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Family Offices-Family Investment Fund in Gift City

Fox & Mandal Family Offices-Family Investment Fund in Gift City

Family Offices-Family Investment Fund in Gift City


The Gujarat International Finance Tech-city (hereinafter referred to as “GIFT”) SEZ has been established as a centre for international financial services. It is the first and only International Financial Service Centre (hereinafter referred to as “IFSC”) in India. Entities established within GIFT IFSC are regarded as “persons resident outside India”.

Ministry of Law and Justice through Act No. 50 of 2019 passed the International Financial Service Authority Act, 2019 (hereinafter referred to as “IFSCA Act”) that established the Authority to develop and regulate the financial services market in the International Financial Service Centre. By utilizing the power provided in the IFSCA Act Central Government has established an authority by the name of the International Financial Services Centres Authority (hereinafter referred to as “IFSC Authority”) on April 27, 2020.

Earlier there was no concise, uniform and defined regulatory regime pertaining to fund and fund management entities in the IFSC, as the same was scattered by way of numerous legislations. Consequently, IFSC Authority has notified International Financial Services Centres Authority (Fund Management) Regulations, 2022 (hereinafter referred to as “IFSCA FME Regulations”) which shall be applicable to Family Investment Fund (hereinafter referred to as “FIF”). The new regulations allow companies to establish a Fund Management Entity (hereinafter referred to as “FME”) in the form of FIF and the Regulations entail certain specified criteria that are applicable to FIF. This new regulatory regime will increase the ease of doing business in IFSC by attracting foreign investment in the GIFT, which would thereby increase the global connection and serve as an international financial platform for the nation’s economy.

Additionally, GIFT hosts India’s first and only IFSC in which units are eligible for special tax benefits apart from regular SEZ benefits. These benefits include 100% tax exemption for 10 consecutive years out of 15 years, a Minimum Alternate Tax (hereinafter referred to as “MAT”) or Alternate Minimum Tax (AMT) of 9% of book profits for companies or others set up as a unit in the IFSC, and no MAT for companies in the IFSC opting for the new tax regime. Additionally, transactions carried out on IFSC exchanges are exempt from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and Stamp Duty.


Earlier there was no defined regulatory framework for family offices in India. The Expert Committee Report on Investment Funds published on 31st January 2022 (hereinafter referred to as “Committee Report”) highlighted the need for proper regulatory framework for family offices as India is witnessing a significant rise in the wealth of high net-worth individuals  ( hereinafter referred to as “HNIs”) and ultra-high net-worth individuals (hereinafter referred to as “UHNIs”). As per the twelfth edition of the Global Wealth Report, published by the Credit Suisse Research Institute  in June 2021, the number of dollar millionaires in India is expected to increase by 80% from 698,000 to 1.26 million in the next five years.

Further, as per an estimate by Fortune India , family offices in India have invested over USD 5 billion in the last five to six years, in listed/ unlisted companies as well as in start-ups, in the country as well as abroad. The growth in family offices in India has been accentuated by the rise in start-ups and first-generation entrepreneurs and has been proliferated by the growth in financial services and the alternative investments’ landscape. As there was no formal structure for managing and preserving the wealth of the HNIs and UHNIs and their families, the need for a uniform regime for family offices in India was highlighted.

Therefore, the Committee Report recommended that the concept of family offices be introduced and investment by family offices be regulated. The Committee iterated that a singlefamily office (hereinafter referred to as “SFO”) should be constituted as a self-managed fund and be regulated by IFSC Authority. Further, the Committee also recommended that a multi-family office (hereinafter referred to as “MFO”) may also be recognised and be governed by a more comprehensive set of regulations as compared to SFOs and can be considered under portfolio management.


Based on the recommendations of the Committee highlighting the need for bringing in a uniform regulatory framework, the IFSC Authority formulated the IFSCA FME Regulations. The IFSCA FME Regulations aim to regulate fund managers within the IFSC. The IFSCA FME Regulations define a family investment fund as “a self-managed fund pooling money only from a single family and has been set up in terms of these regulations3 ”.

Further, as per the definition of scheme, the word scheme and fund are used synonymously.  “Scheme” or “fund” has been defined as a scheme launched by a fund management entity under the IFSC Regulations . Regulation 17  of the IFSC Regulations states that an FME may launch a scheme. Therefore, it can be said that FIF is a unique form of FME as it also constitutes a scheme in itself.


Single Family Office: An FIF by its very nature represents a single family, and thereby investment by an FIF can be made by a single-family office. However, single-family office has not been defined in the IFSCA FME Regulations. The Committee Report iterates that SFO are more “in-house” and manage the assets and wealth of a single-family group.

