7 Risks NRIs Should Know Before Investing in USD

A member of our WhatsApp community posted something last month that stuck with me.

He wrote: "Everyone talks about why I should invest in USD. Nobody talks about what can go wrong."

He was right. And that gap in honest conversation is dangerous.

At Belong, we've built our entire platform around USD-denominated products for NRIs: GIFT City fixed deposits, mutual funds, alternative investment funds.

We believe in these products. We use them ourselves. But we also believe that no NRI should invest in anything without understanding exactly what could go wrong.

So this article does something you won't find on most fintech blogs. It lays out seven real risks of USD investing, with no sugar-coating, no fine print buried under marketing language.

For each risk, we'll explain what it is, how likely it is to affect you, and what you can do about it.

Because an informed NRI makes better decisions. And better decisions are what keep you coming back.

Risk 1: Your GIFT City FD Has No Deposit Insurance

This is the risk nobody mentions in the sales pitch.

When you open a regular NRE or FCNR fixed deposit at an Indian bank, your deposit is insured by DICGC (Deposit Insurance and Credit Guarantee Corporation) up to ₹5 lakh per depositor per bank.

This is a statutory guarantee backed by the Reserve Bank of India (Source: DICGC).

When you open a USD FD at the same bank's GIFT City branch (called an IFSC Banking Unit or IBU), that deposit is not covered by DICGC.

ICICI Bank's GIFT City FAQ explicitly states that deposits at their IBU are "not covered by Deposit Insurance" (Source: ICICI Bank GIFT City).

This applies to every GIFT City bank. SBI, HDFC, Axis, Kotak. None of the IBU deposits carry DICGC protection.

Why does this matter?

For most NRIs making deposits above USD 6,000, it doesn't change much practically. DICGC coverage of ₹5 lakh is roughly USD 5,600 at current rates.

If you're depositing USD 25,000, the insurance covers barely 22% of your money anyway.

The real safety net is the parent bank's balance sheet. An SBI GIFT City deposit is backed by the State Bank of India, a bank with over USD 800 billion in assets.

An ICICI GIFT City deposit is backed by ICICI Bank. These are systemically important institutions. The likelihood of one of them defaulting is extremely remote.

But "extremely remote" is not "impossible." And if you're someone who sleeps better knowing there's a government guarantee underneath your money, this matters.

How to manage this risk:

Spread your GIFT City deposits across 2-3 different banks instead of concentrating everything in one IBU. This is the same principle as not keeping all your savings in a single bank account.

If you need the psychological comfort of deposit insurance for a portion of your savings, keep that portion in FCNR deposits at a domestic branch where DICGC applies.

Use Belong's FD rate comparison tool to compare rates across both GIFT City and domestic FCNR options.

👉 Tip: Think of GIFT City FDs and FCNR deposits as complementary, not competing. GIFT City gives you higher rates and flexible tenures (starting from 7 days vs. 1 year minimum for FCNR). FCNR gives you deposit insurance. A smart NRI portfolio uses both. Read our detailed comparison of NRE vs FCNR fixed deposits for a full breakdown.

Risk 2: The Tax Holiday Could End

GIFT City's most attractive feature, the tax-free treatment of investment income, exists because of a government policy decision. It's not a permanent constitutional right. It's a tax holiday.

Here's the timeline. The Indian government initially offered a 10-year tax holiday to entities operating in GIFT City's IFSC. Budget 2025 extended the deadline for new businesses to commence operations and qualify for these benefits until March 2030 (Source: IFSCA).

For NRI investors specifically, interest income on foreign currency deposits at IBUs is exempt under existing income tax provisions. Capital gains on specified securities through certain fund structures are also exempt.

The key question every NRI should ask: What happens after 2030?

The honest answer: Nobody knows for certain.

There are strong reasons to believe the tax benefits will continue in some form. The Indian government has invested billions in building GIFT City as a rival to Singapore, Dubai and Hong Kong's financial centres.

Removing tax incentives would undermine that ambition.

Every successive budget since 2015 has expanded, not reduced, GIFT City benefits. Over 400 entities are now registered in GIFT City, with banking assets exceeding USD 94 billion as of August 2025 (Source: InvestMates, Nov 2025).

