When Gujarat International Finance Tec-City (GIFT City) was introduced as India’s International Financial Services Centre (IFSC), it was aimed to become a global financial hub like Singapore, London, and New York. In order to position India as a competitive player, the Government of India sought to establish a platform where financial institutions could function under a single regulatory framework
As we shared in our previous blog, GIFT City follows a unique model – a special economic zone governed by its own dedicated regulator, the International Financial Services Centres Authority (IFSCA). Setting up a fund here meant dealing with evolving regulations, operational challenges, and a financial ecosystem that is still maturing. For early movers, the experience has been a valuable learning curve.
The GIFT City Experience: Starting Early
Setting up an Alternative Investment Fund (AIF) in GIFT City, driven by the opportunity to work within a framework designed to attract global capital into India’s growth story. The registration process in the initial phase was certainly rigorous, involving clearances from both the SEZ authority and IFSCA. However, later on, the introduction of a single-window clearance system significantly eased the authorization journey.
IFSCA’s role in creating a centralized regulatory environment cannot be overstated – streamlining what would otherwise be a complex and scattered process.
However, putting these guidelines into practice on a daily basis raised some significant issues:
- The validity of the Private Placement Memorandum (PPM) was originally six months (a tight window for raising capital from overseas) but thankfully, for the ease of doing business, IFSCA extended it to 12 months.
- The “first close” concept, initially undefined, has now been clarified under the amended IFSCA (Fund Management) Regulations, 2025 providing clear timelines and practical direction.
Persistent Challenges for Smaller Category I & II Funds
While the opportunity is undeniable, smaller funds especially those just meeting the minimum corpus still face some practical challenges. Let’s look at a few of them:
- Regulatory Requirements: With the updated rules, funds must now align with the definition of a “launch” and achieve first close within one year from registration. The extension of the PPM validity to 12 months is welcome but extending it further comes at a cost: paying a hefty 50% of the original registration fee (e.g., for a CAT-II fund with a $15,000 authorization fee, that’s significant for emerging fund managers).
- Talent Acquisition: GIFT City is growing fast, but finding finance specific talent is still a challenge. Unlike Mumbai or Bangalore, the local ecosystem is still developing. Many professionals are hesitant to move to Gandhinagar due to lifestyle and ecosystem limitations. Further, even though the new rules have relaxed (experience reduced to 3 years) and expanded the scope (eg. FRM, CFA etc. are also now included) for key roles (like Principal Officer) nevertheless, the talent pool is small and often expensive.
- Investor Perception: Perhaps the biggest roadblock is the perception gap among foreign LPs. Many still ask:
– “Why GIFT City instead of Mauritius or Singapore?”
– “Is my capital secure and tax-efficient in this regime?”
These are fair questions, and they can slow down fundraising. Addressing them will require consistent communication and success stories to build confidence in the ecosystem.
Encouraging Developments
The IFSCA has taken steps to ease some of these constraints.
- Reducing the minimum corpus from USD 5 million to USD 3 million gives smaller funds more room to operate.
- Clarifying first close timelines and related operational aspects helps fund managers plan better.
- The introduction of informal guidance mechanisms is helping fund managers seek direct clarity from the regulator.
- Allowing an expired PPM to be extended by paying an additional fee adds flexibility, even if it comes at a cost.
Of course, these are welcome steps, but still many find it difficult to completely align with compliance timelines due to the pace of global events and uncertainty.
The trajectory of GIFT City will depend on how regulators, fund managers, service providers, and investors work together to build an ecosystem. As of now, over 200 entities are operational, and IFSCA continues to expand its regulatory support across sectors like banking, insurance, and capital markets.
Key Takeaways
Auxano’s early engagement with GIFT City provided key learnings and practical exposure to the regulatory requirements. This experience has helped refine the understanding of fund operations in a regulated international financial zone.
Setting up a fund in GIFT City, in many ways, needs careful planning, early engagement with regulators, and a willingness to operate within a still maturing landscape, especially for smaller Category I & II AIFs with the minimum corpus. The initial setup can be expensive and time-consuming. However, for those willing to see it through, the long-term potential remains strong and promising.
Author
Rakesh Rana
