Liquidity in GIFT City vs Indian Mutual Funds

A question we hear constantly in our WhatsApp community: "If I need my money urgently, which one lets me get it faster?"

It's a fair concern. You're sitting in Dubai or London, and your family in India calls with an emergency. Or a property deal comes through suddenly. The last thing you want is your investment locked up when you need it most.

Here's what surprised us when we started building Belong: most NRIs assume GIFT City funds are "newer, so probably harder to exit." The reality is more nuanced. Both have liquidity strengths and weaknesses that depend entirely on your situation.

At Belong, we've helped many NRIs structure their portfolios across both options. This guide breaks down exactly how fast you can access your money, what it costs, and which scenarios favour each choice.

What Does Liquidity Actually Mean for an NRI Investor?

Liquidity isn't just "can I sell my investment." For NRIs, it means:

Speed: How quickly does money reach your bank account after you click "redeem"?

Cost: What penalties or loads apply if you exit early?

Currency: Does the money arrive in dirhams, dollars, or rupees?

Repatriation: Can you send it abroad, or is it stuck in India?

Each of these factors plays differently for GIFT City mutual funds versus regular Indian mutual funds. Let's examine them one by one.

Redemption Timelines: How Fast Can You Get Your Money?

This is where the differences become clear.

Indian Mutual Funds Settlement Timeline

Indian mutual funds follow SEBI-mandated settlement cycles (AMFI):

"T" means the transaction day. If you redeem before 3 PM on Monday, Tuesday is T+1.

Some liquid funds offer instant redemption up to Rs 50,000 per day, credited within minutes. But here's the catch: this facility is available only to resident Indian investors (SEBI Circular). NRIs cannot use instant redemption.

So if you're an NRI redeeming from a liquid fund, expect T+1 settlement at best.

👉 Tip: Don't assume "liquid" means instant for NRIs. It means next business day, which can stretch to 3-4 days over weekends and holidays.

GIFT City Mutual Funds Settlement Timeline

GIFT City mutual funds operate under IFSCA regulations, not SEBI. The settlement process differs:

Open-ended funds: Can be redeemed when needed, typically T+3 to T+5 business days for the NAV to be processed and funds to reach your account.

Additional time for international transfer: Since GIFT City funds are USD-denominated, redemption proceeds go through international banking channels. This adds 1-2 business days compared to domestic rupee transfers.

The total time from redemption request to money in your UAE or UK bank account is typically 5-7 business days for GIFT City funds.

Compare this to Indian mutual funds redeemed via NRE account: 2-3 business days for settlement, then instant transfer to overseas accounts if using services like Wise or bank wire.

Exit Loads: What Does Early Redemption Cost?

Exit load is the fee charged when you redeem before a specified period. It protects long-term investors from the impact of frequent trading.

Indian Mutual Fund Exit Loads

Most equity mutual funds charge 1% exit load if redeemed within 12 months (SEBI Regulations). After 12 months, you exit free.

SEBI reduced the maximum permissible exit load from 5% to 3% in September 2025 (Business Today).

👉 Tip: For SIPs, each instalment has its own 12-month clock. Your January purchase might be exit-load-free while your December purchase still attracts 1%. Learn more about entry load vs exit load.

GIFT City Mutual Fund Exit Loads

GIFT City mutual funds typically have lower or no exit loads. The Tata India Dynamic Equity Fund in GIFT City, for example, follows similar structures but with the added benefit of no TDS deduction on redemption.

Here's the key difference: even if GIFT City funds have exit loads, the absence of TDS improves your effective liquidity.

The TDS Factor: Why Cash Flow Matters More Than Settlement Time

This is something most comparison articles miss entirely.

When you redeem regular Indian mutual funds as an NRI, TDS (Tax Deducted at Source) is withheld automatically:

So if you redeem Rs 10 lakh from an equity fund with Rs 2 lakh in gains, approximately Rs 24,000-60,000 gets withheld immediately (Income Tax Act).

You can claim this back when filing your Indian ITR. But that's months of lost liquidity, and many NRIs don't file ITR because their only income is investment gains with TDS already deducted.

GIFT City mutual funds have zero TDS. The entire redemption amount hits your account without any deduction (Section 10(4D), Income Tax Act).

This makes a significant difference to actual cash flow, even if the settlement takes slightly longer. For a deeper dive, read our guide on tax on NRI investments.

👉 Tip: For NRIs who need immediate access to full redemption proceeds without tax deductions, GIFT City funds offer cleaner cash flow despite slightly longer settlement times.

Repatriation: Can You Send the Money Abroad?

This is where the two options diverge sharply. Understanding repatriation rules is essential for NRI investors.

Indian Mutual Fund Repatriation

Investments made through NRE accounts are fully repatriable. You can send your principal and gains abroad without restrictions.