The government has strong strategic and economic reasons to maintain the incentive structure.

But strong reasons aren't guarantees. Tax policies change. Governments change. Fiscal priorities shift.

If you're investing in a GIFT City product today with a 10-year horizon, you're assuming the tax framework will remain favourable for a decade. That's a reasonable assumption. It's not a certainty.

How to manage this risk:

Don't make the tax benefit the only reason you invest. If a GIFT City USD FD pays 5% tax-free and a comparable FCNR deposit pays 4.5% (also tax-free under current rules), the tax benefit is not the deciding factor.

Currency denomination, repatriation ease and tenure flexibility matter just as much. If the tax treatment on GIFT City deposits ever changes, it would most likely apply prospectively (to new deposits), not retroactively to existing ones.

Indian tax law generally follows this principle. Stay informed. Track budget announcements and IFSCA circulars. Our WhatsApp community shares updates within days of any policy change.

Read our guide on GIFT City tax benefits explained for the current framework and how it compares to traditional NRI investments.

What Most Blogs Won't Tell You: The "Reverse Currency" Trap

This section covers Risk 3, but it deserves a different framing because it catches NRIs completely off guard.

Every article about USD investing emphasises how the rupee has depreciated 3-5% annually against the dollar over the past 30 years (Source: FundsIndia Wealth Conversations, Feb 2025). This makes USD investments look like an automatic win.

But currency risk works in both directions.

Scenario 1: You're returning to India.

You've spent 15 years in Dubai. You've built a USD 200,000 portfolio in GIFT City. Now you're moving back to Bangalore.

Your expenses will be in rupees. Your children's school fees, your parents' medical bills, your grocery budget, all in INR.

If the rupee strengthens against the dollar (even temporarily), your USD 200,000 buys fewer rupees than you expected.

A 5% rupee appreciation turns your USD 200,000 into roughly ₹1.66 crore instead of ₹1.74 crore. That's ₹8 lakh less.

Yes, the long-term trend favours dollar appreciation. But short-term moves can go either way.

And if you're liquidating your entire USD portfolio at the exact moment of a rupee rally, timing works against you.

Scenario 2: You earn in AED but the peg breaks.

The UAE dirham is pegged to the US dollar at a fixed rate of AED 3.6725 per USD. This peg has held since 1997.

For UAE-based NRIs, this means investing in USD is essentially investing in your earning currency. No additional forex risk.

But what if the peg ever breaks? It's highly unlikely. The UAE has massive dollar reserves and strong economic incentives to maintain it.

But NRIs from countries with floating currencies (GBP, AUD, SGD, EUR) face real USD/home-currency risk. A UK NRI investing in USD faces not only the INR/USD dynamic but also the GBP/USD dynamic.

Scenario 3: You move countries.

You're in Dubai today. In three years, you might be in London, Sydney, or Toronto. Your earning currency changes.

Suddenly, your USD portfolio carries a currency risk that didn't exist when you started.

How to manage this risk:

Match your investment currency to your spending currency. If you plan to spend money in India (retirement, property, education), keep that portion in rupee assets. If you plan to spend abroad, keep it in USD or your earning currency.

Don't put 100% of your wealth in any single currency. Even the most committed USD investor should maintain 30-40% in INR if they have India-linked financial goals.

If you're unsure about where you'll eventually settle, a 50/50 split gives you maximum flexibility. Read our guide on asset allocation for NRIs investing in India for a goal-based framework.

Use Belong's residential status calculator to understand how a country move would affect your tax obligations and investment options.

👉 Tip: NRIs who return to India get RNOR (Resident but Not Ordinarily Resident) status for 2-3 years.

During this window, your foreign income (including GIFT City returns) is not taxed in India. Use this transition period to restructure your portfolio gradually instead of liquidating everything at once.

Risk 4: Liquidity Can Be Tighter Than You Think

Not all USD investments let you access your money when you need it.

The liquidity profile varies dramatically across products, and many NRIs don't realise this until they need cash urgently.

Here's how the lockup landscape actually looks:

Source: ICICI Bank FCNR rates, IFSCA Fund Management Regulations, 2025

The critical scenario: An NRI invests USD 75,000 in a Category II AIF with a 3-year lock-in. Eighteen months later, he loses his job or faces a medical emergency.

