Should GIFT City Funds Replace Your Overseas Investments

A member of our WhatsApp community in Abu Dhabi asked us a question last month that we hear often: "I have $200,000 split between a Vanguard S\&P 500 ETF and a UK ISA. Should I move everything into GIFT City?"

The short answer? No. Not everything.

But the longer answer is what actually matters. And it is what most articles get wrong.

At Belong, we talk to hundreds of NRIs every month about exactly this. The right answer depends on where you live, what you already own, and what you are trying to achieve.

Here is how we think about it.

Where GIFT City Clearly Wins

For NRIs in zero-tax countries like the UAE, Bahrain, Kuwait, Oman, or Qatar, GIFT City funds offer a genuine structural advantage over most overseas investments.

Capital gains from specified GIFT City funds are exempt from Indian income tax under Section 10(4D).

No TDS. No Indian ITR filing. Combined with zero personal income tax in the UAE, your returns can be completely tax-free.

Source: Income Tax Act Section 10(4D), IFSCA Fund Management Regulations 2022 (Amended 2025)

Compare that to a US-domiciled ETF. Even as a non-US person, you pay 30% withholding tax on dividends (reducible to 12.5-15% under some DTAA treaties). You also face US estate tax risk of up to 40% on US-situs assets above $60,000 if something happens to you.

GIFT City funds have no estate tax exposure, no dividend withholding, and full repatriation without the Form 15CA/15CB paperwork that domestic Indian investments demand.

👉 Tip: For India-specific exposure, GIFT City beats overseas alternatives on almost every metric for Gulf NRIs. Funds like the Tata India Dynamic Equity Fund give you Nifty exposure in USD, tax-free. No overseas India ETF can match that.

Where Overseas Investments Still Win

GIFT City is powerful. But it is young. Here is what it cannot replace today.

Depth and variety. The S\&P 500 alone has $7 trillion in ETF assets tracking it. Thousands of funds cover every sector, geography, and strategy imaginable. GIFT City hosts over 200 fund entities as of mid-2025 (Source: IFSCA Bulletin Q1 2025), but the range of outbound funds, particularly for non-India global exposure, is still limited.

The DSP Global Equity Fund and Edelweiss Greater China Equity Fund are solid options. But they cannot cover every global allocation need.

Track record.

Most GIFT City mutual funds launched in 2025. You are trusting the fund manager's domestic track record, not years of GIFT City-specific performance data.

Overseas ETFs like Vanguard or iShares products have 10-20 year track records across full market cycles.

Liquidity.

Large US or UK-listed ETFs trade billions of dollars daily. GIFT City fund liquidity is developing but not at that scale.

If you manage large sums and need instant exit, overseas products are more liquid.

SIP infrastructure.

Domestic Indian mutual funds and overseas platforms offer seamless monthly SIPs. GIFT City SIP options are available but not yet as deeply integrated.

👉 Tip: Do not abandon a well-performing overseas portfolio just because GIFT City exists. Keep what works. Add GIFT City where it offers clear advantages, especially for India exposure and tax efficiency.

The Practical Framework: Replace, Complement, or Ignore

Instead of an all-or-nothing decision, think in three buckets.

Replace with GIFT City: Indian domestic mutual funds held via NRE/NRO that come with TDS, rupee risk, and repatriation complexity.

GIFT City versions of the same exposure are strictly better for most NRIs, especially those in tax-free jurisdictions.

Complement with GIFT City: Your existing global portfolio. Add GIFT City India equity funds like the Sundaram India Mid Cap Fund GIFT for India exposure you cannot get tax-efficiently elsewhere.

Add GIFT City USD FDs as a hard-currency safety layer alongside your overseas holdings.

Keep overseas: Broad global equity exposure where GIFT City options are still limited. US index funds, developed market ETFs, sector-specific plays. These have deeper liquidity and longer histories.

Also keep overseas investments if you are a US or Canada-based NRI facing PFIC complications with GIFT City products.

👉 Tip: Use Belong's GIFT City Mutual Funds Explorer alongside the GIFT City AIF Explorer to see what is available today. The ecosystem grows every quarter. What is not available now may launch within months.

The US NRI Warning

This deserves a direct mention. If you are a US tax resident, most GIFT City mutual funds are likely classified as PFICs (Passive Foreign Investment Companies) under US tax law.

That triggers punitive taxation, complex Form 8621 reporting, and can eliminate GIFT City's tax advantages entirely.

Some Category III AIFs structured as partnerships may avoid PFIC classification. But this requires careful structuring and a cross-border tax advisor.

For US NRIs, GIFT City is not yet a clean replacement for overseas investments. Stick with US-domiciled India ETFs for Indian exposure and consult a specialist before committing.

Source: IRS PFIC rules

The Bottom Line

GIFT City funds should not replace all your overseas investments.

But they should absolutely replace your traditional Indian mutual fund and fixed deposit holdings, and they should complement your global portfolio with tax-efficient India exposure.

The smartest NRIs we work with at Belong are not choosing one over the other. They are building hybrid portfolios.

Overseas funds for broad global access. GIFT City for India, tax efficiency, and currency protection. The two work together.

Track the GIFT Nifty to monitor Indian market performance in dollar terms. Compare NRI FD rates across GIFT City and traditional banks.

And join our WhatsApp community where thousands of NRIs discuss these exact portfolio decisions daily.

The Belong app makes it simple to get started with GIFT City, even from $500.