GIFT City Mutual Funds vs Indian Mutual Funds - Which is Better

You're earning well outside India. Say Dubai. You've saved up a decent corpus. You want exposure to India's growth story through mutual funds.

But here's where it gets confusing.

Should you invest in regular Indian mutual funds through your NRE account? Or should you explore the newer GIFT City mutual funds everyone's talking about?

At Belong, we've helped many NRIs navigate this exact decision. Through our WhatsApp community, this question comes up almost daily.

The short answer: both give you Indian market exposure. But the tax treatment, repatriation process, and currency handling are completely different.

This guide breaks down everything. By the end, you'll know exactly which option fits your situation.

GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre (IFSC). Think of it as a "deemed foreign territory" within India, regulated by IFSCA instead of SEBI.

GIFT City mutual funds are investment schemes launched by Indian Asset Management Companies (AMCs) specifically in this zone. They're designed for NRIs and foreign investors.

Key features:

• Regulated by IFSCA under Fund Management Regulations 2022 (amended 2025)
• Denominated in foreign currencies (USD, EUR, GBP)
• No mandatory rupee conversion
• Different tax treatment than mainland India funds

The first retail GIFT City mutual fund, Tata India Dynamic Equity Fund, launched in September 2025 with just $500 minimum investment (Source: Business Standard). Before this, GIFT City was primarily for high-net-worth investors with $150,000+ to invest.

👉 Tip: Explore available GIFT City mutual funds using Belong's Mutual Funds Explorer.

What Are Regular Indian Mutual Funds?

These are the mutual fund schemes you're probably familiar with. Offered by AMCs like HDFC, ICICI Prudential, SBI, Axis, and others.

They're regulated by SEBI (Securities and Exchange Board of India) and operate from mainland India.

As an NRI, you can invest in these funds through your NRE or NRO account. The investment happens in Indian rupees.

The Indian mutual fund industry has grown massively. Assets Under Management (AUM) surged from ₹22.26 trillion in March 2020 to ₹69.50 trillion by April 2025 (Source: AMFI).

Tax Comparison: Where GIFT City Funds Win Big

This is the biggest difference. And for UAE-based NRIs, it's a game-changer.

Regular Indian Mutual Fund Taxation for NRIs

When you invest in regular Indian mutual funds, here's what happens:

Equity Mutual Funds:

• Short-term capital gains (held less than 12 months): 20% TDS
• Long-term capital gains above ₹1.25 lakh: 12.5% TDS

Debt Mutual Funds:

• All gains taxed at your slab rate (up to 30%)
• TDS deducted at 30% for NRIs at the time of redemption

The painful part? TDS is deducted upfront, regardless of your actual tax liability. You can claim a refund by filing an ITR, but that means extra paperwork and waiting time.

(Source: Finance Act 2025)

GIFT City Mutual Fund Taxation for NRIs

Here's where things get interesting.

Under Section 10(4D) of the Income Tax Act, capital gains from GIFT City mutual funds registered under IFSCA Fund Management Regulations are exempt from Indian income tax for non-residents.

For UAE-based NRIs:

• No capital gains tax in India (GIFT City exemption)
• No capital gains tax in UAE (zero-tax jurisdiction)
• Result: 100% tax-free returns

(Source: Income Tax Act Section 10(4D))

No TDS is deducted. No ITR filing required (if this is your only Indian income). No PAN card needed for certain fund structures.

👉 Tip: The tax treatment depends on your country of residence. UK and US NRIs may still owe taxes in their home country. Use Belong's Compliance Compass to check your specific obligations.

Tax Comparison Table

*If GIFT City is your only Indian income source.

(Source: IFSCA Fund Management Regulations 2022, amended 2025)

How Repatriation Works: A Critical Difference

Repatriation means moving your money back to your country of residence. This is where many NRIs face unexpected hurdles with regular Indian investments.

Regular Indian Mutual Fund Repatriation

If you invested through an NRE account:

• Principal and gains are fully repatriable
• No annual limit
• Simple process

If you invested through an NRO account:

• Limited to USD 1 million per financial year
• Requires Form 15CA (self-declaration) and Form 15CB (CA certification)
• Tax clearance needed before repatriation

The NRO route involves more paperwork and the annual cap can be restrictive if you have multiple Indian investments.