Multi-Family Office: The Committee Report states that MFO are akin to “third party” fund managers and manage the assets and wealth of more than one family group. Further, the IFSCA FME Regulations do not specifically mentions about the classification pertaining to the family offices, but the IFSCA FME Regulations do mention MFO mentioned under Regulation 81 which states that an FME may also provide services to MFO under a portfolio management agreement.


A. Applicability: The IFSCA FME Regulations are applicable to all FIF, being SFOs, set-up in the IFSC, engaged in one or more permissible activities

B. Ownership and Control: The FIF should be owned and controlled by family members and other persons as appointed by the family.

C. Eligibility Conditions: Following are the applicable eligibility conditions on FIF as per Regulation 104 :

a) Form of FIF: An FIF can be established in the following four forms:

i. a Company,

ii. Trust (Contributory trust only),

iii. Limited Liability Partnership,

iv. or other forms permitted by the Authority.

b) Non- applicability of certain requirements: Regulations No. 5  and 8  which, inter alia, provide for certain requirements such as legal form and net-worth criteria, do not apply to FIF in terms of Regulation No. 104 As an inference an FIF is only required to maintain a minimum corpus.

c) Certificate of Registration: As per Regulation 12  of the IFSCA FME Regulations, an FIF shall seek certificate of registration from the IFSC Authority as FME under the appropriate category Further, FIF who is investing in a) securities; b) financial products; and c) such other permitted asset classes shall also seek registration as an Authorised FME Regulation 3  pertains to the Obligation to seek registration under any of the three categories provided for in the said Regulation i.e. Authorised FME, Registered FME (Non-Retail), Registered FME (Retail). Further, as per Regulation 3, an Authorised FME are those who pools money from accredited investors or investors investing above the specified threshold by way of private placement and invest in start-ups or early-stage ventures through Venture Capital Scheme.

d) Corpus Requirement: Following the obtainment of certificate of registration of FIF, within a period of three years the Corpus requirement of USD 10 million shall be fulfilled.

e) Open/Close ended: The Family Investment Fund could be open ended or close ended, depending upon the requirements of the family.

D. Permissible Activities: A Family Investment Fund may undertake all activities related to managing family investment funds and as may be specified by the Authority, per Regulation 105.

E. Permissible Investments: As subject to other provisions of the Regulations, a FIF may invest money only in the specified categories as listed down in Regulation 106 .

FIF may invest money only in: (a) Securities issued by the unlisted entities; (b) Securities listed or to be listed or traded on stock exchanges in IFSC, India or foreign jurisdictions; (c) Money market instruments; (d) Debt securities; (e) Securitised debt instruments, which are either asset backed or mortgage-backed securities; (f) Other investment schemes set up in the IFSC, India and foreign jurisdiction; (g) Derivatives including commodity derivatives; (h) Units of mutual funds and alternative investment funds in India and foreign jurisdiction; (i) Investment in Limited Liability Partnerships; (j) Physical assets such as real estate, bullion, art, etc.; or (k) Such other securities or financial product  /assets or instruments as specified by the Authority.


The IFSC Authority, through a circular dated March 01, 2023, has provided certain Clarifications in relation to Family Investment Funds (hereinafter referred to as “Circular”) under the IFSCA FME Regulations, 2022 to encourage their establishment in IFSC.

Following are the changes added by the circular:

A. Expansion of the constitution of “single family”:

Earlier ‘single family’ was defined as ‘group of individuals who are lineal descendants of a common ancestor and include their spouses (including widows and widowers, whether remarried or not) and children (including stepchildren, adopted children, ex nuptial children)’ .
Now, this Circular has expanded the definition of single family by including entities such as entities such as sole proprietorship firm, partnership firm, company, limited liability partnership, trust or a body corporate, in which an individual or a group of individuals of a single-family exercises control and directly or indirectly hold substantial economic interest. “Substantial economic interest” shall mean at least 90% economic interest, as demonstrated by the FIF .

B. Contributions by non-family members:

A FIF cannot seek money from individuals or entities outside the single family. However, it may share economic interest with employees, directors, FME, or other service providers as per its internal policy. Contributions may be accepted from these persons for the limited purpose of granting economic interest, which cannot exceed 20% of the FIF’s profits.

C. Permission to set up Additional investment vehicles:

A FIF may establish additional investment vehicles with prior approval from the Authority and payment of applicable fees. These vehicles, in the form of companies, limited liability partnerships, trusts, or other forms specified by the Authority, will be considered part of the FIF for meeting regulatory requirements under the IFSCA FME Regulations.

