You're earning in pounds, investing through your UK ISA, but you want exposure to India's growth story without rupee depreciation eating your returns. Traditional Indian mutual funds mean currency conversion, 30% TDS, and complicated tax filings.
GIFT City mutual funds solve exactly this problem.
At Belong, we've helped hundreds of UK NRIs navigate GIFT City investments. Our WhatsApp community is full of professionals asking the same questions you are: "Can I invest in GBP? What about UK taxes? Is this actually better than Vanguard?"
This guide answers everything - from how these funds work to whether they make sense for your situation.
What Are GIFT City Mutual Funds?
GIFT City mutual funds are investment funds launched by Asset Management Companies (AMCs) within Gujarat International Finance Tec-City - India's first International Financial Services Centre (IFSC).
Think of GIFT City as India's answer to Singapore or Dubai's financial centers. It operates under special regulations by the International Financial Services Centres Authority (IFSCA), separate from mainland India's SEBI rules.
These mutual funds invest in global markets - US stocks, international bonds, emerging market equities - but are managed by Indian AMCs like ICICI Prudential, HDFC, Edelweiss, and Aditya Birla.
The game-changer? You invest in USD, GBP, or EUR - not rupees.
GIFT City funds are denominated in multiple foreign currencies, eliminating currency conversion hassles for NRIs. (primarily in USD though)
How They're Different from Regular Indian Mutual Funds
Feature | GIFT City Mutual Funds | Regular Indian Mutual Funds |
|---|---|---|
Regulator | IFSCA | SEBI |
Currency | USD primarily | Indian Rupee (INR) |
Minimum Investment | $500 (depends on the fund ) | ₹500 (varies by fund) |
TDS on Redemption | No TDS | Equity: 20% STCG, 12.5% LTCG; Debt: Slab rates (up to 30% post-Apr 2023, 12.5% LTCG pre-2023) |
Capital Gains Tax | Tax free in India and taxed in the country of residence | 12.5% LTCG, 20% STCG |
Currency Risk | None (stays in foreign currency) | High (INR depreciation risk) |
Repatriation | Fully repatriable, no limits | Via NRE (unlimited) or NRO (up to $1M/year) |
FATCA/CRS Compliance | GIFT City MFs are not FATCA/CRS compliant by default. It varies by AMC. | Required, varies by AMC |
Global Market Access | It depends on the nature of scheme. Inbound fund invests via Indian equities and outbound funds invest in equities abroad. | Limited (mostly Indian markets) |
STT/GST | Exempt | Applicable |
Suitable For | High net-worth investors | All investors, small amounts ok |
US/Canada NRI Access | Generally allowed - but it depends on the fund house | Many AMCs restrict |
Sources: ICICI Bank GIFT City, SEBI Regulations, Giftcfo.com - Tax Benefits
The biggest difference for UK NRIs? No rupee exposure.
When you invest £10,000 in a traditional Indian equity fund, you first convert to ₹10.8 lakh. Even if the fund grows 60% over 5 years, a 15% rupee depreciation against GBP cuts your returns significantly.
With GIFT City funds in GBP, you invest £10,000 and withdraw in pounds. Your returns aren't eroded by currency movements.
👉 Tip: If you're planning to retire in India but living in the UK now, traditional Indian MFs make sense. If you'll stay in the UK or move to a third country, GIFT City funds are better.
Tax Implications: India and the UK
In India
GIFT City mutual funds enjoy Section 10(4D) exemption under the Income Tax Act. This means:
- No TDS on redemptions or dividends
- Capital gains exempt at 0% for NRIs
- No Securities Transaction Tax (STT)
According to Edelweiss Mutual Fund, these tax benefits significantly improve net returns for NRI investors.
In the UK
Here's where it gets complex.
Under the India-UK DTAA, you can claim foreign tax credit in the UK for taxes paid in India. But:
Dividend income: If GIFT City funds distribute dividends, you report them as foreign income in your UK self-assessment. No TDS in India is deducted, so you pay UK tax based on your slab.
Capital gains: When you sell units of Indian mutual funds as a UK tax resident, the gains are taxable in the UK. You can offset the tax already paid in India (currently 20% for short-term equity gains or 12.5% for long-term equity gains exceeding ₹1.25 lakh) against your UK Capital Gains Tax liability, which is 18% for basic-rate taxpayers or 24% for higher/additional-rate taxpayers in the 2025–26 tax year.
Reporting requirement: You must declare foreign income and assets exceeding £100,000 in your UK tax return.
Critical point: GIFT City funds are NOT held in ISAs or SIPPs. They don't get UK tax-free treatment. But the lower Indian taxes + DTAA credit still make them efficient.
👉 Tip: Consult a UK-based tax advisor familiar with India-UK DTAA before investing. Don't assume it's automatically tax-free.
Who Launched GIFT City Mutual Funds?
In April 2024, SEBI allowed NRIs to own 100% in global funds at GIFT City. This was a game-changer.
