Excitement high but execution lags: Fund managers flag banking and tax hurdles at GIFT City

GIFT City

There is palpable buzz across the Indian mutual fund industry about the potential of GIFT City’s International Financial Services Centre (IFSC) as a dual-way gateway: not just for foreign inflows, but increasingly for Indian investors to invest overseas. At the recent Moneycontrol Mutual Fund Summit, Bangalore Edition, panel experts laid out that optimism while also flagging what they say are key operational drag-points.

“Access for Indian residents” meets “banking infrastructure gap”
Vaibhav Shah of Mirae Asset Investment Managers captured the shift in language: “GIFT City is now… not only able to attract global capital into India but allowing access for Indian residents to invest globally.” On paper, this signals a major inflection: a jurisdiction once pitched purely as an inward-capital hub is morphing into a “local-plus-global” platform.

But Shah didn’t shy away from admitting: execution still matters. “The banking system in GIFT City is not as robust as we have the mutual fund payment system… once we can solve that, retail can become very, very large,” he said. He further emphasised the transfer side: all flows into these global-investment vehicles are still subject to the Liberalised Remittance Scheme (LRS) cap — and understanding of that route remains low among retail investors.

Minimums slashed, but onboarding must catch up
Neil Parekh of PPFAS Mutual Fund lifted out another moment: “Today, we can launch retail funds out of GIFT City as low as $5,000 and $10,000… retail participation can be there.”

Yet Parekh also acknowledged the work remaining: “It’s almost digital now… I think over time, we’ll get back to how easy it is for a mutual fund.” The implication: lowering the ticket size is only half the story — ease of entry, clarity of process, banking flows, education all need to keep pace.

Tax and structure: the hidden brake on scale
The excitement around ticket reduction and broader access still faces the reality of structural inefficiencies. Parekh pointed to one clear deterrent: “Every sell decision if you launch a fund out of GIFT City is taxed, which is not very efficient.” The tax levers affect both product design and investor behaviour: if churn triggers higher taxes, it erodes the advantage of those structures.

Shah agreed and laid out a practical alternative: feed into underlying funds domiciled in lower-tax jurisdictions. “The most efficient structure is to create a feeder fund structure where underlying your funds are based in different geographies… a very tax efficient way for investors to access global investing,” he said.

For funds launched via GIFT City, investments below Rs 10 lakh avoid the 20% Tax Collected at Source (TCS) on overseas remittances — a commercial incentive being leveraged.

Feeder funds still relevant 
The AMCs aren’t unanimous in their views. Abhishek Tiwari of PGIM India Mutual Fund flagged the strength that the traditional feeder-fund route still holds: “The feeder fund offers access at practically a thousand-rupee SIP. Ease of operation and simplicity will always keep it relevant.”

Here lies a nuanced tension: a GIFT City-based outward fund is the “new shiny toy”, but the feeder-fund route retains practical advantages. Especially for retail investors with smaller ticket sizes, familiar domestic fund admin systems, and fewer peripheral frictions (eg. currency transfers, new KYC, banking flows).

Themes missing in India, available globally
Despite the structural nitty-gritty, the product story remains compelling. Shah explained how the outbound products already under planning pack global themes not available at scale in India: “Our outbound fund has themes like semiconductor, AI, digital infrastructure, data centres. All within one portfolio.” Tiwari added context: “Mobility as a theme globally is growing at 38 percent compounded. If you want an exposure to that, you will have to go global.”

These theme-based insights matter because they signal the rationale underlying the push — not merely “invest overseas” but “get access to global structural growth areas that India’s market doesn’t supply yet.”

The fund industry is visibly energised by what GIFT City promises: lower minimums, global access, thematic levers, and a new platform for Indian investors. But as the executives themselves admitted, execution matters: banking flows, LRS education, tax windows, feeder-versus-direct architecture, onboarding ease, these are the gate-keepers to scale.