International Financial Services Centres Authority (‘IFSCA’), by way of a Circular dated September 25, 2026, has prescribed the framework for differential distribution in venture capital (VC) schemes and restricted schemes (‘Eligible Schemes’) under the IFSCA (Fund Management) Regulations, 2025, to facilitate blended finance and other fund structures. Key provisions include:

i.     Eligible Schemes may issue only one class of senior units, with all other classes categorised as junior or subordinate units;

ii.    senior units may differ only in fees, currency and operational aspects. Junior or subordinate units may be converted into a superior class subject to conversion milestones and triggers disclosed in the placement memorandum, and their holders may bear losses beyond their pro rata share, accept lower or zero returns, or provide grants to environmental, social and governance (‘ESG’) schemes;

iii.   the placement memorandum must disclose the rights and risks of each class and illustrate the distribution waterfall (including loss scenarios) in tabular form;

iv.    ESG schemes must disclose alignment with the United Nations Sustainable Development Goals and may accept grants of up to 49% of the corpus and such grants are excluded from the corpus for computing fees and must be returned if unutilised on winding up; and

v.     the minimum investment amount in junior or subordinate units is USD 2 million (approx. INR 189.8 million), except that for accredited investors the minimum amount is USD 1 million (approx. INR 94.91 million), and there is no minimum for grants

The Fund Management Entities (‘FMEs’) and key managerial personnel must ensure that debt investments are not used to repay regulated lender-investors or the FME unless each investor’s contribution does not exceed 20% of the corpus, and that the net asset value (NAV) of each class is computed by an independent valuer.