Written by Niharika Rai & Divyanshi Srivastava.

Introduction

The International Financial Services Centres Authority (“IFSCA”) on July 24, 2025, introduced an amendment to the Fund Management Regulations, 2025. The amendment has introduced “Part D” in Chapter VI of the FM Regulations, aiming to facilitate a dedicated framework for Third-Party Fund Management Services (“TFMS”). The TFMS framework will facilitate a registered Fund Management Entity (“FME”), which is already set up and regulated in Gujarat International Finance Tech-City International Financial Services Centre (“GIFT IFSC”) to launch schemes that are managed by a third party. This framework is also known as “Platform Play” or “Plug-and-Play”. It is widely popular in countries like Singapore and Luxembourg, allowing domestic and foreign fund managers to create a holistic and integrated fund ecosystem. The amendment introduced by the IFSC also aims to remove the substance barrier, i.e., not necessarily having physical presence in the GIFT IFSC, yet be able to manage the funds.

The authors aim to analyse the amendment alongside a comparison to the foreign jurisdictions of Singapore and Luxembourg, which follow a similar structure. This comprehensive framework facilitates overseas third-party fund managers to operate within the precincts of GIFT IFSC, without having a license. The Registered FME manages the schemes on behalf of the third party, creating a platform for the External Fund Managers (“EFM”).

Inside the TFMS Framework

While the FME will remain responsible for all regulatory compliance of the fund, the EFM shall be entrusted with carrying out the fund management, portfolio management, and investment advisory functions. To safeguard the integrity of the said framework, two eligibility criteria have been set forth by IFSCA, which have to be complied with by the EFMs. Firstly, the EFM must be registered or regulated by the relevant financial sector regulator in its home jurisdiction for fund management, portfolio management, investment advisory, or any similar activityand secondly, the EFM can avail services under TFMS only through a registered FME under the FM Regulations. These two criteria will serve as the gatekeepers, ensuring that only regulated entities can participate in fund management, while new or unregulated fund managers remain outside their scope. Although this approach reinforces regulatory oversight within the IFSC ecosystem, it has the unintended effect of narrowing the pool of potential fund managers eligible to participate.

Further, any scheme launched under TFMS shall have to adhere to the fund size cap of a corpus of USD 50 million. This cap size is to be maintained on a per-scheme basis at initial close and at each quarterly reporting date. If any scheme crosses the prescribed cap at any quarter end, the EFM will have to undergo registration as an FME before launching or managing additional schemes. The cap signifies that EFM, intending to manage larger funds, are expected to set up its own FME within IFSC rather than following this model as a permanent route.

It is also directed that the FME seeking to act as a platform to offer TFMS shall, at all times, maintain an additional net worth of USD 500,000. In case the FME is also managing its own schemes, then USD 500,000 shall be maintained in addition to the net worth requirement specified under the FM Regulations, 2025. This condition ensures that only FMEs that are financially sound enough enter the TFMS framework.

For instance, an AIF, when established under the SEBI (AIF) Regulations, 2012, is required to maintain a continuing interest from its Sponsor and Manager.This requirement serves as both a regulatory safeguard and a market-driven mechanism to ensure that the interests of investors remain aligned and adequately protected. Likewise, under the TFMS framework, the FME shall make a minimum capital commitment and ensure that they have ‘skin in the game’.

Further, the TFMS framework provides significant commercial flexibility by not prescribing rigid rules around aspects of fee-sharing, carried interest, delegation of operations, or branding rights. This flexibility enables FMEs and EFMs to negotiate terms that best suit their business models while still operating within a compliant structure. This would allow operational flexibility and confer the parties with a certain degree of negotiating power. This, in turn will help in keeping the financial environment competitive, and in tandem with the global marketplace, like Singapore and Luxembourg.

