A Guide On Gift City Funds For NRIs

Gujarat International Finance Tech City, better known as GIFT City, is India’s first International Financial Services Centre (IFSC) in Gandhinagar, Gujarat. It is a global financial hub and among its many offerings are GIFT City Mutual Funds. These mutual funds are launched by Asset Management Companies (AMCs) operating within the GIFT City and can be a suitable investment option for Non-Resident Indians (NRIs).

Let’s explore what makes these funds unique and how they can be a smart option for NRIs.

What is a GIFT City Fund?

GIFT City Funds are a type of new mutual funds offered by fund houses through banking units located in the IFSC at GIFT City. Regulated by the International Financial Services Centres Authority (IFSCA), these funds allow you to tap into international markets. They are structured as offshore funds and invest in foreign equities, debt instruments, commodities, derivatives, and other global assets.

Why should NRIs invest in GIFT City Funds?

Here’s why GIFT City Funds are worth considering for NRIs:

• Regulatory ease: With the Securities and Exchange Board of India (SEBI) relaxing foreign investment norms, NRIs and Overseas Citizens of India (OCIs) can now invest more freely in GIFT City Funds.
• Global currency denomination: GIFT City Funds are available in major international currencies like US Dollars (USD), British Pounds Sterling (GBP), Singapore Dollars (SGD), United Arab Emirates Dirhams (AED), and others, making them more convenient for NRIs to invest without currency conversion hassles.
• No TDS: GIFT City Funds are exempt from Tax Deducted at Source (TDS), which helps improve tax efficiency.
• Access to premium investment products: NRIs can invest in high-end products like Portfolio Management Services (PMS), such as Discretionary and Non-Discretionary PMS, Advisory PMS, and Focused PMS and Alternative Investment Funds (AIFs), including global equity, real estate, hedge funds, and more.
• International standards: GIFT City Funds operate under the governance of IFSCA, which ensures compliance with global financial and regulatory norms. This makes these funds more secure.
• Global market exposure: These funds allow exposure to international equities, bonds, and multi-asset portfolios, enhancing diversification.

Investment opportunities in GIFT City for NRIs

Here are the main investment opportunities available in GIFT City for NRIs:

• NRIs can open global savings accounts in major foreign currencies
• GIFT City encourages startup investments
• GIFT City allows NRIs to invest in SEBI-registered AIFs
• NRIs can consider PMS in the GIFT City

How can NRIs and OCIs invest in GIFT City Funds?

Here are the primary ways to invest in GIFT City Mutual Funds for NRIs:

• Through financial advisors
• Through AMCs
• Via banks

Risks of investing in GIFT City

Here are some risks you must be aware of before investing in the GIFT City:

• High minimum investment requirement: Many GIFT City investment options require a high entry threshold, which can be as high as $1,50,000. This can limit access for smaller investors.
• Exposure to global market volatility: GIFT City Funds are often linked to international markets, which are directly influenced by global economic trends and events. As a result, they may be more volatile.
• Currency risk: Since investments and redemptions are made in foreign currencies, the returns are subject to exchange rate fluctuations.

What are the tax incentives offered under GIFT City to NRIs And OCIs?

Here are some notable tax benefits available to NRIs and OCIs under GIFT City:

• Lower tax on dividends: Dividend income earned through GIFT City investments is taxed at a concessional rate of 10%, which lower compared to other applicable rates for similar investments made in mainland India.
• Reduced capital gains tax: Capital gains on shares and derivatives listed within the IFSC are taxed at just 9%, which is far more favourable than the rates usually applicable under domestic Indian tax laws.
• No TDS on income: Income earned by NRIs and OCIs through GIFT City funds is not subject to TDS, which helps enhance your post-tax returns.
• DTAA advantages: Since all transactions are conducted in foreign currency, NRIs can avail of benefits under India’s Double Taxation Avoidance Agreements (DTAAs). This helps in reducing tax liability in their country of residence on the same income.
• No GST on transactions: Transactions carried out within GIFT City are exempt from Goods and Services Tax (GST), which reduces the overall cost of investing.

Conclusion

GIFT Funds for NRIs can be a good investment option with several advantages, including tax benefits, global currency flexibility, and strong regulatory measures. These funds provide access to international markets that are not typically available through traditional Indian mutual funds. However, they come with higher investment thresholds and are subject to global market and currency risks. So, you should weigh these factors carefully and consider seeking professional advice before investing.

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