Blended Finance Gets a Regulatory Boost in GIFT IFSC

Overview

• The International Financial Services Centres Authority (IFSCA) has introduced a new regulatory framework permitting differential distribution rights in Venture Capital Schemes and Restricted Schemes, with the objective of facilitating blended finance and other innovative fund structures in GIFT IFSC.
• On 25 September 2026, IFSCA issued the framework for differential distribution in Venture Capital Schemes and Restricted Schemes.
• The framework supports the broader vision of positioning GIFT IFSC as a gateway for global debt and equity capital, particularly for sustainable and climate-focused projects.
• Over the past five years, IFSCA has undertaken several initiatives to promote sustainable finance and facilitate global capital flows into India.
• These measures have been developed with reference to international best practices while also addressing the specific financing requirements of developing economies.

What is Blended Finance?

• Blended finance brings together concessional or philanthropic capital and commercial capital within a financing structure.
• Its purpose is to mobilise funding for projects that may generate significant social, developmental, environmental or sustainability benefits but may otherwise not be commercially viable on conventional risk-return terms.
• By allowing different categories of investors to assume different levels of risk and return, blended finance can help attract commercial capital towards projects that may otherwise face a funding gap.

Differential Distribution Rights

• Venture Capital Schemes and Restricted Schemes governed by the IFSCA (Fund Management) Regulations, 2025 may now issue multiple classes of units carrying different distribution rights. This enables a scheme to structure separate classes of investors with different economic rights.
• In particular, junior or subordinate classes of units may receive returns lower than their proportionate entitlement or may bear losses higher than their proportionate entitlement.

Acceptance of Grants by ESG Schemes

• Schemes designated as ESG Schemes, which propose to align their investment strategy with one or more of the United Nations Sustainable Development Goals (SDGs), may also accept grants.
• Importantly, grant funds cannot constitute the majority of the corpus of the scheme.
• Where grants are received from foreign sources, their acceptance must comply with the Foreign Contribution (Regulation) Act, 2010 (FCRA) to the extent that the legislation is applicable.

Minimum investment

• As junior or subordinate classes of units of such schemes shall bear risks or losses which are disproportionate to their pro-rata entitlement, the minimum investment for such units is set at USD 1 million for Accredited Investors and USD 2 million for the other investors.

Disclosures and Investor Protection

• Considering the specialised nature and asymmetric risk-return structure of these schemes, IFSCA has placed significant emphasis on transparency, disclosure and investor protection.
• The prescribed disclosures include conversion terms, distribution waterfall, unit-class rights and risks, grant policy, and independent class-wise NAV calculation.

Conclusion

• The framework creates greater flexibility for fund managers in GIFT IFSC to structure investment vehicles involving investors with different risk-return profiles.
• It can particularly support blended finance structures where philanthropic, concessional or impact-oriented capital assumes a junior or higher-risk position, potentially enabling commercial investors to participate under a different risk allocation.
• The framework strengthens GIFT IFSC’s ability to attract global capital through flexible investment structures.