How Safe Are GIFT City Investments for NRIs

"My cousin put AED 20,000 into some online scheme last year and lost everything. How do I know GIFT City isn't another one of those?"

We hear versions of this question every week in our Belong WhatsApp community.

The fear is real.

NRIs have been burned by unregulated schemes, shady advisors, and "guaranteed return" promises that vanished overnight.

So when someone says "invest in GIFT City," it's fair to ask: who's actually watching the money?

This article answers that. Not with marketing claims, but with the actual regulatory structure, the protections that exist, and the gaps you should know about.

Who Regulates GIFT City?

Every financial product inside GIFT City falls under one regulator: the International Financial Services Centres Authority, or IFSCA.

It was established in April 2020 under the IFSCA Act, 2019 (source: IFSCA).

Before IFSCA, four separate regulators handled IFSC oversight: RBI for banking, SEBI for capital markets, IRDAI for insurance, and PFRDA for pensions.

That fragmentation created gaps. IFSCA replaced all four with a single unified authority.

This matters because it means one regulator issues licences, conducts inspections, handles grievances, and enforces penalties.

There's no passing the buck between agencies.

IFSCA now oversees more than 1,000 registered entities at GIFT City, with banking assets exceeding $100 billion (source: HSBC-EY India Compendium, December 2025).

Fund management alone has 310 AIFs with $26 billion in total commitments.

👉 Tip: Before investing with any entity, verify their IFSCA registration on the regulator's public directory. If they're not listed, walk away.

Are GIFT City FDs as Safe as Regular Bank FDs?

This is where it gets nuanced. The banks operating at GIFT City are the same ones you already trust: SBI, HDFC, ICICI, Axis Bank.

They run IFSC Banking Units (IBUs), which are essentially foreign-currency branches of these parent banks.

Your deposit is backed by the parent bank's entire balance sheet. SBI's total assets exceed $700 billion. ICICI's exceed $250 billion. These aren't startup banks.

But here's the catch: GIFT City FDs are not covered by India's DICGC deposit insurance.

Regular bank FDs in India have DICGC coverage up to ₹5 lakh per depositor per bank. IBU deposits don't get this protection.

Does that mean your money is unprotected? Not exactly.

IFSCA's Banking Regulations, 2020 require IBUs to maintain capital adequacy ratios and follow strict prudential norms. Regular IFSCA inspections and annual compliance audits add another layer.

Think of it this way. A ₹5 lakh DICGC guarantee covers roughly $6,000. If you're parking $10,000 or more in a GIFT City FD, the DICGC cap wouldn't have covered your full deposit in a domestic bank either.

What protects larger deposits everywhere is the strength of the bank itself, and GIFT City banks are among India's strongest.

👉 Tip: If deposit insurance is a dealbreaker, split your allocation. Keep some in NRE fixed deposits with DICGC coverage and some in GIFT City FDs for tax efficiency.

How Are Mutual Funds and AIFs Protected?

IFSCA's Fund Management Regulations, 2025 include specific investor safeguards (source: IFSCA Fund Management Regulations). Here are the ones that matter.

Mandatory custodian appointment.

Fund managers must appoint an independent custodian to hold your assets separately. Your investments don't sit in the fund manager's own accounts. If the fund manager goes bankrupt, your assets are ring-fenced with the custodian.

Independent NAV computation.

Net Asset Values are calculated by independent service providers, not by the fund manager. This prevents valuation manipulation, a common problem in unregulated schemes.

Minimum corpus requirements.

Funds must maintain a minimum corpus of $3 million. Open-ended schemes can start investment activities with $1 million but must reach $3 million within 12 months. This prevents undercapitalized fly-by-night schemes.

Equal treatment rule.

All investors in a scheme receive equal treatment in distributions. No special deals for select investors at others' expense.

These protections mirror what you'd find in Singapore and Dubai financial centres. They're not identical to SEBI's domestic mutual fund rules, but they follow globally recognized standards.

👉 Tip: Explore IFSCA-regulated GIFT City mutual funds and alternative investment funds through Belong. We only list funds from registered entities.

What About FATCA and International Compliance?

IFSCA mandates FATCA and CRS (Common Reporting Standard) compliance for all entities. This means GIFT City investments align with international tax reporting standards.