Investments made through NRO accounts face limits: maximum USD 1 million per financial year can be repatriated, with Form 15CA/15CB certification required (FEMA Guidelines).

The process involves:

1. Redeem mutual fund (T+2 or T+3)
2. Funds credited to NRE/NRO account
3. Initiate international wire transfer
4. For NRO, submit Form 15CA/15CB
5. Receive funds in overseas account (1-3 business days)

Total time: 4-7 business days from redemption request to money in your UAE or UK account.

For more details, see our guide on repatriating funds from NRO and NRE accounts.

GIFT City Fund Repatriation

GIFT City funds offer 100% repatriation of capital and returns in foreign currency, without FEMA restrictions (IFSCA Regulations).

Since investments are already in USD, there's no currency conversion. Redemption proceeds go directly to your overseas bank account.

Process:

1. Submit redemption request
2. NAV applied (T+1 to T+3)
3. Funds processed through IBU
4. International transfer to your account
5. Receive USD in overseas account

Total time: 5-7 business days.

The difference: GIFT City proceeds arrive in dollars. Indian mutual fund proceeds arrive in rupees, then you convert and transfer.

For NRIs planning to stay abroad long-term, USD-denominated GIFT City proceeds eliminate the extra conversion step and currency risk.

Which Option for Emergency Access?

Let's be practical. If you need money fast for an emergency, which works better?

Indian Mutual Funds win for:

• Small amounts under Rs 5 lakh where TDS impact is manageable
• When you have a well-funded NRE account for immediate transfer
• Liquid fund redemptions where T+1 is sufficient
• When you're comfortable with rupee settlement

GIFT City Funds win for:

• Larger amounts where TDS would lock up significant capital
• When you need USD in your overseas account without conversion
• Long-term investors who've planned liquidity separately
• When you want the full redemption amount without deductions

👉 Tip: Don't rely on either for true emergencies. Keep 3-6 months of expenses in liquid funds or savings accounts for immediate access.

Lock-in Periods: When You Simply Cannot Exit

Some investments have mandatory lock-ins regardless of liquidity needs.

Indian Mutual Fund Lock-ins

• ELSS (Tax-saving funds): 3 years mandatory. No partial redemption allowed before maturity.
• Solution-oriented funds: 5 years or until goal date (retirement, children's education).
• Regular open-ended funds: No lock-in, but exit load applies within 12 months.

GIFT City Fund Lock-ins

• Mutual funds: Generally no lock-in. Open-ended funds allow redemption.
• Alternative Investment Funds (AIFs): Typically 3-year lock-in with 2-year extension possible (IFSCA FM Regulations).

If you're investing in GIFT City AIFs, understand that your capital is committed for the fund's tenure. These are not liquid investments.

SIP Complications: Why Systematic Investments Add Complexity

For SIP investors, liquidity becomes complicated because each instalment has its own timeline.

Example: You started a Rs 25,000 monthly SIP in January 2024. In November 2024, you want to redeem everything.

• January-October instalments (10 months): Each has completed 12+ months. Exit load free.
• November instalment: Less than 12 months old. 1% exit load applies.

The fund house applies FIFO (First In, First Out) for redemptions. Your oldest units get redeemed first.

This applies equally to both Indian mutual funds and GIFT City funds with exit loads.

👉 Tip: Before redeeming a SIP investment, check which units are outside the exit load period. Partial redemption of only those units avoids penalties.

Use our Mutual Funds Explorer to check fund-specific exit load policies.

Currency Settlement: Rupees vs Dollars

This is often overlooked in liquidity discussions.

Indian Mutual Funds

All settlements in Indian Rupees. If you've invested through NRE account, the redemption credits to your NRE account in INR. You then convert and transfer abroad.

The hidden cost: Conversion spread. Banks and forex services charge 0.5-2% on currency conversion. On Rs 10 lakh, that's Rs 5,000-20,000 lost to conversion.

Plus, rupee depreciation between your investment date and redemption date can significantly reduce your dollar returns. A fund growing 60% in rupee terms might only deliver 36% in dollar terms if INR weakens against USD (our analysis).

GIFT City Mutual Funds

Investments and redemptions in USD (or other foreign currencies). No conversion needed for NRIs who earn and spend in foreign currency.

The trade-off: If rupee strengthens significantly, you'd have been better off in rupee-denominated funds. But historically, rupee has depreciated against USD at roughly 3-4% annually, making USD-denomination favourable for long-term NRI investors.

Check historical trends using our Rupee vs Dollar Tracker.

NRE vs NRO vs FCNR: How Your Account Type Affects Liquidity

Your choice of NRI account directly impacts how quickly and easily you can access your mutual fund proceeds.

