How to Choose the Right GIFT City Mutual Fund for Your Risk Profile

"I have $30,000 saved up. I keep hearing about GIFT City funds. But there are AIFs, retail mutual funds, PMS, inbound funds, outbound funds. Which one is right for someone like me?"

We hear this question almost every day in our Belong WhatsApp community. And it tells us something important: NRIs are not confused about whether GIFT City is worth exploring.

They are confused about which door to walk through.

That confusion is fair. GIFT City's fund ecosystem has expanded rapidly. Over 200 funds now operate within the IFSC, fund commitments surged 87% year-on-year to $15.74 billion by March 2025 (IFSCA data), and new retail schemes are launching every quarter.

The options have multiplied, but the guidance has not kept up.

This article fixes that gap. We will help you identify your risk profile, match it to the right category of GIFT City fund, and walk you through the tax treatment, minimum investments, and practical steps to get started.

By the end, you should know exactly which type of fund fits your situation, not just in theory, but in dollars and timelines.

Browse available options on our GIFT City mutual fund finder as you read.

Why Risk Profile Matters More in GIFT City Than in Regular Mutual Funds

With regular Indian mutual funds, choosing the wrong risk level is painful but recoverable. You might pick an aggressive small-cap fund, watch it drop 30%, panic, and switch to something safer.

You lose some money and some sleep, but the process is flexible.

GIFT City funds work differently, and that changes the stakes. Some products have lock-in periods of 3 years or more.

Others require minimum investments of $75,000 or higher. Switching between fund categories is not as simple as clicking a button on an app.

If you pick a Category III AIF when you really needed a retail mutual fund, you have tied up $75,000 for years in a structure that does not match your goals.

If you pick a conservative USD FD when your 15-year timeline called for equity exposure, you leave enormous returns on the table.

Getting the risk match right on day one matters more here than anywhere else in NRI investing.

That is why we are starting with your risk profile, not with product features.

👉 Tip: Do not pick a GIFT City fund based on what your friend invested in or what a bank relationship manager suggested. Start with your own timeline, comfort with volatility, and the amount you can commit without needing access for at least 3-5 years.

A Quick Self-Assessment: What Kind of NRI Investor Are You?

Before looking at any fund, answer these four questions honestly. There are no right or wrong answers. Each combination points to a different product type.

Question 1: How long can you stay invested without touching this money?

If less than 3 years, you need low-volatility, liquid options. If 3-7 years, you can handle moderate risk. If 7+ years, you can absorb significant short-term drops for higher long-term returns.

Question 2: How much can you invest in GIFT City specifically?

Under $5,000 narrows your options to one or two retail schemes. $5,000-$75,000 opens up more retail funds. Above $75,000 unlocks AIFs and PMS, which are the most tax-efficient structures for UAE NRIs.

Question 3: How would you react if your investment dropped 25% in six months?

If you would sell immediately, you need conservative products. If you would wait but feel anxious, moderate-risk products suit you. If you would see it as a buying opportunity, aggressive equity is appropriate.

Question 4: Do you plan to return to India within the next 5 years?

If yes, your fund choice needs to account for the RNOR-to-resident transition and changing tax treatment. If no, you can optimize purely for long-term USD-denominated growth.

Your answers create a profile. Let us now map each profile to the right GIFT City product.

The Four GIFT City Investor Profiles

Based on the questions above, most NRIs fall into one of four profiles. Each has a different ideal product within the GIFT City ecosystem.

This is a starting framework, not a rigid rule. Some NRIs split their allocation across two or three profiles.

That is perfectly fine and often the smartest approach. The key is knowing which bucket each rupee (or dollar) belongs to.

Let us now examine each product category in detail.

GIFT City USD Fixed Deposits: For the Conservative NRI

If your primary concern is capital protection and you want zero exposure to market volatility, GIFT City USD FDs are your starting point.

These are not mutual funds, but they sit at the conservative end of the GIFT City spectrum and deserve mention because many NRIs considering "GIFT City funds" actually need this product first.

How they work: You deposit US dollars with an IFSC Banking Unit (IBU) operated by banks like ICICI, HDFC, Axis, or SBI within GIFT City.

Your deposit and interest are both in USD, eliminating currency risk entirely.

Current rates: Approximately 4-5% per year in USD, depending on the bank and tenure. Compare live rates on our NRI FD rates explorer.

