How to Evaluate Performance of GIFT City Funds Correctly

A member in our Belong WhatsApp community asked last month: "This GIFT City fund shows 18% returns. Is that good?"

The honest answer? That number alone tells you almost nothing.

Most NRIs evaluate GIFT City funds the same way they'd evaluate a regular Indian mutual fund. They look at headline returns, compare with a friend's recommendation, and decide. 

This approach works poorly even for traditional funds. For GIFT City funds, it's fundamentally flawed.

Here's why: Most GIFT City mutual funds launched between 2022 and 2025. You're working with 2-3 years of data at best. 

Compare this with established Indian funds that have 10-15 year histories showing performance during the 2008 crash, 2020 pandemic, and 2022 correction.

That data simply doesn't exist for GIFT City funds yet. So how do you evaluate them correctly?

Why Traditional Performance Metrics Fall Short

The first mistake NRIs make is using point-to-point returns. You see "18% in 12 months" and assume the fund performed well.

But that single number hides crucial information. Did the fund earn 18% steadily? 

Or did it lose 15% in six months, then gain 33% in a favourable market? The end number looks identical. The investor experience differs dramatically.

Point-to-point returns also depend heavily on when you measure. A fund measured from January to December might show 12%. The same fund measured from March to February might show 22%. 

Neither number lies. Neither tells the complete story.

👉 Tip: Never evaluate any mutual fund using single-period returns. This applies doubly for newer funds with limited history.

Rolling Returns: The Better Starting Point

Rolling returns calculate performance over multiple overlapping periods. Instead of asking "what did this fund return from 2023 to 2025," you ask "what did it return across every possible 1-year period."

For a fund with 3-year history, you'd calculate returns from Jan 2022-Jan 2023, Feb 2022-Feb 2023, March 2022-March 2023, and so on. 

This creates dozens of data points instead of one.

The benefit? You see consistency. A fund with average rolling returns of 14% and a range of 8% to 20% is more predictable than one averaging 14% but ranging from -5% to 35%.

For GIFT City mutual funds, rolling returns become especially important. Since overall history is limited, maximizing data from available history matters.

Use the GIFT City Mutual Funds explorer to compare available fund options before deep analysis.

The Sharpe Ratio: What Really Matters

Returns tell you what you gained. The Sharpe ratio tells you whether those gains justified the risk taken.

A Sharpe ratio above 1.0 is generally considered good. Above 2.0 is excellent but rare. It measures excess returns divided by volatility.

Here's why this matters for NRIs: Two funds might both show 15% returns. Fund A achieved this with steady monthly gains. Fund B swung wildly from +8% to -6% monthly. The Sharpe ratio captures this difference.

For GIFT City investments, combining Sharpe ratio with absolute returns gives a clearer picture than either metric alone.

👉 Tip: Be skeptical of Sharpe ratios above 2.5 from newer funds. Short periods of exceptional performance can inflate this metric artificially.

The Benchmark Puzzle for GIFT City Funds

Every mutual fund compares itself to a benchmark. Indian equity funds compare against Nifty 50. Large-cap funds compare against Nifty 100.

GIFT City funds face a unique challenge. A fund investing in Indian equities through the IFSC structure might benchmark against Nifty 50. But it operates in USD. The benchmark operates in rupees.

This creates comparison difficulties. The fund might underperform Nifty 50 in INR terms but outperform when currency adjustment is applied.

When evaluating performance, ask: Is the fund comparing itself in the same currency as its NAV? If a USD-denominated fund shows underperformance against an INR benchmark, check whether currency depreciation explains the gap.

Track currency movements using the GIFT Nifty tool to understand how market movements translate across currencies.

Currency-Adjusted Returns: The Metric NRIs Miss

This is where GIFT City evaluation differs most from regular fund evaluation.

You earn in dirhams or dollars. You'll spend in dirhams or dollars (unless returning to India). Your returns should be measured in the currency you'll actually use.

A regular Indian mutual fund might show 15% returns in rupees. But if the rupee depreciated 4% against the dollar during that period, your real return in dollar terms is closer to 11%.

GIFT City funds are denominated in USD. A 12% return in USD is actually 12% in your spending currency. No adjustment needed.

When comparing GIFT City funds with traditional options, always convert to the same currency before deciding which performed better. Our comparison between GIFT City and regular mutual funds explains this in detail.

👉 Tip: The rupee has depreciated roughly 3-4% annually against the dollar over the past decade (Source: RBI). Factor this into any comparison with rupee-denominated investments.

What to Check When Data Is Limited

With only 2-3 years of GIFT City fund history, you need to look beyond the fund itself.

Fund Manager Track Record: The same manager often runs similar strategies in mainland India funds. If the GIFT City fund is a feeder investing in an established Indian scheme, check that parent scheme's 10-year history.

AMC Reputation: Major fund houses like Tata, Edelweiss, and DSP bring decades of experience. A newer GIFT City fund from an established AMC carries that institutional knowledge. Compare options in our AIF explorer.

Strategy Consistency: Has the fund stuck to its stated investment approach? Significant style drift within a short period suggests unstable management.

Expense Ratio: GIFT City funds often have higher expense ratios than direct plans of Indian funds. For AIFs, fees can exceed 2%. Ensure performance justifies these costs after fee adjustment.

The Questions That Actually Matter

How did the fund behave during the 2022 correction? Most GIFT City funds existed during this period. Did it fall more or less than peers?

What's the maximum drawdown? This measures the largest peak-to-trough decline. A fund that fell 25% requires 33% gains just to recover.

Does performance come from skill or risk? Positive alpha suggests genuine fund manager skill. Zero or negative alpha means you're paying fees for market exposure available cheaper elsewhere.

Explore available options through the mutual funds product page.

Red Flags to Watch

Performance that looks too good: If a fund shows dramatically better returns than all peers, investigate why. Concentrated bets or leverage might explain it.

Benchmark switching: Some funds change benchmarks when they underperform. Check for consistent comparison standards.

Limited disclosure: IFSCA requires regular reporting. If you can't access monthly factsheets, treat this as a warning.

Regulatory changes: IFSCA prohibited certain US-based ETF investments in 2024, disrupting some funds. Check if shifts affected your target fund.

When Performance Data Isn't Enough

Sometimes 2-3 years of data simply isn't enough for confidence. In such cases, consider alternatives.

Start with smaller allocation and increase as track record builds. A 10% allocation to a promising but unproven fund limits downside while maintaining exposure.

Combine GIFT City funds with USD fixed deposits for the stable portion of your allocation. FDs provide predictable returns while funds build their track record. Review quarterly rather than annually for newer funds.

Your Evaluation Checklist

Before investing in any GIFT City fund, confirm you can answer: What are the rolling returns across all available periods? What's the Sharpe ratio compared to peers? How did the fund behave during 2022? What's the fund manager's track record? Does the expense ratio leave room for competitive net returns?

If you can't answer these, you need more research. That's protection, not criticism.

Many NRIs in our WhatsApp community discuss specific fund performance and share evaluation approaches. Join to learn from others navigating the same decisions.

Download the Belong app to explore GIFT City fund options, compare metrics, and track investments in one place.