How to Choose Between GIFT City FDs, Mutual Funds, and ETFs

A member of our WhatsApp community in Manchester asked last month: "I've got £40,000 to invest. GIFT City looks promising, but should I go for the safe FD or try the new Tata mutual fund everyone's talking about?"

It's the question we hear most from UK-based NRIs exploring GIFT City. And there's no single right answer -it depends on your goals, timeline, and how much complexity you're willing to manage with HMRC.

At Belong, we've helped hundreds of UK NRIs structure their GIFT City portfolios. This guide breaks down exactly how FDs, mutual funds, and ETFs differ -with specific attention to UK tax implications that most guides miss entirely.

The Three GIFT City Options at a Glance

Before diving deep, here's a quick snapshot of what you're comparing:

👉 Tip: Use our NRI FD Comparison Tool to compare current GIFT City FD rates across banks before deciding.

Understanding Each Option

GIFT City Fixed Deposits: The Safe Haven

GIFT City FDs are term deposits offered by IFSC Banking Units (IBUs) -branches of Indian banks operating within GIFT City's international jurisdiction.

How they work: You deposit foreign currency (USD, GBP, EUR, CAD, AED, AUD, SGD, or HKD) for a fixed period. The bank pays you guaranteed interest. At maturity, you get your principal plus interest -all in the same foreign currency.

Current rates (December 2025):

Rates as of December 2025. Check current rates before investing.

What makes GIFT City FDs different from FCNR:

Why UK NRIs choose FDs:

• Guaranteed returns in hard currency
• Zero India-side tax complications
• No market risk whatsoever
• Simple UK tax reporting (interest income only)
• Protection against rupee depreciation

GIFT City Mutual Funds: India Exposure Without FEMA Hassles

GIFT City mutual funds are offshore funds launched by Indian AMCs operating under IFSCA regulations. They invest primarily in Indian markets while operating in foreign currencies.

The flagship option: Tata India Dynamic Equity Fund

Tata Asset Management launched the first retail mutual fund for NRIs at GIFT City in September 2025:

How GIFT City mutual funds differ from mainland funds:

👉 Tip: Unlike regular Indian mutual funds that often block US and Canada-based NRIs, GIFT City funds are more accessible globally. Verify specific fund restrictions before investing.

Other emerging options:

Several AMCs are launching or planning GIFT City funds:

• DSP Investment Managers
• Edelweiss Asset Management
• Parag Parikh (planning active and passive global funds)
• Multiple AIFs converting to retail-accessible structures

The ecosystem is young but growing rapidly. Expect more options by mid-2026.

GIFT City ETFs: Trade Global Markets from India

Through NSE IFSC and India INX, NRIs can trade ETFs and global equities directly -including Apple, Amazon, Tesla, and major index funds.

What's available:

• Unsponsored Depository Receipts (UDRs) of US stocks
• India-focused ETFs
• Global index-tracking ETFs
• Commodity ETFs
• Bond ETFs

Trading characteristics:

Key advantages for UK NRIs:

• Trade US stocks without US brokerage account
• No Securities Transaction Tax (saves 0.1% per trade)
• 22-hour trading window fits UK timezone
• Single platform for India + global exposure

Current limitations:

• Liquidity still building (lower than US exchanges)
• Limited ETF variety compared to mature markets
• Newer ecosystem with evolving infrastructure

The UK Tax Factor: Why It Changes Everything

Here's where UK NRIs need to pay close attention. Your choice between FDs, mutual funds, and ETFs has significant UK tax implications -especially after April 2025.

FD Interest: The Simplest Tax Treatment

GIFT City FD interest is taxed as savings income in the UK:

The good news: You get a Personal Savings Allowance:

• Basic rate taxpayers: £1,000 tax-free
• Higher rate taxpayers: £500 tax-free
• Additional rate taxpayers: £0

Plus: The India-UK DTAA provides a 15% tax sparing credit, potentially reducing your effective UK tax rate. See our GIFT City tax guide for UK NRIs for detailed calculations.

Reporting: Declare on SA106 (foreign income supplement) as part of Self Assessment.

Mutual Fund Gains: The Reporting Fund Question

This is where it gets complex. How your GIFT City mutual fund gains are taxed depends on whether the fund has HMRC reporting fund status.