For UAE-based NRIs, this is a positive signal.

It means your GIFT City holdings are fully transparent and reportable, which reduces the risk of future complications with tax authorities in your country of residence.

For US-based NRIs, FATCA compliance means your GIFT City accounts will be reported to the IRS automatically.

You still need to file FBAR if aggregate foreign accounts exceed $10,000. GIFT City mutual funds may qualify as PFICs, triggering additional Form 8621 reporting.

The Risks GIFT City Can't Eliminate

Being honest here. Regulation reduces risk. It doesn't eliminate it.

Market risk remains.

If you invest in a GIFT City mutual fund that holds Indian equities, and the market drops 20%, your investment drops 20%. IFSCA regulation doesn't protect against market losses.

Regulatory risk is real.

IFSCA was established only in 2020. Rules are still evolving. In 2025, regulators restricted certain US-based ETF investments through GIFT City, catching some investors off guard. Policy changes can affect product availability and tax treatment.

Liquidity varies by product.

USD fixed deposits have fixed tenures. AIFs typically lock in capital for three years. You can't always exit when you want.

Tax law can change.

The Section 10(4D) exemption and the tax holiday extension to March 2030 are current policy. Governments can amend tax law. The Budget 2025 extension provides five-year certainty, but nothing beyond that is guaranteed (source: Finance Act, 2025).

👉 Tip: Track GIFT Nifty performance to monitor Indian equity markets in real time. Understanding market cycles helps you manage expectations.

How GIFT City Compares to Other Offshore Centres

NRIs often compare GIFT City with Singapore, Dubai DIFC, and Mauritius. Here's what sets it apart on the safety front.

Sovereign backing.

GIFT City is physically in India, backed by the Indian government, and regulated by an Act of Parliament.

Singapore and Dubai also have strong regulatory frameworks, but for NRIs investing in Indian assets, the chain of custody stays within India's jurisdiction.

There's no cross-border legal uncertainty about asset recovery.

Same banks, different branch.

When you deposit money at SBI's GIFT City IBU, it's the same State Bank of India that holds ₹45 lakh crore in total assets.

The parent bank guarantee isn't a marketing promise; it's how IBU structures work.

FEMA treatment.

GIFT City entities are treated as non-residents under FEMA. This means repatriation follows international protocols, not the restrictive NRO account rules that cap annual transfers at $1 million.

A Practical Safety Checklist Before You Invest

Before putting money into any GIFT City product, verify these five things.

First, check IFSCA registration.

Visit the IFSCA public directory and confirm the entity is listed. Every bank, fund manager, and intermediary must be registered.

Second, understand which product you're buying.

A USD FD at a major bank carries different risk than a Category III AIF investing in derivatives. Know the difference.

Third, read the tax implications for your country.

GIFT City is tax-free in India.

That doesn't mean it's tax-free everywhere. UAE NRIs benefit the most. UK NRIs owe self-assessment tax. US NRIs face PFIC rules.

Fourth, check repatriation terms.

Most GIFT City products allow full repatriation. But AIFs have lock-in periods. Know when you can access your money.

Fifth, start small.

Test the process with a $500 mutual fund or a small FD before committing large amounts. Build familiarity with the platform and the regulatory environment.

The Bottom Line

GIFT City is not risk-free. No investment is. But it is one of the most regulated, transparent, and structurally sound investment environments available to NRIs today.

The regulator is real. The banks are real. The investor protections follow global standards. The gaps, particularly around deposit insurance and regulatory youth, are honest trade-offs worth understanding.

For UAE-based NRIs, the combination of IFSCA oversight, established Indian banks, zero Indian tax, and full repatriation makes GIFT City a compelling option, provided you verify what you're investing in.

Compare GIFT City FD rates, explore mutual fund options, and check AIF opportunities on Belong. Thousands of NRIs discuss safety, regulation, and strategy in our WhatsApp community every day. Download the Belong app to get started.

Disclaimer: This article is for informational purposes only. Investment involves risk, including possible loss of principal. Tax laws, IFSCA regulations, and deposit insurance rules are subject to change. Consult a qualified financial advisor before making investment decisions. Belong is an IFSCA-regulated platform (PSP Authorisation No: IFSC/PSP/2025-26/003). Past performance does not guarantee future results.