(Source: FEMA Regulations)

GIFT City Mutual Fund Repatriation

This is much simpler.

Both principal and returns are fully repatriable in foreign currency to your country of residence. No complex FEMA formalities. No mandatory INR conversion. No annual caps.

You get your money back in the same currency you invested. If you put in $10,000 and it grew to $15,000, you get $15,000 back. No conversion losses.

👉 Tip: For NRIs planning to stay abroad long-term, GIFT City's repatriation simplicity is a significant advantage.

The Currency Factor: Why It Matters More Than You Think

Let's talk about something most comparison articles miss: currency depreciation.

The Hidden Cost of INR-Based Investments

Say you're in Dubai, earning in dirhams. You convert $13,600 to approximately ₹10 lakh and invest in an Indian mutual fund in January 2023 when the exchange rate is ₹73.50 per dollar.

Fast forward to October 2025. The fund grew 60% to ₹15,45,600. Great returns, right?

But when you convert back at ₹83.50 per dollar (today's approximate rate), you get $18,510. That's only a 36% return in dollar terms, not 60%.

Currency depreciation ate 24% of your gains.

(Source: RBI Reference Rates)

GIFT City's Currency Protection

With GIFT City funds, your $13,600 investment growing 60% gives you $21,760. No currency surprise.

The investment, growth, and redemption all happen in your chosen foreign currency. The rupee's movement against the dollar doesn't affect your returns.

Track historical INR vs USD trends using Belong's Rupee vs Dollar Tracker to see why this matters.

Minimum Investment: Who Can Access What?

Regular Indian Mutual Funds

Very accessible. Most funds allow SIPs starting at ₹500 (approximately $6). Lump sum investments can start at ₹5,000.

This low entry barrier makes Indian mutual funds accessible to almost everyone.

GIFT City Mutual Funds

This was a major barrier until recently.

Until September 2025:

• Alternative Investment Funds (AIFs): $150,000 minimum (reduced to $75,000 in February 2025)
• PMS: $75,000 minimum
• No retail mutual fund options

Now:

• Tata India Dynamic Equity Fund: Just $500 minimum
• More retail launches expected from Nippon, Mirae Asset, and others

(Source: IFSCA Circular February 2025)

👉 Tip: Start with $500 in GIFT City retail funds to understand the process before committing larger amounts.

KYC and Account Setup Compared

For Regular Indian Mutual Funds

You need:

1. NRE or NRO bank account
2. PAN card
3. KYC completion with the AMC
4. Address proof and passport copy

The process takes 3-7 days. Some AMCs restrict NRIs from the US and Canada due to FATCA/CRS compliance.

Not sure about your NRI status? Use Belong's Residential Status Calculator.

For GIFT City Mutual Funds

IFSCA implemented video KYC in 2025, making the process fully remote.

You need:

• Valid passport (6 months minimum validity)
• Overseas address proof (utility bill or bank statement under 3 months old)
• Residence visa proving NRI status
• Stable internet for video verification

No NRE/NRO account required. You can fund investments directly from your overseas bank account.

For certain AIF structures, you don't even need a PAN card if the fund handles taxes at the fund level.

(Source: IFSCA KYC Guidelines 2025)

Returns Comparison: What Can You Expect?

Let's address the question everyone asks: which gives better returns?

The Direct Answer

The underlying returns can be similar because both invest in Indian markets. A GIFT City fund investing in Indian equities and a regular Indian equity mutual fund might both grow 15% in a year.

But your real returns differ because of:

1. Tax leakage: Regular funds have TDS deducted; GIFT City funds don't
2. Currency impact: INR depreciation reduces dollar-denominated returns for regular funds
3. Transaction costs: No STT/CTT in GIFT City

A Practical Example

You invest $10,000 for 3 years. Both funds grow 50% in rupee/underlying terms.

This is simplified, but it illustrates why the same "50% return" translates differently for NRIs.