That USD 75,000 is untouchable. He can't redeem, can't sell, can't borrow against it easily.

We've seen this happen in our community. A member invested USD 50,000 in an equity-linked product in late 2021.

By mid-2022, markets had dropped 18%. He needed the money for a property down payment. He sold at a loss because his investment horizon didn't match his product choice.

How to manage this risk:

Never invest money you might need within 2-3 years in products with lock-ins. Keep 3-6 months of living expenses in a liquid instrument like a GIFT City savings account (2.5-5% interest with no lock-in) or a short-term FD.

If you're investing in AIFs, make sure this is money you genuinely won't need for the full lock-in period. Start with the most liquid USD product: a short-tenure GIFT City FD.

This gives you the process experience without the liquidity risk.

Read our detailed guide on GIFT City FDs vs FCNR deposits for a full comparison of flexibility and lock-in terms.

Risk 5: Transfer Costs Can Eat Your First Year's Returns

This is the risk that hides in plain sight. Nobody talks about it because each individual fee seems small.

But added together, they can consume 1.5-3% of your investment in the first year.

Here's a breakdown of what a typical UAE-to-GIFT-City transfer actually costs:

SWIFT transfer fee: AED 75-150 per transaction (charged by your UAE bank). Some banks like ENBD charge AED 80 for outward transfers; others charge more.

Intermediary bank charges: USD 10-30 deducted by correspondent banks in the transfer chain. You won't know the exact amount until the money arrives.

Exchange rate markup: When converting AED to USD (even with the peg), banks apply a spread of 0.1-0.5%. On USD 10,000, that's USD 10-50.

Receiving bank charges: Some IBUs charge a small fee for incoming SWIFT transfers. Typically USD 5-15.

Total cost on a USD 10,000 transfer: Approximately USD 50-120, or 0.5-1.2%.

Now consider: If your GIFT City FD pays 5% annually, and your transfer cost was 1%, your effective first-year return drops to 4%. On a 1-year deposit, that's a meaningful bite. On a 5-year deposit, the impact averages out to 0.2% per year, which is negligible.

How to manage this risk:

Make fewer, larger transfers instead of many small ones. One transfer of USD 20,000 costs the same in SWIFT fees as one transfer of USD 5,000. The per-dollar cost drops dramatically with larger amounts.

Choose UAE banks with lower international transfer fees. Some digital banks and forex services offer better rates than traditional banks. See our guide on the cheapest ways to send money to India for a comparison. Invest for longer tenures.

Transfer costs are a one-time hit. On a 3-5 year investment, they become insignificant.

Check with your GIFT City bank about transfer-in incentives. Some IBUs waive receiving charges for new deposits above a certain threshold.

👉 Tip: Calculate your "break-even period," the point at which your investment returns cover your transfer costs. For a USD 10,000 GIFT City FD at 5% with USD 100 in transfer costs, you break even in about 73 days. Anything beyond that is pure gain. For shorter investments, the break-even math matters more.

Risk 6: GIFT City's Rules Are Still Evolving

GIFT City is barely a decade old as a financial centre. IFSCA, the unified regulator, was established in April 2020, making it just five years old (Source: IFSCA).

Compare that to the RBI (established 1935) or SEBI (established 1992).

This youth means two things. One, the regulatory environment is improving rapidly, with more products, better processes and stronger investor protections being added every year.

Two, the rules change more frequently than in established financial centres, and those changes can affect existing investors.

Real examples of regulatory evolution:

In 2024, IFSCA prohibited certain US-based ETF investments through GIFT City, disrupting plans for investors who had already allocated capital to those products (Source: InvestMates, Nov 2025).

IFSCA introduced a 33.33% concentration limit in single investee companies for certain fund structures. Investors who were already concentrated had to adjust their positions (Source: InvestMates, Nov 2025).

The minimum AIF investment was reduced from USD 150,000 to USD 75,000 in February 2025 (Source: IFSCA circular, Feb 2025).

This was a positive change, but it illustrates how quickly the rules shift.

SEBI's June 2024 decision allowing 100% NRI ownership of funds domiciled at GIFT IFSC (up from a previous 50% cap) dramatically changed the fund landscape (Source: InvestMates, Nov 2025).