Tax treatment: Interest earned is tax-free in India under the IFSC tax holiday extended through March 2030 (Finance Act 2025).

For UAE-based NRIs with no personal income tax, this means completely tax-free returns.

Minimum investment: Typically $1,000-$10,000 depending on the bank and tenure (GIFT City bank IBU terms).

Who this is for: NRIs who want to park an emergency fund in dollars, hold money for a known expense within 1-3 years, or simply want a risk-free base layer before exploring equity.

Think of it as the foundation of your GIFT City allocation, not the entire building.

👉 Tip: A GIFT City USD FD paying 5% tax-free outperforms most NRE FDs in real terms when you account for rupee depreciation of 3-4% annually. If you are currently holding large sums in NRE savings accounts earning 2.5%, moving even a portion to a GIFT City FD is worth comparing.

Retail Mutual Fund Schemes: For the Moderate-to-Growth NRI

This is the most exciting development in GIFT City for everyday NRI investors. Until 2025, GIFT City was mostly an HNI playground.

Minimum investments of $150,000 kept most middle-income NRIs locked out.

That changed with two landmark launches. In September 2025, Tata Asset Management launched the Tata India Dynamic Equity Fund at GIFT City with a minimum investment of just $500 (Business Standard).

Then in June 2025, DSP Mutual Fund launched the DSP Global Equity Fund, India's first retail offshore fund from GIFT City, with a $5,000 minimum (IFSCA approval).

In December 2025, Edelweiss announced the Edelweiss Greater China Equity Fund through GIFT City, also targeting retail investors with a $5,000 minimum (Business Today).

Mirae Asset has received similar IFSCA approval and is planning retail launches.

These retail schemes fall into two categories, and the distinction matters for your risk profile.

Inbound funds invest your dollars into Indian equity markets.

The Tata India Dynamic Equity Fund is an example. Your money goes into Indian mutual funds and ETFs managed by Tata AMC.

You get Indian equity exposure in a USD-denominated wrapper with GIFT City tax advantages.

Outbound funds invest your money into global equities.

The DSP Global Equity Fund is an example. It invests in 30-50 global companies across the US, Europe, and Asia.

The Edelweiss Greater China Fund targets Chinese, Hong Kong, and Taiwanese markets.

Here is how to choose between them:

Tax treatment for NRIs: For UAE-based NRIs, GIFT City retail funds offer significant advantages over regular Indian mutual funds.

There is no Securities Transaction Tax (STT), no Commodities Transaction Tax (CTT), and no GST on IFSC transactions (IFSCA regulations).

The specific capital gains treatment depends on whether you are investing in an inbound or outbound scheme and the fund's legal structure.

For a detailed comparison with regular Indian mutual funds, read our guide on GIFT City vs regular Indian mutual funds.

Who this is for: NRIs with $500-$75,000 to invest, a 5-10 year timeline, and moderate-to-high risk tolerance.

If you are comfortable with equity markets but want the currency protection and tax efficiency of GIFT City, these retail schemes are your best entry point.

👉 Tip: If you are new to GIFT City investing, the Tata India Dynamic Equity Fund at $500 minimum is the lowest-barrier way to start. You can test the waters, understand how the structure works, and add more over time. Do not wait for the "perfect" fund. The ecosystem is growing, and starting now gives you a compounding head start.

Category III AIFs: For the Aggressive or High-Net-Worth NRI

If you have $75,000 or more to allocate and a timeline of 7+ years, Category III Alternative Investment Funds are the most tax-efficient route to Indian equities from GIFT City.

This is where the real magic of GIFT City's tax structure shines for UAE-based NRIs.

How they work: Category III AIFs pool capital from investors and invest in Indian equity mutual funds, direct stocks, or derivatives.

They operate as open-ended or close-ended structures under IFSCA (Fund Management) Regulations 2025. The fund manager handles all investment decisions, tax compliance, and reporting.

The tax advantage that changes everything: Category III AIFs investing in Indian equity mutual funds are fully exempt from capital gains tax in India under Section 10(4D) of the Income Tax Act.

Your tax liability depends only on your country of residence.

For UAE-based NRIs, this creates a remarkable situation: no capital gains tax in India (GIFT City exemption) plus no personal income tax in the UAE equals 100% tax-free returns on qualifying investments.