AMCs now active in GIFT City include:
- ICICI Prudential: Launched global ETF feeder funds
- HDFC Asset Management: Offshore equity and bond funds
- Edelweiss: AIFs and thematic global funds
- Aditya Birla Sun Life: Feeder funds for US market exposure
- Nippon India: Structured offshore funds
Most of these are feeder funds - meaning they invest in underlying global mutual funds or ETFs (like Vanguard S\&P 500 or global bond ETFs).
What's the Minimum Investment?
This is where UK NRIs often get confused.
Alternative Investment Funds (AIFs) in GIFT City require $150,000 minimum. That's about £115,000 - out of reach for most retail investors.
But GIFT City mutual funds (not AIFs) have much lower minimums:
- Global equity feeder funds: $5,000-10,000
- Balanced funds: $3,000-5,000
- Thematic funds: $10,000+
Some AMCs are pushing regulators to reduce PMS (Portfolio Management Services) minimums from $250,000 to $75,000 by 2026.
For most UK NRIs with £10,000+ to invest (approx. $13,000), GIFT City mutual funds are now accessible due to lowered retail thresholds (e.g., $500 min for select funds)
How to Invest (Step-by-Step)
Step 1: Open an NRE or FCNR Account
You'll need an NRE account with an Indian bank that has a GIFT City branch (ICICI, HDFC, Axis, SBI).
Step 2: Complete IFSCA KYC
This is separate from your regular Indian KYC. You'll need:
- Passport
- UK address proof
- PAN card
- FCNR/NRE account details
Most banks now offer digital KYC via video call.
Step 3: Choose Your Funds
Work with a SEBI-registered advisor (like Belong's team) to pick funds based on your risk profile. Options include:
- US large-cap equity funds
- Global bond funds
- Emerging market thematic funds
- ESG-focused funds
Step 4: Invest in GBP or USD
Transfer funds from your UK bank to your NRE/FCNR account, then allocate to chosen GIFT City funds.
Step 5: Track and Rebalance
Most AMCs provide online portals to track NAV, returns, and holdings.
👉 Tip: Use Belong's GIFT City tools to compare fund performance and track your investments in one place.
The Risks You Need to Know
1. Global market volatility: These funds invest in international markets. If US stocks fall 20%, your fund falls too.
2. Currency risk: While you avoid rupee risk, you're exposed to USD-GBP or USD-EUR movements.
3. Lower liquidity: GIFT City mutual funds have T+3 to T+7 day redemption cycles - slower than UK funds that settle T+1.
4. Limited track record: Most GIFT City MFs launched in 2023-24. You don't have 10-year performance history like Vanguard or Fidelity.
5. UK tax complexity: You'll need professional help with UK tax filings to claim DTAA credits properly.
Should You Invest? Decision Framework
You're a good fit if:
- You have £30,000+ to invest beyond your UK ISA/pension
- You want India-managed global exposure
- You're comfortable with 5-10 year horizons
- You plan to keep wealth in foreign currency
- You want to diversify beyond UK-centric investments
You're NOT a good fit if:
- You need liquidity in under 3 years
- You don't want to deal with UK tax reporting
- You prefer passive ETFs in your UK ISA (Vanguard, iShares)
- Your risk appetite is low (stick to GIFT City FDs at 4.5-6%)
Belong's Take: GIFT City MFs vs Other Options
We've analyzed this for hundreds of clients. Here's our honest view:
For equity exposure: If you're already maxing out your UK ISA (£20,000/year), GIFT City mutual funds are a solid complementary option - not a replacement.
For diversification: GIFT City funds give you India-managed access to global markets. But if you just want S\&P 500 exposure, a UK-based Vanguard ETF in your ISA is simpler and more tax-efficient.
For tax arbitrage: The 9-15% capital gains tax + DTAA credit is attractive. You save 5-10% vs UK CGT on large gains.
The sweet spot: £50,000-200,000 investments, 7-10 year horizon, for NRIs who want currency flexibility and eventual repatriation to India.
Compare this with regular Indian mutual funds if you're retiring in India, or GIFT City AIFs if you have £150,000+.
Also Read - Gift City vs regular Mutual Funds
Ready to explore GIFT City investments tailored to your situation? Download the Belong App to compare funds, track returns, and get advice from our SEBI-registered advisors.
Join our WhatsApp Community where UK NRIs share real experiences with GIFT City investing - the good, the bad, and the tax forms.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. GIFT City mutual funds involve market risk. Consult a SEBI-registered advisor and UK tax professional before investing. Tax laws are subject to change.
Sources:
- International Financial Services Centres Authority (IFSCA) Regulations 2022-2025
- SEBI NRI Investment Norms April 2024
- ICICI Bank - How NRIs Can Invest in GIFT City
- Edelweiss Mutual Fund - GIFT City Funds for NRIs
- Business Standard - SEBI NRI Investment Norms
- GoINRI - GIFT City Funds Guide
- UK Capital Gains Tax Rates 2025–26 (GOV.UK official)
- Indian Mutual Fund Taxation 2025–26 (ClearTax - updated for current rates)
- UK-India Double Taxation Convention - Full official text (Article 24 for credit)
- HMRC - Double Taxation Relief for India (official guidance)
