Are GIFT City Investments Covered Under Indian Investor Laws

"Is my money in GIFT City as safe as my NRE FD?"

We hear this question almost daily in our Belong WhatsApp NRI community.

It comes from careful NRIs who've spent years trusting Indian banks. Now someone is asking them to invest in a zone that's "in India but not really in India."

The confusion is understandable. GIFT City sits in Gujarat. Indian banks operate there. Indian fund houses manage money there. So naturally, you'd assume Indian investor protection laws apply.

They do. But not in the way you'd expect.

GIFT City doesn't fall under SEBI or RBI for most purposes. It has its own regulator called IFSCA. The rules are different. The protections exist, but they're structured differently. And that gap in understanding is where NRIs either hesitate or make mistakes.

This article covers everything you need to know. Who regulates GIFT City. How your money is protected. Where the gaps are. And what to watch out for before you invest.

You can explore GIFT City products like USD FDs and mutual funds on Belong's FD comparison tool to see what's available right now.

Why NRIs Confuse GIFT City With Regular Indian Investments

The confusion starts with the banks.

SBI, HDFC, ICICI, Axis, Kotak. These are the same names you see in GIFT City. They operate through IFSC Banking Units (IBUs). Same logos. Same parent company. Same trust.

But these branches follow different rules. They report to IFSCA, not RBI. Their deposits aren't governed by the same regulations that cover your NRE or NRO accounts.

Here's the key distinction. Under FEMA (Foreign Exchange Management Act), GIFT City is treated as foreign territory. RBI codified this through an amendment in October 2025 (source: RBI). Even though it's in Gujarat, it operates as an offshore financial zone.

This is similar to how Singapore's financial district or Dubai's DIFC works. A special jurisdiction with its own rulebook. India created GIFT City to compete with these global hubs.

👉 Tip: When an advisor says "GIFT City is like investing abroad from India," they're legally correct. FEMA treats it exactly that way. Your money is in India geographically but offshore legally.

Who Regulates GIFT City? The IFSCA Explained

IFSCA stands for International Financial Services Centres Authority. It was established on April 27, 2020 under the IFSCA Act, 2019 (source: IFSCA).

Before IFSCA, GIFT City was regulated by four separate bodies. RBI handled banking. SEBI handled capital markets. IRDAI handled insurance. PFRDA handled pensions. This created confusion and delays.

The government merged all four regulatory powers into one body. IFSCA is now the "single window" regulator for everything inside GIFT City.

Think of it this way. SEBI regulates your Indian mutual fund. RBI regulates your NRE account. IFSCA regulates your GIFT City mutual fund and your GIFT City USD FD. One regulator for everything in that zone.

IFSCA has legal authority to make regulations, conduct inspections, resolve disputes, and take enforcement action. These powers come from the IFSCA Act, 2019, passed by Parliament (source: PRS Legislative Research).

IFSCA's chairman is appointed by the Government of India. The board includes nominees from RBI, SEBI, IRDAI, and PFRDA. So while it's independent, it connects to India's main regulators.

👉 Tip: Before investing in any GIFT City product, verify that the entity is IFSCA-registered. Check the IFSCA directory on their official website.

IFSCA vs SEBI vs RBI: What's Different for You

This is where the practical differences matter most.

Regulation of mutual funds: Your Indian mutual fund is regulated by SEBI. Your GIFT City mutual fund is regulated by IFSCA. Both require registration, compliance, and disclosure. But the specific rules differ.

IFSCA's Fund Management Regulations, 2025 govern how fund managers operate in GIFT City. These require mandatory custodial arrangements and NAV computation by independent providers. They also mandate pari-passu treatment of investors (source: IFSCA).

Regulation of banking: Your NRE FD is regulated by RBI. Your GIFT City USD FD is regulated by IFSCA under its Banking Regulations, 2020. IBUs must maintain capital adequacy ratios aligned with Basel III norms.

Investor grievance handling: With SEBI-regulated products, you complain through SCORES. That's SEBI's Complaints Redress System. With GIFT City products, SCORES does not apply. IFSCA has its own grievance mechanism, effective April 1, 2025 (source: IFSCA circular, Dec 2024).

👉 Tip: The regulatory framework isn't weaker. It's different. IFSCA follows global standards used in Singapore and Dubai. But know which rules apply before you invest.

The Deposit Insurance Question Every NRI Must Understand

This is the single biggest difference. And most NRIs don't know about it.