D. Protection of the interest of non-family members:

If persons outside the single family hold an economic interest in a single-family entity up to the permissible limit, they must be informed of the risks and offered an exit. The exit may be offered by a person or group from a single family, and the acquisition price must not be less than the price determined by an independent third-party service provider. The service provider must consider factors such as the highest price paid for interest in the entity in the last 12 months and the fair price of the entity based on valuation parameters. A valuation report with justification must also be provided.

E. Undertaking of risks to the Principal Officer of FME

Before a FIF begins investing, all individuals of a single family who contribute directly or indirectly must give an undertaking to the principal officer of FME that they understand the risks, costs, and benefits of investing in the FIF and that usual investor protection measures may not be available to the same extent as other schemes in IFSC.


As FIF is an offshore unit, thus the investment in the FIF can only be made in accordance with the extant foreign investment laws in India and other rules, regulations, directions, and circulars made by Reserve Bank of India (hereinafter referred to as “RBI”) from time to time thereunder.

Individual: As per the Master Direction No. 7/2015-16  and FAQ  issued by RBI on Liberalised Remittance Scheme, resident individuals are permitted to contribute up to USD 2,50,000 per financial year to the FIF.

Entity: A qualifying Indian entity is also permitted to contribute up to 50% of its net worth as on the date of its last audited balance sheet, provided that such entity must be 90% family-owned as per the clarifications provided in the Circular.


A. Foreign Exchange Management Act, 1999: Section 6  of the IFSCA Act provides that RBI in consultation of Central Government may make rule on any of the class or classes of capital account transactions. FIF being an offshore invest vehicle falls within the ambit of capital account transactions.

B. Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000: Regulation 3(1)(A)  provides for permissible capital account transactions, as per Schedule I   for persons resident in India.

C. Master Direction No. 7/2015-16: Liberalised Remittance Scheme (LRS): As per the Liberalised Remittance Scheme, resident individual is allowed to make remittance up to USD 2,50,000 per financial year for any permitted capital or current account transactions or a combination of both.

D. Foreign Exchange Management (Overseas Investment) Directions, 2022: Direction 24 herein provides for Overseas Investment in an IFSC in India by a person resident in India, which is to be done in accordance with Schedule V of the Overseas Investment Rules.

E. Foreign Exchange Management (Overseas Investment) Rules, 2022: The definition clause mentioned in 2(h)  defines the term “foreign entity” which means an entity formed or registered or incorporated outside India, including IFSC that has limited liability. Further, Rule 15  provides for overseas investment by a person resident in India in accordance with the terms and conditions mentioned in Schedule V of the Overseas Investment Rules.

Further, Rule 12  provides for manner of making Overseas Portfolio Investment by an Indian entity in accordance with the terms and conditions prescribed in Schedule II . Also, Rule 13  provides for manner of making Overseas Investment by resident individual in accordance with the terms and conditions prescribed in Schedule III .


As can be seen from the aforementioned Regulations, the IFSCA FME Regulations provide for a concise regime and regulatory framework for fund management entities. However, further clarifications are still needed from the IFSC Authority pertaining to the following ambiguities which can be inferred from the said Regulations:

a. FIF with respect to Regulation 3(4)(a) provides that a “Family Investment Fund investing in securities, financial products and such other permitted asset classes shall also seek registration as an Authorised FME”. This brings forth the question whether a separate registration as an Authorised FME is required when an entity is already, in the first instance, registered in one of the other categories that Regulation 3 provides for, especially when the other categories are permitted to take up the activities so permitted to Authorised FMEs.

b. Even though the Committee Report iterates that the IFSCA FME Regulations apply to all FIF being SFOs, the terminology of the Regulations does not explicitly reiterate that a SFO is an FIF.

c. The nature of an FIF still remains ambiguous for an FIF is required to be registered as an FME per Regulation 104(3) read with Regulation 12, which does not have the applicability of the Legal From as well as the Net Worth Requirements, whereas an FME has the same criteria applicable, and the same is not explicitly entailed in the Regulations. This brings forth further uncertainty for an FME, per Regulation 17, launches various schemes as provided for in the Regulations. However, in the said instance of an FIF, the fund is getting registered as an entity.

With such ambiguity arising from the IFSCA FME Regulations, 2022, clarifications from the IFSC Authority are the need of the hour. It is thereby our suggestion that the Family Investment Fund, seeking registration as an entity per Regulation 12, have a separate registration form as an inferred specialised type of FME. The same would therefore resolve such aforesaid uncertainties pertaining to FIF.


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