IFSCA's GIFT City fund rules are quietly redrawing where Indian VCs domicile their pools

The International Financial Services Centres Authority's successive rounds of regulation have, over the past two years, moved GIFT City from an interesting experiment in Indian financial infrastructure to a genuinely competitive fund domicile for India-focused venture capital and private equity managers. The specific improvements that have driven the interest are not dramatic in isolation - tax treaty treatment clarifications, AIF registration procedures, FEMA dispensations for foreign inflows and a consolidated regulatory framework under a single window - but in aggregate they have reduced the friction gap between GIFT City and established offshore centres like Singapore and Mauritius to a point where the remaining advantage of offshore domiciles is primarily historical inertia rather than current structural superiority. The appeal for Indian fund managers is straightforward. A GIFT City-domiciled Alternative Investment Fund can raise from foreign LPs at comparable tax efficiency to a Mauritius or Singapore vehicle, can invest into Indian companies through the FEMA-recognised capital account route, and can distribute returns to foreign LPs with the same treaty protections that offshore structures provide. It does this under Indian regulatory jurisdiction, with documentation in English, with accounts maintained under Indian accounting standards, and with a regulator that - by design - is responsive to industry feedback in ways that established offshore regulators often are not. Several early-to-mid-stage Indian VC firms have established GIFT City Alternative Investment Funds alongside or as replacements for their Singapore entities, testing the operational characteristics of the jurisdiction before committing their primary capital raise to the structure. The early reports from these users have been cautiously positive: the processing timelines at IFSCA are reasonably fast, the cost of maintaining a GIFT City entity is lower than Singapore or Mauritius, and the regulatory team has been accessible and willing to clarify novel questions quickly. The implications for the Indian startup ecosystem extend beyond the fund managers themselves. If GIFT City becomes the default domicile for India-focused early and growth-stage funds over the next five years, it reduces the capital flows through Mauritius and Singapore and increases the share of India-focused venture capital that is fully within India's regulatory perimeter. This has implications for tax treaty administration, beneficial ownership disclosure, and the government's visibility into who is investing in Indian companies. What to watch: whether any of the larger India-focused global funds - Accel, Lightspeed, Peak XV - establish primary GIFT City vehicles rather than supplement structures, how IFSCA's regulatory framework evolves to handle more complex fund structures like co-investment vehicles and continuation funds, and whether SEBI's oversight of the domestic AIF category and IFSCA's oversight of GIFT City funds converge into a more unified framework over time.

Original source: Mint