Key Takeaways
- The IFSCA (Fund Management) Regulations, 2025 and the May 21, 2025 co-investment circular allow GIFT City fund managers to bring HNIs, family offices and institutional co-investors into single-asset deals via Special Schemes or segregated portfolios.
- Because a co-investment is not treated as a fresh fundraise, no new AIF registration is required: the vehicle rides on the manager's existing FME registration, compressing setup from months to weeks.
- Differential unit classes let lead investors, family offices and angels hold different fee, carry, ticket-size and information terms within one regulated vehicle, with unified custody and exit mechanics.
- The 2025 amendments cut the minimum non-retail scheme corpus from $5 million to $3 million and the minimum PMS investment from $150,000 to $75,000, broadening access for family offices and smaller institutions.
For ultra-high-net-worth investors and family offices, co-investment has become the standard route into private markets: a larger cheque into a specific deal, alongside the fund manager who sourced and underwrote it. Managers like it too: it lets them hold a bigger position in an asset without breaching fund-level concentration limits, diluting other LPs, or raising a new fund to fill a single ticket. Historically, Indian managers structured these deals through offshore SPVs in Mauritius, Singapore or the Caymans, with the costs, compliance burden and treaty complications that entails. GIFT City now offers a domestic-but-offshore alternative: a purpose-built regulatory framework with the tax neutrality and foreign-currency convenience of the offshore SPV.
The IFSCA Framework
Regulations 29(1) and 41(1) of the Fund Management Regulations, 2025 permit a venture capital scheme and a restricted scheme, respectively, to co-invest either through a Special Scheme, a special-purpose vehicle whose leverage is disclosed in the fund's private placement memorandum, or through a segregated portfolio created by issuing a separate class of units within the existing scheme. IFSCA operationalised the route through its Co-Investment Circular of May 21, 2025.
The regulatory logic is simple: a co-investment is not treated as a new round of fundraising, so it does not require a new AIF registration. It attaches to the manager's existing registration as a Fund Management Entity, provided eligibility criteria, disclosures and investor consent are in place. That materially shortens time to market, which matters, because syndicate deals typically run on signing timetables set by the lead investor or the target's board.
What once took months of offshore structuring in Mauritius or the Caymans can now be offered to a co-investing family office within weeks, under a single GIFT City registration.
Category I or Category II?
The choice of AIF category is commercial, not just technical. Category I venture capital schemes suit early-stage rounds, with lighter leverage requirements and more flexible diversification norms, the natural home for VC funds and angel networks. Category II offers greater structural flexibility for buyouts, growth equity and structured or mezzanine investments, without Category I's sector and stage restrictions, typically the right vehicle for a family office co-investing in a growth-stage or pre-IPO round alongside an international PE sponsor. Because switching categories mid-programme is procedurally complex and costly, the question to answer at the outset is not “which category is available?” but “which category fits the syndicate's strategy and target profile?”
The Special Scheme Route in Practice
Under the circular, the co-investment scheme launches as a new scheme under the manager's existing Category I or II registration. Any investor meeting the minimum contribution criteria may participate, and the FME may invest in the Special Scheme itself. The structure carries a single-asset mandate, the classic syndicate configuration when a large-ticket opportunity exceeds the primary fund's capacity, and the FME must put the scheme's constitutional document in place within 45 days of making the co-investment. For an angel network, the practical consequence is that successive Special Schemes can be created under one umbrella FME registration, compressing execution timelines deal after deal.
Term Sheets and Conflict Management
A distinctive feature of the IFSCA route is the disclosure and consent protocol that precedes onboarding. Before using a Special Scheme, the FME must present prospective co-investors with the identity of the investee company, the proposed investment amount and terms, the anticipated holding period and exit strategy, the fee and carry structure specific to the co-investment, and any conflicts arising from the FME's dual role in the main fund and the co-investment vehicle. This does two things. It forces syndicate leads to build documentation into the deal calendar so that investor consent and the 45-day window are met comfortably. And it creates a credible audit trail for the genuinely difficult governance question every GP faces in an oversubscribed deal: who gets allocation, and why.
Differential Unit Classes
The segregated-portfolio route works by issuing separate unit classes rather than a new SPV, letting managers calibrate fees, carry, minimum tickets, contribution currency and information rights to different investor groups within the same underlying asset. A lead institutional co-investor writing a large cheque might negotiate zero management fee and enhanced information rights; a family office sits in a standard fee class; an angel takes a class with a lower minimum. The 2025 amendments reinforce this by cutting the minimum non-retail corpus from $5 million to $3 million and the minimum PMS ticket from $150,000 to $75,000. For non-Indian co-investors, units can be denominated and reported in foreign currency, no rupee-denominated vehicle required.
The Business Case
The framework gives VC funds, PE sponsors, angel networks and family offices a viable alternative to the offshore-SPV-per-deal model: faster execution, a regulated structure for large-ticket single-asset syndication, and a disclosure mechanism that addresses GP conflicts. The question is no longer whether managers can formalise their co-investment practice, but how quickly they can operationalise it through existing registrations, documentation and conflict protocols. Early movers can offer international co-investors a faster, more credible and more cost-effective route into Indian and cross-border syndicate transactions, and in doing so, help make GIFT City a practical institutional hub for structured co-investment rather than merely an alternative domicile.