No TDS is deducted at source either.

Compare this with a regular Indian equity mutual fund where NRIs face 12.5% long-term capital gains tax (LTCG) on gains above ₹1.25 lakh and 20% short-term capital gains tax (STCG) as per the Finance Act 2024 amendments.

The difference over a decade on a $100,000 investment can be $15,000-$25,000 in saved taxes alone.

Minimum investment: Reduced from $150,000 to $75,000 in February 2025 (IFSCA Circular, February 2025). For accredited investors, some funds offer further relaxed minimums.

Lock-in period: Typically 3 years, extendable by 2 years. This is the trade-off for the superior tax treatment. Your money is not accessible on demand.

Example fund: The Edelweiss India Multimanager Equity Fund invests in 8 carefully selected Indian equity mutual funds across flexi-cap and mid-cap categories.

It provides diversified exposure to India's best fund managers through a single GIFT City wrapper.

Explore AIF options on our GIFT City AIF explorer.

Who this is for: NRIs with $75,000+ who want maximum tax efficiency on Indian equity exposure, are comfortable with a 3+ year lock-in, and live in zero-tax or low-tax jurisdictions like the UAE.

If you currently hold large positions in regular Indian mutual funds and pay LTCG/STCG annually, moving to a GIFT City Category III AIF could save you tens of thousands of dollars over your investment lifetime.

👉 Tip: Do not confuse Category III AIFs with Category I or II AIFs. Category I focuses on startups and infrastructure (high risk, very illiquid). Category II includes private equity (medium-high risk, long lock-ins). Category III, which invests in listed securities and mutual funds, is the one most relevant for NRIs seeking tax-efficient equity exposure.

Portfolio Management Services: For the Tailored Approach

PMS sits between retail mutual funds and AIFs. It offers a personalized portfolio managed by a professional, but with a lower minimum than traditional AIFs.

Minimum investment: $75,000 (IFSCA regulations).

How it differs from AIFs: In PMS, you own the individual securities directly. Your portfolio is customized to your preferences: you can exclude specific sectors, request a dividend-focused strategy, or specify an all-large-cap approach.

In AIFs, your money is pooled with other investors into a single fund structure.

Risk level: Depends entirely on the strategy you choose. A PMS focused on large-cap blue chips is moderate risk. A PMS focused on small-caps or thematic bets is aggressive.

Who this is for: NRIs who have strong views on what they want (or do not want) in their portfolio and have at least $75,000. If you want a "build it for me" experience with customization, PMS is the right fit.

If you are happy with a well-diversified pre-built portfolio, an AIF or retail mutual fund is simpler.

PMS is less common among the NRIs we work with at Belong because AIFs offer better tax treatment for pooled strategies.

But for NRIs who want hands-on portfolio control with professional management, it fills an important gap.

Matching Your Risk Profile: A Decision Flowchart

Let us simplify the decision into a quick flowchart.

Step 1: How much can you invest in GIFT City?

Under $5,000 → Tata India Dynamic Equity Fund ($500 min) or GIFT City USD FD.

$5,000-$75,000 → DSP Global Equity Fund, Edelweiss Greater China Fund, Tata fund, or a mix of retail schemes and USD FDs.

$75,000+ → Category III AIFs (best tax efficiency) or PMS (if you want customization).

Step 2: What is your primary goal?

Capital protection → GIFT City USD FD.

Indian equity growth → Inbound retail fund (Tata) or Category III AIF.

Global diversification → Outbound retail fund (DSP, Edelweiss).

Tax-free compounding → Category III AIF (for UAE NRIs with $75,000+).

Step 3: What is your timeline?

Under 3 years → USD FD only. Equity in any form is too volatile for this horizon.

3-7 years → Retail mutual funds (inbound or outbound). Expect volatility but likely positive returns.

7+ years → Equity-heavy allocation across retail funds and/or AIFs. Time smooths out volatility and maximizes compounding.

This flowchart covers 90% of NRI situations. For the remaining 10% with complex needs (returning to India soon, US/Canada residents, OCI holders), consult a SEBI-registered advisor or explore our GIFT City pros and cons guide.

👉 Tip: Many NRIs we advise split their GIFT City allocation: 30-40% in USD FDs for stability and 60-70% in equity (retail funds or AIFs depending on ticket size). This blend gives you a tax-free safety net in dollars while letting equity do the heavy lifting for long-term growth.