NRE Account:

• Funds fully repatriable
• No limit on transferring abroad
• Tax-free interest in India
• Best for investments you may need to move overseas

NRO Account:

• Repatriation limited to USD 1 million per year
• Requires Form 15CA/15CB for transfers
• Interest taxable in India
• Best for Indian-source income

FCNR Account:

• Foreign currency deposits
• No currency risk during deposit tenure
• Fully repatriable

For a detailed comparison, read our guide on NRE vs NRO vs FCNR.

👉 Tip: If liquidity and repatriation are priorities, always invest through your NRE account rather than NRO.

Liquidity Comparison Table

Here's a side-by-side summary:

Sources: SEBI, IFSCA, RBI FEMA Guidelines

What About Debt Funds and Fixed Deposits?

For pure liquidity needs, Indian debt funds and fixed deposits remain practical options.

Debt Funds:

• Settlement T+2 business days
• No instant redemption for NRIs
• Gains taxed at slab rate

Fixed Deposits:

• Premature withdrawal possible with penalty
• NRE FDs: Penalty of 0.5-1% on interest
• Deposit insurance up to Rs 5 lakh via DICGC

For a detailed comparison, see debt funds vs fixed deposits.

GIFT City FDs through IBUs offer USD denomination with competitive rates but aren't covered by DICGC. Compare current rates using our NRI FD Comparison Tool.

Practical Allocation Strategy for NRI Liquidity

Based on what we've seen work for NRIs in our community, here's a practical approach:

Immediate access (1-7 days):

• Savings account in country of residence
• NRE savings account in India

Short-term (1-4 weeks):

• Indian liquid or overnight funds via NRE account
• GIFT City FDs for USD liquidity

Medium-term (3-12 months):

• Debt mutual funds in India
• GIFT City mutual funds for tax-free growth

Long-term (1+ years):

• Equity mutual funds in India (if comfortable with rupee)
• GIFT City equity funds (for USD alignment and tax efficiency)

This layered approach ensures you never need to liquidate long-term investments for short-term needs.

👉 Tip: Most NRI liquidity emergencies can be handled with Rs 5-10 lakh kept in NRE savings or liquid funds. Don't over-optimize for liquidity in your entire portfolio.

Returning to India? How Liquidity Changes

If you're planning to return to India, liquidity considerations shift. Use our Compliance Compass to check your current compliance status.

Indian Mutual Funds: Your holdings continue unchanged. You update KYC to resident status. TDS rates may change. Exit loads remain the same.

GIFT City Funds: You can continue holding GIFT City funds after becoming resident. However, some schemes may be restricted to NRIs only. Check with the fund house and update your KYC.

During your RNOR period (first 2-3 years after return), GIFT City funds maintain their tax efficiency. After you become Resident and Ordinarily Resident (ROR), tax treatment changes.

Use our Residential Status Calculator to check your status timeline.

Common Liquidity Mistakes NRIs Make

From conversations in our community, these errors come up repeatedly:

1. Assuming liquid means instant NRIs don't get instant redemption. Plan for T+1 minimum, often T+2 with weekends.

2. Forgetting TDS impact on cash flow You might get Rs 10 lakh redemption, but only Rs 7-8 lakh after TDS. GIFT City's no-TDS advantage matters here.

3. Investing emergency funds in equity Equity is for long-term. A 30% market drop when you need emergency cash is painful.

4. Not checking exit load timelines for SIPs Each SIP instalment has its own 12-month clock. Redeeming early costs money.

5. Ignoring currency conversion costs Moving money from INR to USD costs 0.5-2%. Factor this into your "net liquidity."

Making the Right Choice

Liquidity isn't binary. Both GIFT City and Indian mutual funds offer access to your money, just through different paths.

Choose Indian mutual funds for:

• Faster settlement (T+1 to T+3)
• Larger fund selection
• Rupee-denominated goals

Choose GIFT City funds for:

• Full redemption without TDS
• USD alignment with overseas income
• Tax-efficient long-term wealth building

The smartest approach? Use both. Keep short-term liquidity in Indian liquid funds or NRE accounts. Build long-term wealth in GIFT City mutual funds where the tax benefits compound over time.

Explore options like DSP Global Equity Fund or Edelweiss Greater China Equity Fund for diversified GIFT City exposure.

Track Indian market movements with our GIFT Nifty Live Tracker to time your investment decisions.

Have questions about structuring your portfolio for liquidity? Join our WhatsApp community where NRIs discuss exactly these scenarios daily.

Ready to get started? Download the Belong app to explore both GIFT City and Indian investment options designed specifically for NRIs.

Sources:

• SEBI Mutual Fund Regulations
• IFSCA Fund Management Regulations 2022 (Amended 2025)
• RBI FEMA Guidelines
• Income Tax Act Section 10(4D)
• AMFI Settlement Guidelines
• Business Today