Why this matters for you:

If you invest in a GIFT City product today based on its current rules, those rules might change before your investment matures.

The change might be positive (lower minimums, more products, better tax treatment). Or it might be restrictive (new concentration limits, altered tax treatment for specific structures, new compliance requirements).

This is the trade-off of investing in a young, high-growth financial centre. The upside is enormous, but the regulatory path isn't as well-worn as, say, Singapore or Hong Kong.

How to manage this risk:

Stick to simpler products if regulatory uncertainty makes you uncomfortable. GIFT City FDs are the least affected by regulatory shifts. The bank takes the deposit, pays interest, returns principal.

The rules around this are straightforward and unlikely to change materially. For complex products like AIFs and PMS, work with a SEBI-registered advisor who tracks IFSCA circulars.

Don't invest in structures you don't fully understand. Stay connected with our WhatsApp community. We share regulatory updates as they happen, often before they make it to mainstream financial media.

Read our balanced assessment of GIFT City's pros and cons for a fuller picture of the ecosystem's maturity.

Risk 7: Your Home Country's Tax Rules Can Undo the Benefits

This is the most nuanced and potentially most expensive risk on the list. And it depends entirely on where you live.

GIFT City products are tax-free in India. That much is clear. But "tax-free in India" doesn't mean "tax-free for you."

Your country of residence has its own rules about taxing your worldwide income, and those rules can significantly reduce (or even eliminate) the tax advantage.

UAE/GCC-based NRIs: Minimal risk.

The UAE has no personal income tax. Saudi Arabia, Qatar, Kuwait, Oman and Bahrain similarly don't tax personal investment income.

If you're in any of these countries, GIFT City's tax-free-in-India benefit stacks perfectly with your zero-tax home jurisdiction. You pay nothing on either side. The India-UAE DTAA provides additional treaty protection.

This is the best-case scenario. And it's why GIFT City is particularly attractive for Gulf-based NRIs.

UK-based NRIs: Moderate complexity.

The UK taxes worldwide income of its tax residents. From April 2025, the non-domicile (non-dom) regime ended, meaning all UK tax residents must report global income on their Self Assessment, regardless of where it was earned (Source: Belong UK NRI Guide).

Your GIFT City returns are tax-free in India. But you'll pay UK income tax or capital gains tax on them.

The India-UK DTAA prevents double taxation. Since India charges zero tax, you get zero credit. You pay full UK tax.

This doesn't make GIFT City a bad choice for UK NRIs. The currency protection, repatriation ease and product range still have value. But the headline "tax-free returns" doesn't apply to you in the same way it applies to a UAE NRI.

US-based NRIs: High complexity.

The US taxes worldwide income of its citizens, permanent residents (green card holders) and tax residents.

Every dollar you earn, whether in GIFT City or anywhere else, is reportable to the IRS.

The bigger problem is PFIC (Passive Foreign Investment Company) rules. Most GIFT City mutual funds are likely classified as PFICs under US tax law. This means punitive tax rates on gains, annual Form 8621 filing requirements and taxation on unrealised (notional) gains (Source: InvestMates, Nov 2025).

Some GIFT City AIFs structured as partnerships may avoid PFIC classification. But this requires careful structuring and specialist tax advice.

For US NRIs, the compliance burden alone can make GIFT City administratively challenging. Many US-based NRIs opt for direct equities or US-domiciled India ETFs instead.

How to manage this risk:

Know your home country's tax rules before investing, not after. A 30-minute consultation with a cross-border tax advisor can save you thousands in unexpected tax bills. Obtain a Tax Residency Certificate (TRC) from your country of residence and submit Form 10F to Indian financial institutions.

This establishes your treaty position. Read our guide on how to avoid double taxation as an NRI for a step-by-step walkthrough including filing your Indian ITR.

For UK NRIs specifically, read our guide on DTAA benefits for returning UK NRIs.

👉 Tip: If you're a US NRI, don't invest in any pooled fund structure (GIFT City mutual fund or AIF) without first consulting a US tax advisor who specialises in international taxation. The PFIC rules are genuinely punitive and can turn a profitable investment into a net loss after taxes and compliance costs.