What Most Blogs Miss: The "Return to India" Lens

Every GIFT City fund choice should be evaluated through one additional filter that most articles ignore: what happens when you return to India and become a resident?

Here is the short version.

GIFT City USD FDs: Your FD matures and you receive dollars. As a resident or RNOR, you can convert these to rupees and deposit in your resident account. Interest earned during your NRI period remains tax-free. Simple and clean.

Retail mutual funds: If the fund allows continued holding after status change, your existing units continue to grow.

New investments and redemptions after becoming resident may attract different tax treatment depending on the fund structure and IFSCA regulations at that time.

Category III AIFs: This is where it gets nuanced. The tax exemption under Section 10(4D) applies to the fund entity, not the investor.

So even after you become a resident, gains distributed by the AIF may retain their tax-advantaged treatment depending on how the fund is structured.

Always confirm the specific fund's treatment with a tax advisor before investing.

The key takeaway: if you plan to return to India within 5 years, factor in how your GIFT City holdings will transition. The RNOR window of 2-3 years is valuable for managing this shift.

Ideally, start your GIFT City investments 3-5 years before your planned return so compounding has time to work before your tax status changes.

Risks Specific to GIFT City Funds That You Should Know

No article on choosing the right fund is complete without an honest assessment of risks. GIFT City funds carry some risks that regular mutual funds do not.

Liquidity risk.

Retail schemes launched in 2025-2026 are new. Their Assets Under Management (AUM) are still small compared to established domestic mutual funds.

In a market stress scenario, redemption processing may take longer than you are used to. AIFs have explicit lock-in periods of 3+ years.

Ecosystem maturity risk.

GIFT City's fund ecosystem is growing but still young. As of March 2025, total fund investments were $8.08 billion (IFSCA data).

That is impressive growth but tiny compared to the $700+ billion domestic mutual fund industry. Fewer fund options mean less choice, though this is changing rapidly.

Regulatory evolution risk.

The tax holiday is confirmed through March 2030. But what happens after that? No one knows with certainty.

Investments made today should be evaluated assuming current rules, while acknowledging that tax laws can change.

Fund manager risk.

With fewer retail schemes available, you are placing concentration risk on a small number of fund managers. As more AMCs launch GIFT City products, this risk will reduce.

None of these risks are deal-breakers. But they are real, and you should factor them into your allocation.

This is why we recommend GIFT City as part of your overall portfolio, not your entire portfolio. Pair GIFT City equity with regular Indian mutual funds and GIFT City FDs for a balanced approach.

👉 Tip: The government extending the GIFT City tax holiday through 2030 is a strong signal of policy commitment (Finance Act 2025). But relying on any single tax benefit lasting forever is risky. Invest in GIFT City because the products are good, not only because the tax is favorable.

How to Actually Get Started: Step-by-Step

Knowing your risk profile and the right fund type is half the battle. Here is how to move from decision to action.

Step 1: Open a GIFT City bank account.

You need an account with an IFSC Banking Unit. Major options include ICICI, HDFC, Axis, and SBI. Most now offer video KYC for NRIs, so you do not need to visit India. The process takes 3-7 business days.

Step 2: Fund your account in USD.

Transfer dollars from your UAE bank account to your GIFT City bank account via SWIFT. No currency conversion to rupees is needed. This is a direct USD-to-USD transfer.

Step 3: Choose your fund(s) based on your risk profile.

Use the matching framework above. If you are unsure, start with the lowest-minimum option (Tata fund at $500) and a USD FD. You can always add more sophisticated products later.

Step 4: Complete fund-specific KYC.

Each fund house has its own onboarding process. For retail schemes, this is typically an online form plus document upload. For AIFs, expect a more detailed process including income/net-worth declarations.

Step 5: Set up systematic investments if available.

Some retail schemes allow periodic investments similar to SIPs. This is the best approach for moderate-risk investors who want to spread their entry over time. Automating removes the temptation to time the market.

Track Indian market movements via our GIFT Nifty tracker and compare FD alternatives on our NRI FD rates tool.

A Sample GIFT City Allocation by Risk Profile

To make this concrete, here is how three different NRI profiles might structure their GIFT City allocation.

