Detail Guide On Gift City Funds For NRIs

Detail Guide On Gift City Funds For NRIs

Gujarat International Finance Tec-City, popularly known as Gift City, is India's first International Financial Services Centre (IFSC). It is home to banks, financial institutions, and other global businesses, offering them a conducive environment in which to set up their shop and run their operations smoothly. In Gift City, asset management companies (AMCs) have launched their funds, which are known as gift city funds. They come with a unique set of benefits addressing the issues of non resident Indians (NRIs) and Overseas Citizens of India (OCIs) faced with mutual fund investing in India.

‍

What Are Gift City Funds?

Gift City funds are mutual funds launched by AMCs in the Gift City. They operate under the regulations of International Financial Services Centre Authority (IFSCA). These funds invest in global markets, offering exposure to international securities such as equities and bonds. Moreover, they allow you to invest in various currencies, making investing simple and hassle-free.

‍

Features Of Gift City Funds

The following are some of the important features of Gift City funds:

• Positioned as offshore funds: Gift City funds are structured as offshore funds. This ensures that fund managers have a wide choice of investment options to choose from. This results in exposure to global financial securities. 
• Regulatory compliance: Gift City funds are governed by the rules and regulations of IFSCA, which ensures investor interests are taken care off.
• Professional fund management: These funds are managed by well-experienced fund managers. They have extensive knowledge to perform market research to pick the best securities for the portfolio of gift city funds.
• Currency options: Gift City funds are denominated in multiple currencies, allowing NRIs and OCIs from different parts of the world to invest in them directly without any hassle.

‍

Investment Opportunities in Gift City for NRIs

The Gift City offers several investment opportunities for NRIs and OCIs to choose from, and they are listed below.

• Offshore banking and deposits: Banks and financial institutions established in the Gift City offer offshore banking deposits and foreign currency term deposits. NRIs can invest in them in various currencies and earn competitive interest rates.
• Global equities and bonds: Through the Gift City IFSC exchange, NRIs and OCIs can get access to global equities and bonds.
• Alternative Investment Funds (AIF): AIFs set up in the Gift City offer exposure to several asset classes, including equities, debt securities, private equity, real estate and venture capital investments.
• Real Estate Investment Trust (REIT): The Gift City IFSC exchange has listed REITs, which gives easy access to the Indian real estate market at a low cost.

‍

Can NRIs And OCIs Invest in Gift City Funds?

After the Securities and Exchange Board of India (SEBI) has relaxed the regulations of foreign investment in the Gift City, NRIs and OCIs now invest in the Gift City funds. 

‍

How Can NRIs And OCIs Invest in Gift City Funds?

NRIs and OCIs can invest in Gift City funds through any of the following methods.

• Directly with the fund house: In this digital era, investing directly with the fund house has become easier than ever. You can visit the AMC’s website to invest directly with them. However, you will have to manage and track your investments on your own.
• Through a bank: Many banks offer and facilitate investment services in Gift City funds. You can choose any bank to invest in these funds. However, it is always ideal to seek advice from a financial advisor before investing in these funds, as banks usually promote their own funds or those for which they receive a higher commission. 
• Through a financial advisor: Many financial advisors and online platforms allow you to invest in Gift City mutual funds without any hassle. Moreover, they also offer other value-added services like market research to curate a portfolio that will suit your investment goals and risk appetite.

‍

Benefits Of Investing in Gift City for NRIs

The following are the benefits of investing in Gift City funds for NRIs

• Ease of investment: Gift City funds are denominated in major global currencies, allowing you to invest in them with ease. Moreover, invested funds can be repatriated fully with ease without any restrictions. Here’s a blog on how repatriation works. 
• Diversification: These funds invest in global securities across multiple currencies. They offer the right amount of diversification hedging the risk in the portfolio.
• Tax benefits: Unlike domestic mutual funds, Gift City funds are exempt from tax deducted at source (TDS). Moreover, they operate in tax-friendly jurisdictions, offering lower rates of taxes on capital gains. Apart from this, you can also benefit through different tax treaties signed between India and your country of residence (if any).
• Investor protection: Gift City funds operate under international financial standards. Hence, they ensure strong investor protection metrics are in place.
• Professional management: These funds are managed by experienced fund managers who possess the knowledge and expertise to select securities for the portfolio and generate high returns.

