How to Evaluate USD Mutual Funds in GIFT City

A client in Dubai asked us last month: "I found three GIFT City mutual funds. They all say 'USD-denominated' and 'tax-free.' How do I actually tell which one is worth my money?"

Fair question. And one that most NRI finance blogs skip entirely.

They'll tell you GIFT City is great. They'll list the tax benefits. But nobody walks you through how to actually evaluate these funds the way a seasoned investor would.

That changes today.

At Belong, we've spent over two years studying every GIFT City product launch, every IFSCA regulation update, and every fund structure available to NRIs. This guide gives you the exact framework our team uses when advising NRIs on GIFT City mutual fund selection.

Thousands of NRIs in our WhatsApp community ask these questions daily. We've distilled the best answers here.

Let's get into it.

Why Evaluating GIFT City Funds Needs a Different Lens

You can't evaluate a GIFT City fund the same way you'd evaluate an HDFC or SBI mutual fund in India.

Here's why. Regular Indian mutual funds operate in rupees. They're governed by SEBI.

They have decades of track record. The benchmarks, NAV history, and comparison tools are well-established.

GIFT City funds operate under IFSCA regulations, not SEBI. They're denominated in USD (or other foreign currencies).

Most launched after 2023. The ecosystem is still maturing, with over 200 registered fund management entities and combined committed capital exceeding $15 billion as of mid-2025 (Source: IFSCA Bulletin Q1 2025).

So the evaluation toolkit needs adjustment. You need to look at currency impact, regulatory framework maturity, expense structures, fund manager credibility within IFSC, and tax treatment that varies by your country of residence.

👉 Tip: Don't compare a GIFT City fund's returns directly with a domestic Indian fund. The currency denomination alone changes the math. Use Belong's Rupee vs Dollar Tracker to understand the exchange rate impact before making any comparison.

The Currency Math Most NRIs Get Wrong

This is the single biggest mistake we see.

An NRI in Dubai invests AED 50,000 (roughly $13,600) in a regular Indian equity fund when USD-INR is around ₹83.

The fund grows 60% over five years. Looks great on paper.

But when you convert back to dollars at ₹87 per dollar, that 60% rupee return shrinks to roughly 36-40% in dollar terms. The rupee has depreciated about 3-4% annually against the dollar over the past decade (Source: RBI Annual Report).

With a GIFT City USD fund, your $13,600 growing 60% gives you $21,760. No currency surprise. What you see is what you get.

But here's the edge case nobody mentions. If you earn in AED (pegged to USD), a USD-denominated fund works perfectly.

But NRIs earning in GBP, AUD, or CAD still face exchange rate risk between their earning currency and USD.

So step one of evaluation: match the fund's denomination currency with your earning and spending currency.

Inbound vs Outbound: What Are You Actually Buying?

Not all GIFT City mutual funds invest in the same markets. This distinction matters enormously.

Inbound funds invest your USD into Indian equities, bonds, or mutual fund schemes. The Tata India Dynamic Equity Fund is a prime example.

It takes your dollars, invests in Tata AMC's Indian equity mutual funds and ETFs, and gives you returns in dollars. You're betting on India's growth without the hassle of rupee conversion.

Outbound funds invest in international markets. The DSP Global Equity Fund invests in global equities like Amazon, Meta, and Lululemon.

You're accessing world markets through an Indian regulatory framework.

Why does this matter for evaluation? Because the risk profiles are completely different.

An inbound fund carries Indian market risk plus the INR-USD conversion risk at the fund level.

An outbound fund carries global market risk but stays in USD throughout.

👉 Tip: If you're planning to return to India within 5-7 years, an inbound fund makes strategic sense. Your returns ride India's growth and you'll eventually spend in rupees anyway. If you're staying abroad long-term, consider a mix. Compare fund options on Belong.

How to Read Expense Ratios in GIFT City Funds

Expense ratios in GIFT City funds work differently from domestic mutual funds. And they're often higher.

For regular Indian mutual funds, direct plans range from 0.5% (index funds) to 2.5% (actively managed equity). GIFT City funds typically fall in the 2% to 3.5% range (Source: Belong analysis of GIFT City fund disclosures).

That sounds expensive. But context matters.

GIFT City funds are exempt from GST on management fees. There's no Securities Transaction Tax (STT) or Commodities Transaction Tax (CTT).

And for NRIs in zero-tax jurisdictions like the UAE, the tax savings can be 8-10% of returns.

So a fund with a 2.5% expense ratio but zero tax drag can still outperform a domestic fund with a 1% expense ratio but 20% TDS deduction plus GST plus STT.

The real metric is post-tax, post-fee return in your currency. Not the headline expense ratio.