US and Canada NRIs: Special Considerations

If you're based in the US or Canada, both options have complications.

Regular Indian Mutual Funds

Many AMCs don't accept US/Canada NRIs due to FATCA compliance requirements. Those that do may require physical presence in India for transactions.

GIFT City Mutual Funds

Most GIFT City funds are likely classified as PFICs (Passive Foreign Investment Companies) under US tax law. This triggers complex reporting requirements and potentially unfavorable tax treatment.

(Source: IRS PFIC Guidelines)

Canadian NRIs face similar foreign property reporting requirements with the T1135 form for holdings exceeding CAD 100,000.

👉 Tip: US and Canada NRIs should consult a cross-border tax specialist before investing in either option.

When Regular Indian Mutual Funds Make More Sense

Despite GIFT City's advantages, regular Indian mutual funds might be better if:

1. You're planning to return to India soon: You'll eventually be a resident, and RNOR status gives you some tax benefits initially.

2. You want to start very small: ₹500 SIPs aren't possible in GIFT City yet.

3. You need specific fund options: Not all fund categories are available in GIFT City yet. If you want a specific small-cap or sectoral fund, regular Indian MFs have more variety.

4. You're already invested and happy: Switching has costs. If you're comfortable with your current setup and returns, there's no urgency to change.

5. Your NRE account is well-funded: Full repatriability and tax-free interest make NRE accounts powerful. Compare NRE FD rates to optimize your fixed-income allocation.

When GIFT City Mutual Funds Are the Clear Winner

Choose GIFT City if:

1. You're in a zero-tax jurisdiction (UAE, Singapore, etc.): The tax-free combination is unbeatable.

2. You plan to stay abroad long-term: Currency protection and simple repatriation matter more.

3. You have $500+ to invest: The new retail funds have lowered the entry barrier.

4. You want to avoid TDS hassles: No upfront deduction means no refund claims.

5. You value simplicity: No NRE/NRO required, no complex FEMA compliance.

Read more: GIFT City Tax Benefits for NRIs

The Belong Perspective: What We Recommend

At Belong, we've spent years understanding NRI investment challenges. Here's our honest take:

For UAE-based NRIs with a long-term horizon, GIFT City mutual funds offer a structurally better deal. The tax efficiency and currency protection compound over time.

But we also recognize that GIFT City is newer. The ecosystem is still building. Regular Indian mutual funds have decades of track record and more fund choices.

Our suggestion? Consider a hybrid approach.

Keep your existing Indian mutual fund investments running. Start exploring GIFT City with the new $500 retail funds. As you get comfortable, gradually shift your new investments.

Don't rush. Understand both. Make informed decisions.

👉 Tip: For personalized guidance, join Belong's WhatsApp community where many NRIs share their experiences.

Explore current options: GIFT City Mutual Funds on Belong

Making Your Decision

The GIFT City vs regular Indian mutual fund debate doesn't have a universal answer. It depends on:

• Your country of residence and tax situation
• Your investment horizon
• Your comfort with new platforms
• Your repatriation needs
• Your existing investments

What's clear is that NRIs now have better options than ever before. The government's continued support for GIFT City (tax holiday extended to March 2030 in Budget 2025) signals its importance.

Take time to understand both options. Start small if you're exploring GIFT City. And always consider your overall financial picture, including FDs, real estate, and retirement planning.

Next Steps

1. Check your eligibility: Use the Residential Status Calculator

2. Compare FD rates: While you research mutual funds, optimize your fixed-income with Belong's NRI FD Comparison Tool

3. Explore GIFT City funds: See available options in the Mutual Funds Explorer

4. Join the community: Connect with fellow NRIs on Belong's WhatsApp group

5. Download the Belong App: Get started with tax-efficient USD investments

Sources:

• Income Tax Act Section 10(4D)
• IFSCA Fund Management Regulations 2022 (Amended 2025)
• Finance Act 2025
• RBI FEMA Guidelines
• AMFI Industry Data
• Tata Asset Management GIFT City

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Tax treatment depends on individual circumstances and may change. Consult a qualified financial advisor and tax professional for personalized guidance.