IFSCA Co-Investment Framework – Special Scheme Rules 2025

Circular No. F. No. IFSCA-AIF/6/2025-Capital Markets; Dated: 21.05.2025

1. Regulatory Context

The International Financial Services Centres Authority (IFSCA) issued a circular on 21 May 2025 (Circular No. IFSCA-AIF/6/2025-Capital Markets) that operationalises Regulation 29 and Regulation 41 of the IFSCA (Fund Management) Regulations, 2025. The circular creates a dedicated co-investment framework that lets existing Venture Capital Schemes (VCS) and Restricted Schemes (RS) pool money with other investors through a Special-Purpose Vehicle called a “Special Scheme.”

2. Investment Scope & Leverage

• Single-asset focus – A Special Scheme can invest in only one portfolio company (multiple entities allowed only if received through that company’s corporate actions).
• Leverage permitted – Borrowing is allowed within the overall leverage cap already disclosed in the placement memorandum of the existing scheme. Investors may pledge their interests as security for the borrowing.
• Fast execution – The SPV may make its first investment before notifying IFSCA; the term sheet can follow within 45 days—accelerating deal-closing.

3. Governance & Control

• Management – The FME remains the sole decision-maker; no investor vetoes that would impede regulatory compliance are allowed.
• Tenure – The Special Scheme’s life is co-terminus with the parent VCS/RS and must be liquidated if the latter winds up.

4. Investor On-boarding & KYC

• Existing investors – No fresh KYC needed.
• New investors – Must undergo KYC under the IFSCA (AML-CTF & KYC) Guidelines, 2022.

5. Other Compliance Points

• SEZ clearance – Each Special Scheme must secure the relevant SEZ Letter of Approval before filing its term sheet.
• Fees – Applicable fees follow the April 8 2025, circular on the IFSC fee structure.
• Effective date – Framework is in force immediately from 21 May 2025.

6. Action Checklist for Fund Managers

1. Identify pipeline deals that could benefit from the single-asset SPV route (especially deep-ticket follow-ons).
2. Amend placement memoranda to include leverage language if absent.
3. Draft SPV constitutional docs (company/LLP/trust) ensuring 25 % anchor stake for the existing scheme.
4. Design the term-sheet template now—so the 45-day clock does not become a bottleneck.
5. Update investor communications to explain the co-investment mechanics and risk allocation.

7. Strategic Takeaways

The Special Scheme framework marries speed with governance. Fund managers in GIFT-IFSC can now close co-investment rounds rapidly—invest first, file later—yet regulators still see the entire structure through consolidated reporting, a 25 % anchor, and leverage caps. Expect a surge in single-asset, follow-on SPVs for late-stage growth and pre-IPO rounds as FMEs leverage this latitude.

Click Here To Read The Full Circular