"GIFT City is tax-free. GIFT City is the future. Everyone's talking about GIFT City."
We hear this in our WhatsApp community every day. And yes, GIFT City offers genuine advantages for NRIs.
But here's what concerns us at Belong: the risks rarely get the same attention as the benefits.
Last month, a member from our Dubai community invested AED 150,000 in a GIFT City product without understanding a crucial detail. His money wasn't covered by any deposit insurance.
He found out only after the investment was made.
He's fine. The bank is solid. But that conversation shouldn't have happened after the investment.
This guide covers the five risks we believe every NRI should understand before putting money into GIFT City. Not to discourage you. But so you go in with open eyes.
Risk 1: Your Deposits Are Not Insured
This is the risk that surprises most NRIs.
When you open an NRE or NRO fixed deposit with SBI, HDFC, or ICICI in mainland India, your money is protected by DICGC (Deposit Insurance and Credit Guarantee Corporation).
If the bank fails, you get up to ₹5 lakh back automatically, covering both principal and interest (Source: DICGC).
GIFT City operates under different rules. According to ICICI Bank's GIFT City FAQ, deposits at their IFSC Banking Unit are "not covered by Deposit Insurance" (Source: ICICI Bank).
This applies to all banks operating in GIFT City.
Does this mean your money is unsafe? Not quite. The banks in GIFT City are the same ones you trust in India: SBI, HDFC, ICICI, Axis, Kotak.
Your deposit is backed by the parent bank's entire balance sheet. IFSCA requires these units to maintain capital adequacy ratios under strict prudential guidelines.
But there's no government-backed safety net if something goes catastrophically wrong.
👉 Tip: If deposit insurance is essential for your peace of mind, split your investments. Keep some funds in insured NRE FDs where DICGC applies, and allocate the rest to GIFT City for tax efficiency.
What most articles miss:
The banks operating GIFT City IBUs are global institutions with strong balance sheets.
The implicit guarantee from the parent bank provides meaningful protection. But "implicit" is not the same as "explicit." Know the difference before you invest.
For amounts under ₹5 lakh, traditional NRE FDs might make more sense purely from a safety standpoint.
For larger amounts where the ₹5 lakh DICGC limit matters less, GIFT City's tax advantages become more relevant.
Risk 2: Regulations Are Still Evolving
GIFT City launched in 2015. IFSCA (International Financial Services Centres Authority), the unified regulator, was established only in 2020.
By global financial centre standards, this is a young ecosystem.
Young ecosystems mean changing rules.
In 2024, IFSCA prohibited investments into certain US-based ETFs through GIFT City funds. NRIs who had planned their portfolios around these products had to restructure (Source: Goodreturns). The decision came without extensive advance warning.
In February 2025, IFSCA reduced the minimum AIF investment from USD 150,000 to USD 75,000. Good news for investors. But the original minimum had been in place for years. Rules change.
Investment concentration limits changed too. IFSCA introduced a 33.33% limit on investment in a single investee company for certain fund structures. Family offices planning concentrated positions had to revisit their strategies.
👉 Tip: Build flexibility into your GIFT City investments. Don't assume today's rules remain unchanged. Consider what happens to your portfolio if a specific product or strategy becomes unavailable.
The tax benefit timeline:
GIFT City's tax exemptions have been extended to March 31, 2030 (Source: Budget 2025). That's five years of policy certainty.
But if you're planning a 15-year investment horizon, factor in that benefits beyond 2030 are not guaranteed.
We're not saying benefits will disappear. India has strong incentives to make GIFT City successful.
But "expecting benefits to continue" and "benefits being legally guaranteed" are different things.
What the regulations mean practically:
If you're investing through GIFT City mutual funds, verify the fund is registered with IFSCA under the Fund Management Regulations 2022 (amended 2025).
Not all funds marketed as "GIFT City funds" have the same regulatory status or tax treatment.
If you're looking at Alternative Investment Funds, understand the lock-in periods (typically 3 years) and what happens if regulations change mid-investment.
Risk 3: Tax-Free Doesn't Mean Tax-Free Everywhere
"GIFT City returns are tax-free." This statement is everywhere. And it's technically correct for India. But it's incomplete.