Your NRE FD at SBI or HDFC is covered by DICGC. DICGC stands for Deposit Insurance and Credit Guarantee Corporation. It's an RBI subsidiary. If your bank fails, DICGC protects up to ₹5 lakh per depositor per bank. This coverage is automatic.

GIFT City deposits are not covered by DICGC. Axis Bank's GIFT City FAQ says this clearly: "Not covered in the RBI Deposit insurance scheme" (source: Axis Bank). ICICI Bank's documentation confirms the same.

Does this mean your money is at risk? Not exactly.

GIFT City deposits are protected differently. The banks operating IBUs are the same large Indian banks. Your deposit is backed by the parent bank's entire balance sheet. Not just the IBU's capital.

IFSCA requires IBUs to follow strict prudential norms. Capital adequacy, regular audits, and compliance reporting are mandatory. These standards align with Basel III. That's the same framework banks follow globally.

The practical risk is low. SBI, HDFC, and ICICI aren't going bankrupt tomorrow. But "implicit protection from strong banks" is not "explicit government guarantee."

If you need that guarantee, traditional NRE or FCNR deposits in mainland India may feel safer. Compare rates across both using Belong's FD rate tool.

👉 Tip: For deposits above ₹5 lakh, DICGC protection is partial anyway. Spread large deposits across multiple banks. In GIFT City, stick to major banks with strong parent credit ratings.

How Your Money Is Actually Protected in GIFT City

Beyond deposit insurance, GIFT City has several investor protection layers.

Custodial safeguards for funds: When you invest in a GIFT City mutual fund or AIF, your money is held by an independent custodian. Not the fund house. If the AMC shuts down, your units transfer to another fund house. You don't lose your money. IFSCA regulations mandate this separation (source: IFSCA Fund Management Regulations, 2025).

Capital adequacy for banks: IBUs must maintain minimum capital. For Indian bank IBUs, the parent must provide at least USD 20 million. IFSCA can increase this based on business scale.

Mandatory audits and reporting: Every GIFT City entity undergoes annual compliance audits. IFSCA conducts its own inspections too. Financial disclosures and operational reports are submitted regularly.

Anti-money laundering compliance: GIFT City entities follow AML and KYC norms prescribed by IFSCA. This protects investors from fraud. Only verified individuals can transact.

Stewardship Code (2025): IFSCA released a Stewardship Code requiring fund managers to practice responsible investing. This includes ethical conduct, transparency, and active ownership (source: IFSCA circular, 2025).

Upcoming Consumer Charter: IFSCA has announced a forthcoming Consumer Charter. This will strengthen investor rights and set clear expectations for regulated entities (source: EY GIFT City report, Dec 2025).

👉 Tip: Ask your fund house or bank for their IFSCA registration number. Legitimate entities share it readily. If they can't, walk away.

What Happens if Something Goes Wrong

This is a practical concern. If you have a complaint, who do you call?

IFSCA issued a formal circular on complaint handling in December 2024. The mechanism became effective on April 1, 2025 (source: IFSCA).

Here's how the process works.

Step 1: Contact the entity's Complaint Redressal Officer (CRO). Every IFSCA-regulated entity must appoint one. The CRO should respond within 15 working days.

Step 2: If you're not satisfied, escalate to the Complaint Redressal Appellate Officer (CRAO). This person must be a senior executive. At least one level below Key Managerial Personnel.

Step 3: If still unresolved, file directly with IFSCA. Email: [email protected]. File within 21 days of the entity's final response.

This is simpler than SEBI's SCORES in some ways. But it's also newer. The mechanism is less than a year old. There's no public track record yet.

Compare this with RBI's Ombudsman scheme. It has processed NRI complaints for decades. SEBI's SCORES has handled millions of investor grievances.

The IFSCA infrastructure exists. The question is how robust it becomes as GIFT City scales.

👉 Tip: Before investing, ask the GIFT City entity for their CGR Policy. CGR stands for Complaint and Grievance Redressal. Every regulated entity must have one.

What GIFT City Borrows From Indian Law (and What It Doesn't)

GIFT City isn't lawless. It borrows heavily from Indian financial law. But it applies those laws selectively.

The IFSCA Act gives IFSCA power to use provisions from existing Indian laws. These include the RBI Act, Banking Regulation Act, SEBI Act, Depositories Act, Insurance Act, and FEMA (source: IFSCA Act, Schedule).

In practice, IFSCA can adopt SEBI's listing norms or RBI's banking regulations. But it can also modify or exempt certain provisions.