Here's what to check in the offer document:

Management fee: The fund manager's charge. Usually 1-2%.

Operating expenses: Custody, audit, administration. Usually 0.5-1%.

Performance fee: Some GIFT City funds charge this. It's a percentage of returns above a benchmark. Read the fine print carefully.

Exit load: Some funds charge a fee if you redeem early. Retail schemes like the Tata fund typically have lower or no exit loads.

👉 Tip: Always calculate your effective cost by factoring in tax savings. A GIFT City fund costing 2.5% with zero Indian tax can be cheaper than a domestic fund costing 1% with 20% TDS. Use our expense ratio comparison tool to see the real numbers.

Evaluating Fund Manager Track Record in a New Ecosystem

Here's the challenge. Most GIFT City fund management entities (FMEs) are new. The Tata India Dynamic Equity Fund launched in September 2025.

The DSP Global Equity Fund launched in June 2025 (Source: Business Standard).

You can't evaluate a fund with six months of history the way you'd evaluate one with ten years.

So what do you look at instead?

Parent AMC track record.

Tata Asset Management has 30+ years managing Indian mutual funds with over 63 lakh folios. DSP has decades of investment management experience.

The GIFT City entity is a branch or subsidiary, but the investment philosophy and team often overlap with the parent.

Fund manager experience.

Check who's actually managing the fund. Look at their years in the industry, previous fund performance, and investment approach.

The DSP Global Equity Fund's offer document lists its fund managers' credentials, including experience at HDFC AMC, Axis AMC, and JM Financial (Source: DSP Fund Offer Document, November 2025).

FME registration category.

IFSCA registers FMEs in three categories based on risk potential.

Retail FMEs (like Tata and DSP in GIFT City) face stricter compliance requirements. Check the IFSCA directory to verify registration.

Underlying fund performance.

For feeder funds like the Tata India Dynamic Equity Fund, the GIFT City fund invests in the parent's existing Indian mutual fund schemes.

So you can evaluate the underlying funds' 3-year and 5-year returns. Tata's domestic equity funds have delivered 14-20% annualized returns over five years (Source: Groww, Tata Mutual Fund data).

The key insight: you're not just evaluating the GIFT City wrapper. You're evaluating the investment engine underneath it.

👉 Tip: Before investing, check the AMC's credibility through their domestic fund track record. A strong parent AMC is your best proxy for quality in a new ecosystem.

Tax Treatment: What Counts as Your Real Return

Tax is where GIFT City funds gain their sharpest edge. But the rules are nuanced.

For NRIs in the UAE (zero-tax jurisdiction):

Income from GIFT City retail mutual funds is exempt from Indian taxes. No TDS on redemption. No capital gains tax in India.

And since the UAE has no capital gains tax, your returns are entirely tax-free (Source: Finance Act 2025, Section 10(4D) and 80LA).

This is the headline benefit. But verify it against your specific situation.

For NRIs in the US:

GIFT City funds may qualify as Passive Foreign Investment Companies (PFICs) under US tax law.

This can trigger punitive taxation if not handled correctly. You'll need to file Form 8621. The tax treatment depends on whether you make a QEF election or a mark-to-market election.

For NRIs in the UK:

UK tax treatment depends on whether the fund has UK reporting fund status. Without it, gains are taxed as income (up to 45%) rather than capital gains (up to 20%).

What most blogs miss about GIFT City taxation:

The tax holiday for GIFT City entities extends through March 2030 under current provisions (Source: Union Budget 2025).

That's a sunset clause. Nobody can guarantee what happens after 2030.

For the DSP Global Equity Fund, taxes are calculated daily and factored into the NAV. So the NAV you see is already post-tax. No separate TDS, no extra filings.

👉 Tip: Don't assume "tax-free" means tax-free everywhere. It means tax-free in India. Your country of residence may still tax you. Always check the DTAA between India and your country before investing. For UAE NRIs, the math is straightforward and favourable.

Benchmarking: How to Measure Fund Performance Correctly

This trips up even experienced investors.

Say your GIFT City equity fund returned 12% in USD over one year. During the same period, the Nifty 50 rose 15% in rupees.

Did your fund underperform?

Not necessarily. If the rupee depreciated 4% against the dollar during that period, the Nifty 50's return in USD terms is approximately 11%. Your fund actually outperformed by 1% (Source: Belong benchmark analysis).

Here's the correct benchmarking framework:

Step 1: Identify your fund's strategy (Indian equity, global equity, debt, hybrid).

Step 2: Select the right index benchmark for that strategy.

Step 3: Convert benchmark returns to your fund's denomination currency using average exchange rates.

Step 4: Compare over 3+ year periods to smooth out currency volatility.