If the fund IS a reporting fund:

• Gains taxed as capital gains
• 18% for basic rate / 24% for higher rate
• £3,000 annual exempt amount applies

If the fund is NOT a reporting fund:

• Gains taxed as income (not capital gains!)
• Up to 45% depending on your tax band
• No annual exempt amount
• Significantly worse outcome

The problem: Most GIFT City mutual funds are new and may not yet have reporting fund status. The Tata India Dynamic Equity Fund launched in September 2025 -check if it's on HMRC's reporting fund list before investing.

👉 Tip: Before investing in any GIFT City mutual fund, search HMRC's reporting funds list. If your fund isn't listed, assume gains will be taxed as income at your marginal rate.

ETF Trading: Capital Gains Territory

ETF trades on GIFT City exchanges are generally treated as capital gains in the UK:

Key considerations:

• Each sale is a disposal for CGT purposes
• £3,000 annual exempt amount applies
• Must track cost basis for each purchase
• Currency gains may be separately taxable

Bed and ISA not available: Unlike UK-listed ETFs, you can't transfer GIFT City ETFs into an ISA wrapper.

Decision Framework: Which Option Suits You?

Rather than generic advice, here's how to think through your specific situation:

Choose GIFT City FDs If…

• Capital preservation is your priority
• You want guaranteed returns (even if lower)
• You're building an emergency fund in hard currency
• You prefer minimal tax complexity with HMRC
• You're planning to return to India within 3-5 years
• You're in or approaching retirement
• You already have equity exposure elsewhere (UK pension, ISA)

Typical profile: Conservative investor, 45+, has equity exposure through workplace pension, wants safe USD allocation as currency hedge.

Choose GIFT City Mutual Funds If…

• You want long-term India equity exposure (5+ years)
• You're comfortable with market volatility
• You prefer professional fund management
• You can verify the fund's UK reporting fund status
• You don't want to actively manage your investments
• You have capacity for higher-risk allocation

Typical profile: Growth-oriented investor, 30-45, comfortable with volatility, seeking India exposure without FEMA complications.

Choose GIFT City ETFs If…

• You want to actively trade
• You want global exposure (not just India)
• You're comfortable managing your own portfolio
• You understand CGT record-keeping requirements
• You want flexibility to trade US stocks
• You value the extended trading hours

Typical profile: Experienced investor, comfortable with self-directed investing, wants tactical control over entries/exits.

Sample Portfolios for UK NRIs

Here's how different investor profiles might structure their GIFT City allocation:

Conservative Portfolio (Low Risk)

Expected return: 4-5% annually
UK tax complexity: Low
Suitable for: Pre-retirees, capital preservation focus

Balanced Portfolio (Medium Risk)

Expected return: 6-8% annually (blended)
UK tax complexity: Medium (depends on fund's reporting status)
Suitable for: Mid-career professionals, 5+ year horizon

Growth Portfolio (Higher Risk)

Expected return: 10-12% annually (with volatility)
UK tax complexity: High (multiple reporting requirements)
Suitable for: Younger investors, long horizon, higher risk tolerance

👉 Tip: Start with FDs to understand the GIFT City ecosystem. Add mutual funds or ETFs once you're comfortable with the account structure and reporting requirements.

Practical Considerations Beyond Returns

Minimum Investment Comparison

Liquidity Comparison

Account Opening Requirements

All GIFT City products require:

• Valid passport
• Overseas address proof
• PAN card (for some products)
• Video KYC (introduced July 2025)

Timeline: 3-7 business days for most accounts

The process is similar across products, with video KYC making remote onboarding straightforward.

The UK Reporting Fund Problem: A Deeper Look

This deserves special attention because it can dramatically impact your returns.

What Is a Reporting Fund?

A reporting fund is an offshore fund that has elected to report its income to HMRC annually. This election changes how gains are taxed for UK investors.

Why It Matters for GIFT City Funds

The difference can be 21 percentage points on your gains -nearly double the tax.

Current Status of GIFT City Funds

As of December 2025, most GIFT City mutual funds are new and may not have applied for or received reporting fund status. This is a significant consideration for UK NRIs.

What to do:

1. Check HMRC's reporting funds list before investing
2. Ask the fund house directly about their UK reporting status
3. If unclear, assume the worst (income tax treatment)
4. Consider FDs as an alternative until funds gain reporting status

Why FDs Sidestep This Issue

FD interest is taxed as interest income -straightforward and predictable. There's no "reporting fund" concept for bank deposits. This simplicity is a genuine advantage for UK NRIs who want to avoid tax uncertainty.

