IFSCA Opens the Door to Layered Fund Structures: Senior and Junior Units in GIFT IFSC Venture Capital and Restricted Schemes
On 25 September 2026, IFSCA issued a circular (F. No. IFSCA-DSF0SFHB/1/2025-Capital Markets) allowing Fund Management Entities (FMEs) to issue senior and junior units with differential distribution rights in Venture Capital Schemes and Restricted Schemes. Issued under sections 12 and 13 of the IFSCA Act, 2019 and regulations 23(5) and 35(6) of the IFSCA (Fund Management) Regulations, 2025 (FM Regulations), it applies immediately. It is optional: single-class schemes continue as before.
Why it matters
The framework targets blended finance, where concessional or philanthropic capital sits alongside commercial capital. IFSCA’s Expert Committee on Sustainable Finance had recommended such structures to attract multilateral development bank and development finance institution funding while reducing risk for private investors. Industry associations also sought multiple unit classes to match differing risk-return appetites.
Unit structure
Schemes issuing multiple classes (Eligible Schemes) may have only one class of senior units; every other class is junior or subordinate. Senior units cannot differ in risk, priority of returns or loss absorption, only in fees, currency and operational terms. Seniors are paid first and absorb losses last. Juniors are the reverse.
Junior holders may, singly or in combination:
- bear losses beyond their pro rata share;
- accept a lower return than pro rata;
- accept zero return; or
- provide a grant to an ESG Scheme.
Junior units may convert to a superior class only if the milestones, methodology, triggers and formulae are expressly set out in the Placement Memorandum (PPM).
Minimum investment
Junior investors must commit at least USD 2 million, or USD 1 million for Accredited Investors (clauses 1(c) to 1(f) of IFSCA’s 25 January 2024 circular). The minimum does not apply to grants.
PPM disclosures
The PPM must prominently disclose each class and its rights on distributions, redemption and winding up, with tabular waterfall examples, including scenarios where junior holders lose capital. It must also state class-specific risks and, where the FME or its associates invest under regulation 28 or 40, the class allotted to them. Waterfall tables should be built from the actual mechanics and match the NAV methodology.
Safeguards
FMEs and Key Managerial Personnel must ensure that:
- debt investments are not used to repay debt owed to regulated financial investors (or their associates) or to the FME or its associates, unless that investor, with associates, holds no more than 20% of corpus;
- the scheme does not facilitate circumvention of any law or regulatory direction; and
- an independent valuer computes NAV for each class under regulations 26, 27, 38 and 39.
ESG Schemes and grants
ESG Schemes (filed under IFSCA’s 18 January 2023 circular) must also explain in the PPM how their strategy aligns with one or more UN Sustainable Development Goals. They may accept grants on these terms:
| Condition | Requirement |
| Cap | Grants up to 49% of corpus, counting grant and non-grant commitments |
| Structure | Separate “social units” or no units, as agreed and disclosed in the PPM |
| Foreign grants | Comply with the FCRA, 2010, where applicable |
| Fees | Grants excluded from the fee base; valuer certifies |
| Conflicts | Written grant policy; contributor conditions must fit the investment thesis and fiduciary duties |
| Accounting | Grants shown separately in audited annual financials |
| Winding up | Unutilised grants returned, subject to regulation 131 |
Compared with the AIF regime
Under SEBI’s AIF Regulations, 2012, distributions are ordinarily pro rata and pari passu, and subordinated units are confined to specific investor categories. IFSCA imposes no investor-category restriction: any Eligible Scheme may issue junior units, subject to the minimum ticket size. Investors seeking regular returns will likely take senior units, while institutional or thematic investors take junior units.
Conclusion
FMEs should focus on PPM drafting (waterfall tables and conversion mechanics), class-wise valuation and, for ESG Schemes, a grant policy that addresses FCRA exposure. The framework gives GIFT IFSC a clear, lighter-touch route for layered and blended-finance funds.
For general information only; not legal advice. Refer to the circular and FM Regulations before structuring a scheme.