Lessons from Global Hubs: Third-Party Fund Management Structure in Singapore and Luxembourg

The TFMS model introduced by IFSCA is not a standalone framework; rather, a similar structure exists in Singapore and Luxembourg. Singapore operates a network of licensed fund management companies and umbrella Variable Capital Company (“VCC”) structures where external managers can plug into an existing licensed entity that owns the regulatory license from the Monetary Authority of Singapore (“MAS”) and has the requisite operational infrastructure.

A VCC can host multiple sub-funds that are ring-fenced and are operated under a single registered entity. The registered entity is responsible for procuring the license, handling the regulatory compliance, while a licensed fund manager focuses on the formulation of investment strategy, objective and investor relations. Likewise, the TFMS model in IFSC tends to host EFM via the registered FMEs.

While the VCC framework dominates Singapore’s fund landscape, Luxembourg primarily operates through the Management Company (“ManCo”) or Alternative Investment Fund Manager (“AIFM”) structure for hosting EFMs. Luxembourg’s ManCo/AIFM ecosystem achieves the same host-and-delegate outcome via a licensed Management Company or AIFM that holds regulatory responsibilities while delegates the portfolio management to third parties under detailed delegation agreements. This agreement can be unilaterally terminated by ManCo if it deems fit in the interest of the investors or at the direction of the regulatory body. Similarly, the TFMS model aims to create a paradigm shift from the traditional licensing structures towards the Platform Play by fostering the EFM to operate under an IFSCA-regulated FME.

Equitable Interoperability within the Platform Pay Framework

While the Platform Play model offers multiple conveniences to the EFM and FME, it also brings along certain downsides. For instance, if an EFM underperforms, it may bring reputational risk to the FME and strain investor confidence. Also, FME remains eventually accountable to the IFSCA for fund compliance, reporting and governance. Thereby, any shortcoming by the EFM can precipitate regulatory scrutiny against the FME. Thus, to mitigate such risks, measures like higher net worth thresholds, mandatory indemnification, and stronger transparency safeguards are introduced to maintain the confidence of the investors.

The FME has been given a unilateral termination right that it can exercise in the interest of the investors and to maintain the regulatory integrity. Similarly, an indemnity clause will be incorporated to hold the FME harmless for the losses or liabilities arising due to the EFM’s negligence, breach of contract, regulatory non-compliance, or misconduct in the discharge of its duties. Each scheme under this model shall have a dedicated Principal Officer and compliance officer to ensure fair governance at each level.While there are relaxations regarding the physical presence requirements, this raises concerns about tax residency and permanent establishment risk. This will entitle EFMs to get taxed in their home jurisdiction since the fund shall be eventually managed by them, giving rise to potential host-jurisdiction tax challenges.

 Further, the FME would be under an obligation to ensure transparency by incorporating in the offer documents explicit disclosures about segregation of roles and responsibilities, code of conduct for addressing the conflict of interest and operational arrangement between the EFM and the FME. Further, Chinese walls shall be implemented to create an information barrier and avoid prospective conflict of interest and insider trading. Similarly, ring-fencing of the assets of FME and EFM will be maintained separately to safeguard the investor’s interest. Thereby, to uphold the investor confidence, the IFSCA framework purposefully refrains from overregulating business negotiations. These measures introduced by IFSC ensure that a fair plug-and-play is ensured, while catering for the interests of parties involved in Platform Play.

Conclusion

The TFMS framework would be a trend-setter in the fund management sphere of GIFT, since the EFMs can now test the water. It is supposed to serve as a low-barrier testing ground for the global players at a lower cost and effort than the standards set out in Singapore and Luxembourg. The compliance restrictions introduced under the FM Regulations ensure that a more holistic and enabling environment is created while keeping the regulatory purview intact. It is expected to attract greater foreign capital and enhance the participation of global fund managers, thereby accelerating fund launches and increasing cross-border investment activity. Hence, successful implementation of the TFMS framework could transform GIFT IFSC into a competitive mid-shore alternative, offering global managers a viable analogous to global players and establishing it as a strategic centre for Asia-focused fund activity. Strategically nurtured, Platform Play can transform GIFT IFSC into a benchmark for cross-border fund structuring beyond Asia.