Currency Considerations

Available Currencies by Product

For UK NRIs specifically: GBP-denominated FDs are available, letting you avoid GBP-USD conversion costs. This is unique to FDs -mutual funds and ETFs operate in USD.

Currency Risk by Product

If you're planning to spend the money in the UK, GBP-denominated FDs eliminate currency risk entirely.

👉 Tip: Track currency movements with our Rupee vs Dollar Tracker. If you're bullish on USD, USD-denominated products make sense. If uncertain, consider GBP FDs for UK spending.

Common Mistakes UK NRIs Make

Mistake 1: Ignoring Reporting Fund Status

Many UK NRIs invest in GIFT City mutual funds assuming capital gains treatment, only to discover at tax time that the fund isn't a reporting fund. This can nearly double their tax liability.

Solution: Verify reporting status before investing, not after.

Mistake 2: Over-Concentrating in One Product

Some investors put everything into FDs (missing growth) or everything into equity funds (taking excessive risk).

Solution: Diversify across risk levels based on your timeline and goals.

Mistake 3: Forgetting Currency Gains Are Taxable

If GBP weakens against USD during your investment, the currency gain may be separately taxable -even if you haven't converted to GBP yet.

Solution: Keep detailed records of exchange rates at investment and disposal dates.

Mistake 4: Not Claiming Tax Sparing Credit

The India-UK DTAA allows a 15% deemed credit even when India charges 0% tax. Many UK NRIs (and their accountants) miss this.

Solution: Specifically discuss Article 24(5) with your UK tax advisor. See our double taxation guide.

Mistake 5: Treating GIFT City Like UK Investments

GIFT City products are offshore investments. They require different reporting (SA106), different tax treatment, and different record-keeping than UK-based investments.

Solution: Work with an accountant who understands cross-border taxation, not just UK domestic tax.

Step-by-Step: Getting Started

For FDs (Easiest Entry Point)

1. Choose a bank: Compare rates using our FD comparison tool
2. Gather documents: Passport, address proof, PAN card
3. Complete video KYC: 15-30 minutes with the bank's representative
4. Fund your account: Transfer GBP/USD via SWIFT
5. Book your FD: Select tenure and amount online
6. Report to HMRC: Add interest to SA106 annually

For Mutual Funds

1. Verify reporting fund status: Check HMRC list first
2. Open IBU savings account: Required for fund investments
3. Complete fund KYC: May be separate from bank KYC
4. Invest via fund platform: Directly or through distributor
5. Track gains carefully: For CGT reporting
6. Report annually: Reportable income if reporting fund; gains on disposal

For ETFs

1. Open trading account: With IFSCA-registered broker
2. Fund account: Transfer to your GIFT City account
3. Place trades: During 22-hour trading window
4. Maintain records: Cost basis, dates, currency rates
5. Calculate CGT: On each disposal
6. Report to HMRC: In capital gains section

Your Next Step

The right choice depends on your specific situation -there's no universal answer. But here's a practical starting point:

If you're new to GIFT City: Start with a small FD ($1,000-5,000) to understand the ecosystem. Experience the account opening, the reporting, and the repatriation process before committing larger amounts.

If you're ready to grow: Once comfortable, add equity exposure through mutual funds (if reporting fund status is clear) or through the Belong app for managed allocation.

If you want guidance: Join our WhatsApp community where UK NRIs discuss their GIFT City experiences daily. Real questions, real answers, no sales pitch.

Download the Belong app to compare FD rates, explore mutual fund options, and track your GIFT City portfolio -all designed specifically for NRIs.

Disclaimer: This article is for educational purposes only and does not constitute investment or tax advice. Mutual fund investments are subject to market risks. Tax laws change frequently. Consult qualified financial and tax professionals before making investment decisions.

Sources:

• IFSCA – NRI Section
• Tata AMC GIFT City Launch
• GoINRI – GIFT City Funds Guide
• HMRC – Reporting Funds List
• Zerodha – GIFT City Savings Accounts
• Investmates – GIFT City NRI Investment
• HDFC Bank GIFT City
• ICICI Bank GIFT City