Under Section 10(4D) of the Income Tax Act, income arising to a non-resident from the transfer of units of investment funds set up in an IFSC is exempt from Indian tax (Source: Income Tax Department).
No TDS. No Indian ITR filing required if this is your only Indian income.
But your resident country still has claims on your global income.
UAE-based NRIs: You're in the best position. The UAE has no capital gains tax. Combined with GIFT City's Indian exemptions, your returns are genuinely tax-free end-to-end.
UK-based NRIs: Different story. You must report all foreign income on your Self Assessment tax return. Even though GIFT City exempts your gains in India, HMRC may still tax them depending on your UK tax position (Source: GOV.UK).
A member in our London community assumed "tax-free in India" meant he owed nothing. His UK accountant pointed out his reporting obligations.
He ended up paying UK Capital Gains Tax on gains he thought were exempt.
US-based NRIs: Most GIFT City mutual funds are likely classified as PFICs (Passive Foreign Investment Companies) under US tax law.
This means annual Form 8621 filings and potential taxation on unrealized gains. The administrative burden and tax implications can significantly reduce the attractiveness of GIFT City for US residents (Source: IRS).
👉 Tip: Always ask: "Tax-free where?" Get clarity on both the Indian position AND your resident country's treatment before investing. The India-UAE DTAA helps, but only if you have proper documentation.
Documentation you need:
Keep your Tax Residency Certificate (TRC) from your resident country updated. This proves you're eligible for treaty benefits. Without it, you can't claim DTAA protections if questions arise later.
Risk 4: Limited Track Records and Product Maturity
When we evaluate mutual funds on behalf of NRIs, we typically look at 5-10 year track records. How did the fund perform across market cycles?
How did it handle the 2020 crash? The 2022 correction?
Most GIFT City funds can't answer these questions.
Tata Asset Management launched its Dynamic Equity Fund at GIFT City in September 2025 (Source: Business Standard). DSP Global Equity Fund and Edelweiss Greater China Equity Fund are relatively new entrants.
Even the oldest GIFT City-specific products have limited operating history.
You're evaluating fund manager expertise and investment strategy, not proven historical performance.
This isn't necessarily bad. The fund managers running GIFT City funds often have strong track records managing similar strategies in mainland India or globally.
But you can't simply compare "5-year returns" the way you would with established funds.
The ecosystem is developing:
GIFT City hosts over 200 AIFs and growing mutual fund options as of mid-2025 (Source: IFSCA). The range of products is expanding rapidly.
But "rapidly expanding" also means "relatively new."
Some products that NRIs want simply don't exist yet in GIFT City. The SIP infrastructure is less developed than mainland India.
Monthly investment options are available but not as seamlessly integrated.
👉 Tip: For mutual fund investments, research the fund manager's track record managing similar strategies elsewhere.
Don't rely solely on GIFT City-specific performance data that may cover only 6-18 months.
What this means for your portfolio:
If you're putting your entire retirement corpus into GIFT City funds, you're taking on more uncertainty than necessary.
Consider GIFT City as part of a diversified strategy, not a complete replacement for established investment vehicles.
Start with simpler products. USD fixed deposits at GIFT City have clear, guaranteed returns.
Use them to build comfort with the GIFT City ecosystem before moving into market-linked products with limited track records.
Risk 5: Liquidity Constraints and Exit Complexity
Not all GIFT City products let you exit when you want.
AIFs have lock-in periods. Most Alternative Investment Funds require a minimum 3-year commitment.
Your USD 75,000+ is locked. If you need that money for an emergency or opportunity, you can't access it.
Some AIFs have even longer lock-ins for specific strategies (infrastructure, real estate, private equity). Understand the terms before committing.
Redemption timelines differ. GIFT City mutual funds don't always settle as quickly as you might expect from UAE or US-based investments.
NAV calculation dates, settlement periods, and currency conversion timing can add days to the process.
Currency conversion happens twice. If you're investing from the UAE, you convert AED to USD going in. Then USD to AED (or INR) coming out. Each conversion carries exchange rate risk and potential spreads.
