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Tata Capital > Blog > Wealth Services > GIFT city funds for NRI: Investment options, benefits, and how to invest?

Wealth Services

GIFT city funds for NRI: Investment options, benefits, and how to invest?

GIFT city funds for NRI: Investment options, benefits, and how to invest?

The Gujarat International Finance Tech (GIFT) city is a state-of-the-art business hub established to attract investments from Indians living abroad. GIFT City’s International Financial Services Centre (IFSC) offers various benefits to NRIs as transactions are carried out in foreign currencies, eliminating the hassle of currency conversion. The goal is to create a welcoming place where India-centric trading that’s moved to Dubai, Mauritius, or Singapore can return home.

GIFT City also provides unique opportunities not only for NRIs but also for Foreign Investors to diversify their portfolios and capitalize on India’s growing economy. It offers several benefits, such as tax exemptions, ease of doing business, world-class infrastructure, and more, ensuring a seamless investment experience for NRIs. The GIFT City promises to offer a wide range of services like capital market transactions, banking services, offshore asset management, and other financial transactions.

What are GIFT City funds?

GIFT City stands for Gujarat International Finance Tec-City. GIFT City Funds are investment funds set up in GIFT City, an international financial center in Gujarat, India. These funds are registered in the International Financial Services Centre (IFSC). IFSC follows global standards and has its own regulator.

GIFT City funds collect money from investors and invest it in shares, bonds, startups, real estate, or other assets in India and abroad. They are similar to offshore funds but are based in India. As a result, investors get easier access, clear rules, and strong oversight.

GIFT City funds attract foreign investors, NRIs, and Indian institutions. They help bring global capital into India and support business growth. A major benefit of GIFT City Funds is tax efficiency. The IFSC offers tax incentives, such as lower or no tax on certain income, which can improve returns for investors.

You can invest in many international securities, including debt and equity, through GIFT City funds. They allow you to invest and transact in multiple currencies using a single platform. Consequently, it is easier for investors to diversify their portfolios internationally.

Key features of GIFT City funds

The key features of GIFT City funds are as follows:

  • GIFT City-based: These funds are set up in India’s international financial hub in Gujarat.
  • Global standards: They follow international rules and are regulated by the IFSC Authority.
  • Tax benefits: Investors may get lower or zero tax on certain types of income.
  • Use of foreign currency: Investments can be made in dollars or other foreign currencies.
  • Wide investment options: Funds can invest in shares, bonds, startups, or overseas assets.
  • Attracts global investors: NRIs and foreign investors can invest in GIFT City funds easily.
  • Strong oversight: Investors are protected with clear rules and transparency.

Can NRIs and OCIs invest in GIFT City funds?

Yes, NRIs and OCIs are allowed to invest in GIFT City funds under existing IFSC rules. The investment process is designed to be simple and friendly. All you need to do to start is complete the KYC requirements.

Generally, GIFT City NRI investments are made in foreign currency. This helps to avoid frequent currency conversion. NRIs and OCIs can choose from different fund categories based on the risk and return goals. You may invest directly or through registered wealth managers.

The repatriation of capital and returns from GIFT City funds for NRIs and OCIs isn’t subject to major restrictions. However, investors should always check fund terms, tax rules, and regulatory conditions before investing, as these may change over time.

How can NRIs and OCIs invest in GIFT City funds?

NRIs and OCIs can invest in GIFT City funds through an easy process. Here are the steps to follow:

  1. Select a fund approved by the IFSC at GIFT City.
  2. Complete the KYC process, including submitting identity, address, and tax documents.
  3. Investors can open a foreign currency account with an IFSC banking unit.
  4. The investment currency is US dollars or other foreign currencies.
  5. Once the account is ready, money can be transferred from an overseas bank account.

NRIs and OCIs can invest in GIFT City funds directly or through wealth managers and fund platforms. You can consult a financial expert to learn how to invest in GIFT City funds if there are any doubts or challenges.

Benefits of investing in GIFT City funds for NRIs

Here are the benefits of GIFT City investments for NRIs:

  • Tax advantages: The investment levies lower or no tax on certain types of income.
  • Foreign currency investment: You can invest in US dollars or other global currencies.
  • Easy access: The rules designed for international investors are simple.
  • Global investment options: You can access Indian and overseas assets.
  • Strong regulation: It is managed under IFSC with clear and transparent rules.
  • Better returns: Tax efficiency can improve overall returns.
  • India-based structure: While based in India, GIFT City investments for NRIs serve as offshore, foreign currency-denominated vehicles.

Risks of investing in GIFT City funds

Apart from the benefits mentioned above, there are also some risks of investing in GIFT City funds. Like any market-linked investment, returns are not guaranteed and depend on market conditions. The prices of shares, bonds, or other assets can rise or fall, which may affect returns.

There’s also a risk of currency fluctuations, as most investments are made in foreign currency. Your profits can be impacted by changes in exchange rates. Some GIFT City funds invest in new or complex assets, which may carry higher risk.

Additionally, liquidity can be a challenge. It may not be easy to exit some funds quickly. The rules and tax benefits may also change over time, which can affect returns. Make sure you understand the risks before investing.