The Risk Nobody Talks About: Doing Nothing

We've listed seven real risks. Every single one is manageable with the right knowledge and structure.

But there's an eighth risk that dwarfs all of them combined. And it's the one most NRIs actually suffer from.

The risk of doing nothing.

Of keeping 100% of your savings in a UAE bank account earning 1-2%. Of converting everything to rupees and losing 3-5% annually to depreciation. Of letting fear of the unknown prevent you from building a diversified, tax-efficient portfolio.

The rupee has depreciated from ₹17 per dollar in 1991 to approximately ₹87 in early 2025. That's an 80% loss in purchasing power for anyone who held rupees instead of dollars over that period (Source: Trading Economics/RBI historical data).

An NRI who invested USD 100,000 in a GIFT City FD at 5% five years ago would have approximately USD 127,600 today. Tax-free. Fully repatriable. No currency erosion.

An NRI who converted that same USD 100,000 to rupees and put it in an NRE FD at 7% would have earned more in nominal rupee terms.

But when converted back to dollars, the net return would be closer to 3-3.5% annually after accounting for the rupee's depreciation.

The risks of USD investing are real but bounded. The risk of not investing at all is unbounded and compounds every year.

A Risk Management Checklist Before You Invest

Before you put money into any USD product, run through this checklist. It takes five minutes and can save you from the most common mistakes we see.

Step 1: Identify your timeline. Is this money you need in 1 year, 3 years, 5 years or 10+ years? Match the product to the timeline. Short-term: GIFT City FD or FCNR deposit. Medium-term: GIFT City mutual funds. Long-term: GIFT City AIFs or equity funds.

Step 2: Check your home country's tax treatment. UAE/GCC? You're in the clear. UK? Budget for UK tax on returns. US? Consult a PFIC specialist before investing in any pooled fund.

Step 3: Calculate your transfer costs. Know exactly what your UAE bank charges for SWIFT transfers. Factor this into your expected returns, especially for short-term investments.

Step 4: Set your currency allocation. What percentage of your wealth should be in USD vs INR? Use the goal-matching approach: money for India goals in rupees, money for overseas goals in dollars.

Step 5: Start small, then scale. Open a GIFT City USD FD with USD 1,100 (minimum at Axis Bank) or USD 1,000 (minimum at ICICI Bank). Experience the process. See the returns hit your account. Then invest more.

Step 6: Diversify across banks and products. Don't put everything in one bank's GIFT City FD. Spread across 2-3 institutions. Mix FDs with mutual funds if you have a longer horizon.

Step 7: Stay informed. Regulations change. Rates change. Tax rules change. Join a community where NRIs share real-time updates and ask real questions. Track the GIFT Nifty for market sentiment and policy signals.

The Bottom Line: Invest With Your Eyes Open

Every investment carries risk. USD investments are no exception. The seven risks in this article are real. We laid them out because we'd rather you invest with full awareness than discover these issues after your money is locked in.

But here's the perspective that matters. Every single one of these risks can be managed, minimised or mitigated with the right approach.

No deposit insurance? Diversify across banks.

Tax holiday might end? Don't make tax the only reason to invest.

Reverse currency risk? Match your currency to your goals.

Liquidity concerns? Match your product to your timeline.

Transfer costs? Invest larger amounts less frequently.

Regulatory evolution? Stick to simpler products or work with an advisor.

Home country taxes? Know your rules before investing.

The NRIs who build lasting wealth aren't the ones who avoided all risk. They're the ones who understood the risks and invested anyway, with structure.

Thousands of NRIs are navigating these exact decisions right now in our WhatsApp community.

They share their bank experiences, ask about specific products, flag regulatory changes and help each other make better choices. If you're weighing the risks and want to hear from NRIs who've already been through the process, that's where to start.

And when you're ready, the Belong app lets you compare GIFT City FD rates across banks, explore mutual fund options and start investing from your phone. No branch visits. No guesswork. Just informed decisions.

Disclaimer: This article is for informational purposes only and does not constitute financial, tax or legal advice. Investment decisions should be made after consulting qualified advisors. Tax laws, interest rates and regulatory frameworks are subject to change. All data cited is from published sources as of early 2026.