Profile A: Conservative NRI, $20,000 to invest, 3-year horizon

$15,000 in GIFT City USD FD (1-2 year tenure, auto-renewal). $5,000 in Tata India Dynamic Equity Fund for modest equity exposure.

Expected outcome: stable dollar returns with a small growth kicker.

Profile B: Moderate NRI, $50,000 to invest, 7-year horizon

$15,000 in GIFT City USD FD (safety layer). $20,000 in Tata India Dynamic Equity Fund (Indian equity growth). $15,000 in DSP Global Equity Fund (global diversification).

Expected outcome: balanced portfolio with both Indian and global equity exposure, anchored by a tax-free dollar safety net.

Profile C: Aggressive NRI, $150,000 to invest, 10+ year horizon

$25,000 in GIFT City USD FD (emergency/liquidity). $75,000 in Category III AIF (tax-free Indian equity via Belong's AIF platform). $30,000 in DSP Global Equity Fund (global exposure). $20,000 in Edelweiss Greater China Fund (thematic bet on China recovery).

Expected outcome: aggressive growth with maximum tax efficiency, diversified across India and global markets.

These are illustrative, not prescriptive. Your actual allocation should reflect your specific goals, existing investments in India and abroad, and comfort with volatility. Use our mutual funds platform to explore options.

👉 Tip: Do not put 100% of your investment portfolio in GIFT City. Use it as a powerful, tax-efficient component alongside your regular Indian mutual fund SIPs, NRE FDs, and any UAE-based investments. The 5-layer framework helps you think about this holistically.

The Expense Ratio and Fee Trap: Look Before You Commit

One detail that can quietly eat your returns is the fee structure. GIFT City funds charge differently from domestic mutual funds, and the numbers are not always easy to find.

Retail mutual funds: The DSP Global Equity Fund charges 1.25% per year for direct plans and 2.25% for regular plans (DSP GIFT City).

The Edelweiss Greater China Fund charges 0.50% for direct and 1.50% for regular. These are in line with domestic fund expense ratios, but the difference between direct and regular is significant over a decade.

AIFs: Management fees typically range from 1-2% per year, plus a performance fee of 10-20% above a hurdle rate.

On a $100,000 investment, a 2% management fee plus 15% performance fee on gains above 8% can add up to $5,000-$8,000 annually in a strong market year. Make sure you understand the total cost before committing.

USD FDs: No management fees. The rate you see is the rate you get. This transparency is one reason conservative NRIs prefer FDs as their GIFT City starting point.

Always choose direct plans for retail funds if available. The 0.75-1% annual saving compounds into a meaningful difference over 7-10 years. Read our guide on choosing funds by expense ratio for a detailed breakdown.

The Bigger Picture: GIFT City Is Not a Product. It Is a Platform.

The mistake we see most often is NRIs treating GIFT City as a single investment decision. "Should I invest in GIFT City?" is the wrong question.

The right question is: "Which part of my portfolio should sit in GIFT City, and in what form?"

For conservative money, it is USD FDs.

For growth money, it is retail equity funds or AIFs. For global diversification, it is outbound schemes like DSP or Edelweiss.

GIFT City is not competing with your NRE FDs or your domestic SIPs. It is a complementary layer that adds tax efficiency, currency protection, and regulatory simplicity to your overall NRI portfolio.

At Belong, we built our platform around this understanding. Our GIFT City mutual fund finder compares available options side by side.

Our AIF explorer surfaces Category III funds with their fee structures and minimums. Our FD rates tool lets you compare GIFT City FDs against NRE and FCNR deposits across banks. And our mutual funds platform lets you invest from your phone.

Thousands of NRIs in our WhatsApp community are already building GIFT City portfolios matched to their risk profiles.

Many started with a $500 retail fund or a small USD FD and expanded from there.

The best time to figure out your risk profile and take the first step is today. Download the Belong app to get started.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Mutual fund and AIF investments are subject to market risks. Past performance does not guarantee future results. Tax laws are subject to change; consult a qualified tax professional for advice specific to your situation. GIFT City tax benefits are currently available through March 2030 as per the Finance Act 2025. Minimum investment amounts, expense ratios, and fund availability are subject to change. Always read the scheme-related documents carefully before investing. Belong holds PSP and broker-dealer licences from IFSCA.