For inbound funds investing in Indian equities, use the Nifty 50 Total Return Index converted to USD. For outbound global equity funds, use the MSCI World Index in USD.

And sometimes, absolute returns matter more than relative performance.

If your retirement plan needs 7% annual USD returns and your fund delivers 8%, does it matter if a benchmark returned 9%? You've hit your goal.

👉 Tip: Track the GIFT Nifty as a reference point for Indian equity exposure in dollar terms. It gives you a quick sense of how Indian markets perform when measured in USD.

Fund Options Available Today: A Practical Comparison

The GIFT City retail mutual fund ecosystem is still young but growing fast. Here's what's currently available for NRIs:

The Tata fund is the most accessible. At $500 minimum, it shattered the earlier $150,000 barrier that restricted GIFT City to ultra-wealthy NRIs (Source: Business Standard, Sep 2025).

It dynamically allocates 50-100% to broad-based Indian equity funds and 0-50% to sectoral and thematic opportunities.

The DSP fund offers global equity exposure. It holds stocks like Amazon, Meta, and other international companies.

Taxes are built into the daily NAV, so what you see is what you get.

More AMCs including Nippon India and Mirae Asset are planning similar retail launches. The ecosystem is expanding rapidly.

👉 Tip: Don't wait for the "perfect" fund. Start small with $500 in the Tata fund to understand how GIFT City investing works. You can always scale up. Explore all GIFT City mutual funds on Belong.

What Most Blogs Miss: Hidden Risks to Watch

Every article celebrates GIFT City's benefits. Few discuss the risks honestly. Here's what you should factor into your evaluation:

The sunset clause.

GIFT City's tax benefits are guaranteed only until March 2030. The government may extend them (they already extended once in Budget 2025), but there's no certainty. If you're making a 10-year investment decision, this matters.

Feeder fund layers.

The Tata India Dynamic Equity Fund is a feeder fund.

It doesn't buy stocks directly. It buys units of Tata AMC's existing Indian mutual fund schemes and ETFs. That means you're paying expenses at two levels: the GIFT City fund's fees plus the underlying fund's expense ratio. The combined cost can be higher than investing directly.

Limited fund options.

As of early 2026, only a handful of retail mutual fund schemes operate in GIFT City.

You don't have the 40+ AMCs and 2,000+ schemes available in domestic markets. Diversification across fund houses is constrained.

Liquidity considerations.

While retail mutual funds generally offer T+1 or T+2 redemption, getting USD back into your overseas bank account involves international money movement.

This can take 3-5 business days longer than domestic fund redemptions.

Regulatory evolution.

IFSCA updated its Fund Management Regulations in 2025, reducing minimum corpus requirements and easing KMP norms. While this is positive, the rules are still evolving.

What's allowed today might change.

PFIC risk for US NRIs.

If you're a US tax resident, most GIFT City mutual funds qualify as Passive Foreign Investment Companies.

Ignoring PFIC reporting can lead to severe tax penalties.

Read our detailed guide on risks of investing in GIFT City mutual funds for a deeper dive.

Your 7-Point Evaluation Checklist

Before putting money into any GIFT City USD mutual fund, run through this:

1. Currency match.

Does the fund's denomination match your earning currency? If you earn in AED (pegged to USD), you're good. If you earn in GBP, factor in GBP-USD risk.

2. Inbound or outbound?

Do you want Indian equity exposure or global diversification? Match the fund's strategy to your goal.

3. Post-tax, post-fee return.

Calculate your effective return after the fund's expense ratio AND your home country's tax treatment. Don't just compare headline returns.

4. Parent AMC credibility.

Check the parent AMC's domestic track record, AUM, and years in business. Use our AMC evaluation framework.

5. Benchmark in the right currency. Compare performance using USD-adjusted benchmarks over 3+ year periods.

6. Read the offer document.

Specifically check for exit loads, performance fees, lock-in periods, and investment restrictions.

7. Regulatory credentials.

Verify the FME's IFSCA registration number on the IFSCA website. Confirm they're registered as Retail FME if offering retail schemes.

GIFT City MFs vs Other USD Options: How Do They Stack Up?

NRIs have other USD-denominated options. Here's how GIFT City mutual funds compare:

vs GIFT City USD Fixed Deposits: FDs offer guaranteed returns (currently around 5% for USD). Mutual funds don't guarantee returns but offer potentially higher growth.

FDs suit conservative investors. Mutual funds suit those with a 5+ year horizon and higher risk tolerance. Compare FD rates across banks.

vs FCNR Deposits: FCNR deposits are also USD-denominated but sit in regular Indian banks, not GIFT City.