‍

Risks Of Investing in Gift City

The following are the risks of investing in Gift City funds

• High minimum investment: The minimum investment in Gift City funds is USD 150,000 or above, making it only accessible to individuals with sizable investable assets.
• Liquidity: Gift City funds have lower liquidity when compared to mutual funds making it difficult to sell your investments quickly.
• Market risk: These funds invest in marketable securities, and hence, the value of the investments is subject to market fluctuations.‍
• Currency risk: These funds are denominated in foreign currencies; hence, exchange rate fluctuations can affect the returns.

‍

What Are the Tax Incentives Offered Under Gift City to NRIs And OCIs?

The Gift City offers the following tax incentives to NRIs and OCIs:

• Concessional rates of tax on dividend income: The TDS deducted on dividend income on Gift City investments will be lower than the TDS deducted in case of investments outside Gift City.
• Tax-free interest income: Interest income earned from money lent out to IFSC units is completely tax-free.
• Tax benefits on long-term bonds: Rupee-denominated bonds that are listed on the IFSC exchange enjoy lower tax rates. Bonds listed before July 1, 2023, have a 4% tax rate, and bonds listed after this date have a 9% tax rate.
• Tax benefits on listed securities: If an NRI or a Category III AIF located in IFSC transfers a specified listed asset, it is not considered a taxable transfer, and the gains are not taxed in India.
• Income earned on derivatives is tax-free: Income earned from non-deliverable forward contracts, and over the counter derivates entered with a banking unit are exempt from tax. 
• Income earned on financial securities managed by fund managers: Income earned by an NRI from financial instruments managed by a fund manager on behalf of the NRI in an account with a banking unit is exempt from tax as long as accrues outside India and is not considered to arise in India.
• No GST: No GST will be charged on transactions done in the Gift City. 
• No additional indirect taxes: No securities transaction tax, commodities transaction tax, and stamp duty for transactions done on IFSC exchanges.

‍

Conclusion

Gift City funds are a compelling investment opportunity for NRIs and OCIs which can help them diversify their portfolio and maximize returns. However, it is important to consider the inherent risks involved in investing, along with tax implications, and your own goals and resources before investing in them.

‍

Frequently Asked Questions

‍

What is IFSC GIFT City?

International Financial Services Centre (IFSC) Gift City is designed to be India's financial hub and attract international businesses to set up their operations in India. Gift City is regulated by the International Financial Services Centers Authority (IFSCA) to ensure investor protection.

‍

Who can invest in Gift City?

Gift City can accept investments from a wide range of investors, both domestic and international. Domestic investors include individual investors and domestic institutions, whereas international investors include NRIs, Foreign Portfolio Investors (FPIs), Foreign Institutional Investors (FIIs), and global financial institutions.

‍

Is Gift City tax-free?

Gift City offers a unique set of tax benefits for companies setting up their business there and for investors who invest in it. It offers a 100% tax holiday for 10 out of 15 years for companies. Any transaction within the Gift City is exempt from GST. For investors, the interest income on money lent to businesses in Gift City is tax-free, and the dividend and other long-term capital gains also have concessional tax rates.

‍

Can foreigners invest in Gift City funds?

The Gift City is specifically designed to attract foreign investment. Hence foreign investors can invest in Gift City funds. 

‍

Can NRIs own up to 100% in global funds at GIFT City?

Yes, NRIs and OCIs can own up to 100% of global funds at Gift City. This change came after SEBI relaxed the norms for Gift City funds. 

‍

What is the minimum investment for Gift City?

The minimum investment in Gift City is USD 150,000.

‍

‍