The regulatory framework of GIFT City as a Special Economic Zone (SEZ) supports the set-up of various entities offering financial services. Among the financial entities available in GIFT City are Alternative Investment Funds (AIFs), mutual funds, venture capital funds and portfolio management services etc. These funds provide funds which provide access to alternative investment opportunities that are not available through stocks, bonds or mutual funds.
What are GIFT City Funds?
GIFT City funds are funds such as AIFs, mutual funds and venture capital funds operating out of GIFT City.
At the time of writing this, all the GIFT City funds are under AIF structure with minimum investment of USD 150,000. These funds are designed to attract foreign and domestic investors to India. They give investors access to global markets and investment options in international currencies while leveraging the benefits of regulatory frameworks and tax advantages.
Learn why India GIFT City stands out as a world-class financial and tech destination.
Features of GIFT City Funds
The following are the features of GIFT City funds:
Global Regulations
A regulatory body called International Financial Services Centre Authority (IFSCA) under the government of India has been formulated to oversee all the financial activities in GIFT City. IFSCA combines the regulatory powers of RBI, SEBI, PFRDA and IRDA. IFSCA's rules are designed to meet international standards, making it easier and more flexible for global investors to participate.
Global Market Exposure
The regulatory guidelines for GIFT City funds permit investments in global and Indian securities and assets without any limitations. This lets the investors engage in offshore fund management.
Currency Flexibility:
Most of the GIFT City funds are USD denominated which makes it easy for lets the international investors to invest in the funds.
Tax Incentives:
These investment funds come under the jurisdiction of GIFT City SEZ and benefit both fund management entities and investors. They can leverage the tax benefits offered under the zone, such as 10-year tax holiday, exemption on capital gains, interest income, GST (goods and services tax), etc.
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Types of GIFT City Funds
GIFT City mainly offers investment funds in two categories:
Alternative Investment Funds:
AIFs offer greater flexibility to individual and institutional investors in investment strategies in comparison to mutual funds. AIFs enable them to invest in real estate, private equity, start-ups, hedge funds and other alternative assets with the potential for significant returns. Here are the various types of AIFs available in GIFT City:
- Real Estate Funds – mainly invests in real estate projects and assets.
- Hedge Funds – they are specialised AIFs that use advanced investment strategies like arbitrage, long-short equities, and derivatives to optimise return and leverage favourable tax and regulatory environments.
- Infrastructure Funds – invests in infrastructure projects, mainly airports, roads and other public assets, to offer dividend income and capital appreciation to investors.
- Private Equity Funds – invests in unlisted private firms to add diversification to investors' portfolios.
- India focused equity funds - They are also referred to as inbound funds which invest in Indian equities.
- Global focused equity funds - Also referred as outbound funds that invest in global equities. The limit for investment here for resident Indians comes under the Liberalised Remittance Scheme.
Portfolio Management Services (PMS):
PMS in GIFT City offers professional management of investment portfolios to high net-worth individuals and institutions. A dedicated fund manager actively manages these portfolios across various asset classes, aiming to achieve specific investment objectives. Several types of PMS are available:
- Discretionary PMS: In this type, the fund manager has full authority to make investment decisions on behalf of the client based on the agreed-upon investment mandate. The client gives the portfolio manager full control over investment decisions.
- Non-Discretionary PMS: Here, the portfolio manager provides investment recommendations to the client, who retains the final decision-making power. The manager executes trades only after receiving explicit approval from the client.
- Focused/Concentrated PMS: This strategy involves investing in a limited number of carefully selected stocks or assets based on strong conviction and thorough research. This approach maximises returns but may also carry higher risk due to less diversification.
- Advisory PMS: In an advisory PMS, the portfolio manager provides personalised investment advice and creates a tailored investment strategy and asset allocation plan for the client. The client is then responsible for implementing the recommendations and making the actual investment decisions. This is similar to non-discretionary, but the level of ongoing support and customisation might differ.
Benefits of GIFT City Funds
The following are the key benefits of GIFT City funds:
Diversified Global Portfolio
AIFs and PMS in the ecosystem can leverage the benefits of SEZ GIFT City and explore a wide array of investment avenues and opportunities to invest in various real estate, infrastructure projects and more. This helps investors create diverse global portfolios.
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Tax Benefits:
GIFT City funds get the array of tax benefits offered in the special economic zone. This includes a 10-year tax holiday for fund managers. Investors enjoy the benefits of capital gain tax exemption in specified funds (such as Category III AIFs investing in Indian equity mutual funds), interest income exemption, and more. The income earned by non-resident investors from offshore investments made through GIFT City AIFs is not subjected to taxation in India.
Regulatory Advantages
The rules and regulations set by IFSCA are designed to be similar to those used in other major financial centres around the world. It offers transparency, security and ease of entry for both the global investors and the fund managers.
Investment in Foreign Currency:
Entities operating out of GIFT City can use a basket of 15 different currencies to accept investments. This enhances global connectivity and promotes cross-border investments. GIFT City funds for NRIs offer various benefits. NRIs and OCIs can directly invest in GIFT City funds from their foreign bank accounts without needing to open one at GIFT City.
They can invest in GIFT City funds after converting their resident country’s currency to USD. in the currency of their resident country. They can invest directly through asset management companies or through banks and financial advisors.
Professional Fund Management:
Investments are handled by experienced fund managers, allowing investors to focus on their overall financial growth and strategy.
While investing in GIFT City funds offers numerous benefits, investors need to be aware of the risks of investing in this fund, too. This includes higher minimum investment starting from USD 1,50,000, global market volatility, currency rate fluctuations, and liquidity risks.
GIFT City Funds List
GIFT City hosts a growing number of registered fund management entities offering AIF and PMS services to global investors. Here is the list of registered fund management entities with IFSCA.
Conclusion
To conclude, GIFT City funds offer diverse investment opportunities through PMS and AIFs to global investors, including NRIs, foreign investors and institutional investors. Investments can benefit from a tax incentive, favourable regulatory environment, currency flexibility and global market exposure. GIFT City’s world-class infrastructure, cost efficiency, and operational ease for fund managers make it an attractive option for global investors to invest in India’s growing economy.
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