👉 Tip: Before investing, understand: What's the lock-in period? What's the redemption timeline? What are the exit costs? Our FD comparison tool shows these details for fixed deposits.
The repatriation advantage, with context:
GIFT City does offer easier repatriation than traditional Indian investments. You don't need Form 15CA/CB certificates that complicate NRE/NRO repatriation.
Funds held in GIFT City are treated as offshore and move more freely.
But "easier" doesn't mean "instant." Plan your liquidity needs accordingly.
If you're investing amounts you might need within 1-2 years, fixed deposits with shorter tenures (GIFT City offers from 7 days) provide more flexibility than AIFs or equity funds during volatile periods.
What Most GIFT City Articles Won't Tell You
The concentration risk:
If your entire investment portfolio becomes GIFT City products, you're concentrated in a single regulatory jurisdiction, regardless of the currency denomination.
GIFT City gives you USD exposure, but the regulatory, operational, and counterparty risks are all India-linked.
True diversification means spreading across jurisdictions, not just currencies.
The opportunity cost:
GIFT City is attractive for UAE NRIs because of the tax efficiency. But compare it honestly against alternatives. UAE-based NRIs can also access:
Singapore-based funds (established regulatory framework, longer track records, different risk profile)
Direct US market access through international brokers
UK ISA accounts (for UK NRIs, with £20,000 annual tax-free allowance)
GIFT City might still win the comparison. But make sure you're comparing, not assuming.
The return-to-India complication:
Many NRIs invest in GIFT City while planning to return to India eventually. Here's something to understand: GIFT City products are designed for non-residents.
When you become a resident Indian, you can continue holding GIFT City investments. But the tax treatment may change. Your RNOR (Resident but Not Ordinarily Resident) status provides a transitional period where foreign income remains exempt.
Once that ends and you become ROR (Resident and Ordinarily Resident), consult a tax advisor about implications.
A Framework for Deciding
After helping thousands of NRIs through these decisions, here's how we suggest thinking about GIFT City risks:
Accept the risks if:
You understand there's no deposit insurance and are comfortable with the implicit protection from major banks. You have a 5+ year investment horizon that allows time for regulatory environments to mature.
Your resident country (UAE, Singapore) has no capital gains tax, making the tax efficiency genuine.
You're investing amounts that won't create financial stress if markets move against you or regulations change.
Be cautious if:
You're a US NRI who hasn't modeled the PFIC implications with a qualified US tax advisor. Deposit insurance is psychologically important to you, even if the amounts involved exceed DICGC limits anyway.
You need this money within 2-3 years and can't afford to be locked in AIFs. You're expecting GIFT City to be your complete investment solution rather than part of a diversified strategy.
Questions to ask before any GIFT City investment:
Is this specific product IFSCA-registered? What Section of the Income Tax Act provides the exemption?
What happens in my resident country when I report these gains? What's the lock-in period and exit process?
How does this fit my overall portfolio, not just my India allocation?
The Balanced View
GIFT City represents a genuine evolution in how NRIs can invest. The tax efficiency is real. The USD denomination solves the currency depreciation problem that has frustrated NRIs for decades.
The regulatory framework, while young, is credibly designed.
But it's not risk-free. No investment is.
The NRIs who do well with GIFT City are those who go in with clear understanding of both sides.
They know deposits aren't insured. They've modeled their resident country taxes. They've accepted that regulations may evolve. They've allocated appropriately for their risk tolerance.
Your Next Steps
Track current rates and options with our GIFT Nifty tool. Compare GIFT City FDs against NRE options. Explore GIFT City mutual funds and AIFs to understand what's available at different minimums.
If you're still weighing the decision, join our WhatsApp community. Thousands of NRIs discuss these exact questions daily.
Some have invested through GIFT City. Some chose not to. Hearing both perspectives helps.
And when you're ready, download the Belong app.
We'll help you navigate the complexity so you can focus on what matters: building wealth that actually works for your situation.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Tax rules and regulations are subject to change. The absence of DICGC insurance for GIFT City deposits is a factual statement, not a recommendation against investing. Consult a qualified financial advisor and tax professional before making investment decisions. Past performance of any investment is not indicative of future returns.
