scheme fix the FME tier and the launch timeline. Everything downstream — net worth, sponsor commitment, NAV cadence, leverage headroom — follows from that one upfront choice.

This article reflects the IFSCA (Fund Management) Regulations, 2025 as amended to 30 January 2026. Several SSF parameters and certain thresholds are set by IFSCA circulars and should be verified against the latest issuance. It is not legal or tax advice.

About the Author

Prashant Kumar is a Company Secretary, Published Author, and seasoned professional in corporate and financial services regulation. He currently serves as Company Secretary and Compliance Officer at Global Horizons Capital Advisors (IFSC) Private Limited, an IFSCA-licensed Investment Banker based in GIFT City, giving him direct, on-ground exposure to capital market transactions and regulatory structuring within the IFSC ecosystem.

He brings hands-on experience across GIFT IFSC fund structuring — including FME registration across the Authorised, Non-Retail and Retail tiers and scheme setup under the AIF framework (Venture Capital, Restricted, Retail and Special Situation Funds) — alongside IPOs, direct listings, exchange listings, corporate governance, and end-to-end regulatory compliance for financial services entities operating in the IFSC and the wider Indian regulatory environment.

His current role at an IFSCA-licensed entity in GIFT City gives him working familiarity with the practical decisions GPs and platforms actually face: selecting the right scheme vehicle, sizing FME net worth and sponsor commitment, navigating the green-channel versus offer-document filing routes, and aligning fund structure with investor profile, strategy and launch timelines under the IFSCA (Fund Management) Regulations, 2025 and their evolving amendments.

For professional discussions on GIFT IFSC fund setup and structuring — whether it is choosing between a VCS, Restricted, Retail or Special Situation Fund, an FME registration and net-worth strategy, a placement-memorandum or offer-document filing review, a sponsor-commitment and skin-in-the-game assessment, or a broader compliance gap-check against the Fund Management Regulations — Prashant Kumar and the team at Global Horizons Capital Advisors are positioned to provide structured, regulation-grounded advisory.

He also advises on GIFT IFSC leasing structures, IPOs, listings, and regulatory strategy more broadly.

📞 +91 9821008011 | ✉️ prashant.kumar@global-horizons.in 🔗 csatwork.in · 📲 WhatsApp Channel · LinkedIn: csprashantkumar · Instagram: @pkforchange