IFSCA proposes differential distribution in funds to boost blended finance

The International Financial Services Centres Authority (IFSCA) has proposed allowing fund managers operating out of GIFT City to issue multiple classes of units with differential distribution rights.

 

The move is aimed at enabling blended finance structures that combine concessional or philanthropic capital with private investment to fund socially desirable but commercially less viable projects.

 

According to a consultation paper released by the regulator, the framework would apply to venture capital and restricted schemes under the IFSCA (Fund Management) Regulations, 2025.

 

It allows fund management entities to design schemes with “senior” and “junior” classes of investors carrying varying levels of risk and returns. This is a practice commonly used in international financial centres to attract private participation in development financing.

 

 

The regulator said the proposal would facilitate flexible capital raising, particularly for projects aligned with the United Nations’ sustainable development goals (SDGs).

 

Environmental, social, and governance (ESG) schemes will be allowed to accept up to 20 per cent of their corpus in the form of grants, subject to disclosure and investment safeguards.

 

To protect investors, IFSCA has suggested that participation in junior or subordinate units be restricted to large investors, with a minimum investment of $2 million, or $1 million for accredited investors. Independent valuation of each unit class and detailed risk disclosures will be mandatory.

 

IFSCA has invited public comments on the draft framework until November 11.

 

The regulator said the initiative is expected to deepen GIFT-IFSC’s fund management ecosystem and align it with global best practices in sustainable and blended finance.