For example, IFSCA uses SEBI's rules as a base for capital market regulation. But it removes restrictions that don't suit an international center. No Securities Transaction Tax. No Commodity Transaction Tax. No stamp duty on GIFT City exchanges.

Banking operations follow RBI's prudential framework. But DICGC coverage is excluded. GIFT City is offshore territory under FEMA.

The Indian Income Tax Act does apply. But with significant exemptions. Sections 10(4D) and 10(4E) create tax-free treatment for specific GIFT City investments (source: Income Tax Act).

This selective adoption is by design. India wants GIFT City to compete globally. Applying every domestic rule would defeat that purpose.

👉 Tip: Don't assume that rules applying to your NRE FD also apply in GIFT City. Verify with the specific IFSCA regulation. Not general Indian banking rules.

GIFT City vs Singapore vs Dubai: How Protection Compares

NRIs often invest through Singapore or Dubai. Here's how GIFT City stacks up.

Singapore's MAS has operated for over 50 years. Its deposit insurance covers SGD 100,000. Its frameworks are time-tested.

Dubai's DIFC has its own courts, regulator (DFSA), and dispute resolution authority. It's been active since 2004. Twenty years of track record.

GIFT City's IFSCA is five years old. The framework is modern and well-designed. But it's still building reputation. The complaint mechanism is less than a year old.

For safe investment decisions, this context matters. GIFT City's regulations are sound on paper. Track record is what's still building.

The advantage? GIFT City is backed by Indian banking infrastructure. SBI, HDFC, and ICICI aren't startups. Their presence carries decades of credibility.

Explore what GIFT City banks currently operate there and what they offer.

What Happens to GIFT City Investments if You Return to India

This edge case matters and most articles skip it.

When you return to India, your residential status changes. You become a resident. Eventually, Resident and Ordinarily Resident (ROR).

Your existing GIFT City investments don't vanish. But rules change.

During the RNOR period (typically 2 to 3 years after return), overseas income stays tax-free. Your GIFT City returns continue enjoying favorable treatment.

Once you become ROR, India taxes your global income. GIFT City earnings become taxable. The tax benefits may no longer fully apply.

Some GIFT City schemes are restricted to NRIs only. Your fund house may require you to redeem after status change. Check with the AMC before investing.

The IFSCA regulatory protection doesn't change when you move back. But the tax treatment does.

👉 Tip: If you plan to return within 5 years, invest in GIFT City while still an NRI. Investments continue during RNOR years. But plan your exit strategy before your status fully changes.

What Most Blogs Miss: GIFT City's Regulatory Gaps

No financial center is perfect. Here's what to know.

No deposit insurance. This is the biggest gap vs mainland India. For NRIs who need guaranteed protection, traditional NRE/NRO investments offer DICGC cover.

Young track record. IFSCA was established in 2020. Five years can't match 50 years of SEBI or RBI experience. Rules are well-drafted but enforcement history is thin.

No SCORES access. SEBI's investor complaint platform doesn't apply. IFSCA's email system works but hasn't been tested at scale.

Evolving regulations. IFSCA issues frequent amendments. Fund Management Regulations saw multiple changes in 2025 alone. Updates signal progress but also mean shifting rules.

Limited product depth. The mutual fund ecosystem is growing but not as deep as mainland India. Fewer fund options means less choice.

These aren't reasons to avoid GIFT City. They're reasons to invest with awareness. Understanding the pros and cons helps you decide better.

A Pre-Investment Checklist for GIFT City

Run through this before committing money.

Explore alternative investment funds and mutual funds through Belong to find what fits.

Track market movements with the GIFT Nifty tracker to stay informed on Indian market performance.

The Belong View

At Belong, we hold PSP and broker-dealer licences from IFSCA. We've studied every regulation, circular, and amendment that applies to NRI investments in GIFT City.

We built our platform inside this framework for a reason. GIFT City offers NRIs something no other Indian channel can. Tax-free returns, USD denomination, and full repatriation. Without the paperwork of traditional routes.

But we also believe in transparency. GIFT City's protections are real but different from what you're used to. Knowing the difference makes you smarter.

Many NRIs in our WhatsApp community discuss these questions openly. Which banks are safest. Which funds are IFSCA-registered. How the grievance process works. Join the conversation if you want clarity from people who've done the homework.

Download the Belong app to explore IFSCA-regulated products. And join our WhatsApp community for honest discussions about GIFT City investing.

Disclaimer: This article is for informational purposes only. It does not constitute financial or legal advice. Regulatory frameworks change. Verify current rules with IFSCA, SEBI, or a qualified advisor before investing.