Challenges faced by NRI investors in India

Investing in India can be rewarding for NRIs, but it also comes with several challenges. These include:

  1. Tax burden

When investing in India, NRIs often face a significant tax burden on various returns, such as interest income, dividends, and capital gains. This can reduce their overall investment returns, making it crucial to understand tax implications before investing.

  1. Repatriation of funds

Another challenge NRIs face when investing in India is repatriating funds back to their home countries. This can be a complicated and time-consuming process, with extensive documentation and regulatory requirements, which might hold back NRIs from investing in India.

  1. Limited investment options

When it comes to investing in the Indian market, NRIs need to follow strict regulations that can restrict their options. For example, some rules limit the combined holdings of NRIs and Overseas Citizens of India (OCIs) in global funds to below 50%. This can limit diversification opportunities, making it difficult for NRIs to maximize their returns.

Investment opportunities in GIFT City for NRIs

GIFT City helps NRIs overcome investment challenges in India and explore various investment avenues. These include:

  1. Offshore banking and deposits

GIFT City comprises several financial institutions that provide seamless offshore banking services, including foreign currency term deposits. NRIs can use these services to invest in multiple currencies, diversify their portfolios, and earn competitive interest rates. Moreover, GIFT City’s offshore banking framework offers easy fund transfers and higher interest rates than traditional banking options.

  1. Global equities and bonds

GIFT City’s IFSC exchange allows NRIs and OCIs to invest in international markets through global equities and bonds. This allows them to explore diversification opportunities beyond the Indian market and leverage the growth potential of global companies. By investing in global equities and bonds, NRIs can optimize their portfolios and enhance returns.

  1. Alternative Investment Funds (AIFs)

GIFT City allows NRIs to invest in a host of AIFs with exposure to different asset classes, including equities, debt, private equity, real estate, and venture capital investments. These are ideal for investors looking to invest in niche markets for potentially higher returns. NRIs can select from a variety of AIFs according to their investment horizon and risk tolerance.

  1. Real Estate Investment Trusts (REITs)

The IFSC exchange in GIFT City has listed REITs for NRIs looking to invest in the Indian real estate market. They provide a cost-effective way to invest in real estate without significant capital investment. NRIs can simply purchase units of a REIT to diversify their portfolios across commercial properties, residential developments, and retail spaces.

  1. Taxation

Taxation plays a major role in business, and GIFT City has some amazing tax benefits for the investors. Reducing and eliminating taxes is a great way to attract investors. It is a free trade zone with various tax incentives, enabling the flow of finance, financial products, and services across borders.

Apart from the benefits mentioned above, there are many other benefits like

  • No stamp duty for transactions carried out in the IFSC
  • Exempt from Securities Transaction Tax for trades done on IFSC exchanges
  • Exempt from Commodities Transaction Tax for transactions conducted on IFSC exchanges
  • Proximity to a large Indian market and an enabling ecosystem
  • Tax holidays or exemptions for expatriates working in the IFSC for a specified duration

and much more.

The data mentioned above may change as per government policies and related authorities. Please refer to the relevant portal for the latest information on the topic.

To sum up

Investing in India presents some unique opportunities for NRIs. However, it also comes with significant challenges, such as complex tax regulations, repatriation issues, and limitations on investment options. GIFT City helps NRIs overcome these obstacles and invest across different instruments to diversify their portfolios, minimize risk, and maximize returns.

If you’re new to investing in the Indian market and looking for professional guidance, consider Tata Capital Wealth. Our experts review your investment horizon, goals, and risk appetite to help you create a well-balanced portfolio that aligns with your needs.

Build Your Wealth with Expert Guidance from Tata Capital!

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FAQs

What are GIFT City funds, and how can NRIs invest in them?

GIFT City funds are investment funds set up in India’s IFSC. To invest in them, NRIs must complete KYC, open a foreign currency account with an IFSC bank, and invest directly or through advisors.

Is there a minimum investment amount for NRIs in GIFT City funds?

Yes, most GIFT City funds have a minimum investment amount. It usually starts from USD 150,000 or more, depending on the fund type and its rules.

Are GIFT City investments tax-free for NRIs?

GIFT City investments are not fully tax-free, but they offer tax benefits. Certain incomes may be exempt or taxed at lower rates, subject to rules and applicable laws.

How do I open an account for the GIFT City fund investment as an NRI?

You must reach out to an authorized bank in the IFSC zone to open an account and start investing in GIFT City funds. You also need to register with an IFSC-licensed broker or fund manager.

What are the key advantages of GIFT City over traditional NRI investment routes?

GIFT City offers tax benefits, foreign currency investments, global asset access, simpler rules, and strong regulations. It is more flexible and efficient than traditional NRI investment options.

Can NRIs repatriate money freely from GIFT City funds?

Yes, NRIs can freely repatriate both capital and returns from GIFT City funds, as investments are made in foreign currency under IFSC rules.

What types of funds are available for NRIs in GIFT City?

NRIs can invest in equity funds, debt funds, hedge funds, private equity, venture capital, and other alternative investment funds available in GIFT City.

Are there any risks NRIs should know before investing in GIFT City?

Yes, risks include market risk, currency risk, liquidity risk, and possible changes in tax or regulatory rules. The returns are not guaranteed. Thus, you must carefully evaluate the funds.

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