GIFT City mutual funds offer equity exposure and better tax treatment for NRIs. FCNR deposits offer capital safety.

vs Offshore Mutual Funds (Singapore, Luxembourg): Traditional offshore funds have longer track records.

But they lack GIFT City's specific Indian tax exemptions and may have higher minimum investments. GIFT City gives you the offshore advantage within an Indian regulatory framework.

vs Regular Indian Mutual Funds: Domestic funds offer more choices and lower expense ratios but come with 20% TDS on redemption, rupee denomination, and complex repatriation rules.

For amounts above $10,000, at least evaluate GIFT City alternatives.

vs AIFs in GIFT City: If you have $75,000+ to invest (reduced from $150,000 in February 2025 per IFSCA circular), GIFT City AIFs offer sophisticated strategies across private equity, real estate, and hedge funds.

Category III AIFs investing in Indian equity are fully exempt from capital gains tax in India.

Myth vs Reality: Common Misconceptions

Myth: "All GIFT City funds are tax-free."

Reality: They're tax-free in India for non-residents. Your home country may still tax you. UAE NRIs benefit the most. US NRIs face PFIC complexities.

Myth: "You need $150,000 to start."

Reality: That was true for AIFs. Retail mutual funds like the Tata India Dynamic Equity Fund start at just $500 (Source: Tata AMC press release, Oct 2025).

Myth: "GIFT City funds always outperform domestic funds."

Reality: Performance depends on the underlying strategy and market conditions. The advantage is structural (tax, currency, repatriation), not guaranteed alpha.

Myth: "GIFT City is risky because it's new."

Reality: GIFT City is regulated by IFSCA. The banks operating there (SBI, HDFC, ICICI, Axis) are the same trusted institutions, regulated by both IFSCA and RBI.

The regulatory framework is robust and improving. Learn more about GIFT City's pros and cons.

Myth: "Returns are lower because they're in USD."

Reality: USD returns appear lower than INR returns because the rupee depreciates 3-4% annually.

In purchasing power terms, USD returns often match or exceed INR returns when you factor in currency depreciation.

If You're Planning to Return to India: Special Considerations

This is an edge case that changes your entire evaluation.

When you return to India and become a resident, your tax status changes. You may qualify for RNOR (Resident but Not Ordinarily Resident) status for 2-3 years, during which foreign income remains tax-exempt.

But your GIFT City mutual fund investments? Their tax treatment may change once you become a resident.

The current exemptions under Section 10(4D) apply to non-residents. Once you're a resident, capital gains from GIFT City funds may become taxable in India.

Plan your redemption timeline around your residential status transition. Consider redeeming GIFT City holdings during your NRI or RNOR period to lock in the tax-free treatment.

Also evaluate whether the fund's returns justify the capital gains tax you'd pay as a resident. Sometimes switching to domestic mutual funds before returning makes more sense.

👉 Tip: Use Belong's Residential Status Calculator to check when your NRI status will change. This determines your entire tax picture on GIFT City investments.

How to Get Started: Practical Next Steps

Evaluating is step one. Here's how to move from evaluation to action:

Step 1: Confirm your residential status.

You must be an NRI or OCI under FEMA guidelines to invest in GIFT City funds.

Step 2: Complete GIFT City KYC.

This is separate from your domestic KYC. IFSCA implemented video KYC in 2025, so you can complete it remotely in 15-30 minutes. You'll need your passport, overseas address proof, and PAN card.

Step 3: Open a funding account.

Either open a Global Savings Account with an IFSC Banking Unit (ICICI, HDFC, SBI, Axis in GIFT City) or use your existing NRE account to transfer foreign currency.

Step 4: Choose your fund.

Use the evaluation framework above. Start with a small allocation to understand the process.

Step 5: Monitor and rebalance.

Track your fund's performance against the correct USD-adjusted benchmark. Review quarterly.

Making the Right Choice

Evaluating USD mutual funds in GIFT City comes down to five things: match the currency to your life, understand what you're buying (inbound vs outbound), calculate the real post-tax cost, verify the fund manager's pedigree, and benchmark in the right currency.

The ecosystem is young but backed by India's most trusted AMCs and regulated by IFSCA.

For UAE-based NRIs especially, the tax efficiency is hard to beat anywhere in the world.

Start small. Learn the mechanics. Then scale with confidence.

Thousands of NRIs discuss GIFT City fund selection, share experiences, and get updates on new launches in Belong's WhatsApp community. Join them.

And when you're ready to invest, download the Belong app to compare funds, track performance, and access tools built specifically for NRIs.

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The information provided here is for educational purposes and does not constitute investment advice. Past performance does not guarantee future results. Consult a SEBI-registered advisor for personalized recommendations. Tax treatment is subject to individual circumstances and changes in regulation.