IFSCA Strengthens Scrutiny of GIFT City AIFs Amidst FIF Freeze

The International Financial Services Centres Authority has begun examining newly launched Category-III AIFs in GIFT City to confirm they are structured as true pooled funds rather than single-family investment setups, as per the Moneycontrol reports. 

Fund managers have been asked to provide investment mandates, pooling details and the economic rationale behind their schemes. One advisor said, “Because FIF approvals are stuck, families began using Cat-III AIFs as personal vehicles. Now the regulator wants explicit confirmation that the investor base isn’t concentrated in one family.” 

Reasons Behind the Elevated Scrutiny 

Advisors indicated that IFSCA’s queries are meant to verify whether these funds demonstrate genuine third-party participation. Category-III AIFs, which offer flexible hedge-style, long–short and dynamic strategies, have grown in popularity. With the Family Investment Fund route on hold, some wealthy families were reportedly exploring Cat-III structures as alternatives.  

Growing Interest in GAP-Licensed Proprietary Brokers 

With FIF applications delayed and single-family AIF setups drawing attention, wealthy families are increasingly considering proprietary trading entities operating under the Global Access Program licence. These IFSC-registered brokers are proprietary-only entities rather than pooled vehicles. 

The GAP structure involves setting up an IFSC broker, obtaining a proprietary-only GAP licence with a net-worth requirement of $200,000, infusing capital through LRS or OPI-compliant flows and trading global listed instruments through IBU accounts. 

Category-III AIFs Under the Radar Amid Rapid Expansion 

Resident Indians invest in GIFT AIFs through the OPI route, which carries a 50% net-worth cap and restricts any structure that indirectly pools funds for overseas exposure. GAP-licensed proprietary brokers, by contrast, operate under the ODI framework, which has higher limits and no pooling requirement.  

FIFs were intended to use the same ODI pathway but remain stalled.  

This has resulted in some Cat-III schemes, backed primarily by one family, appearing economically similar to FIFs despite fully meeting IFSCA norms. As of 30 June 2025, GIFT City reported 177 registered Fund Management Entities, 272 active schemes, $22.11 billion in cumulative commitments and $11.27 billion in cumulative investments. Category-III commitments stood at $10.15 billion across 166 restricted funds, nearly triple the previous year. 

Read More: Baroda BNP Paribas AMC Unveils India's First Gift City US Small Cap Fund! 

Conclusion 

IFSCA’s closer review of Category-III AIFs reflects its intent to ensure that the fast-growing ecosystem continues to function as a genuine pooled investment environment. The evolving landscape has led families to explore alternate structures, including GAP-licensed proprietary entities, while clarity on FIF and overseas investment routes continues to be awaited. 

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