What investment opportunities does Gift city offer to NRIs?

The scheme, regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provides an opportunity to parents and guardians to start saving for their children's retirement early by harnessing the power of compounding, marking a significant milestone in India's evolving pension landscape.

The GIFT International Financial Services Centre (GIFT IFSC) is a finance hub and an SEZ in the Gujarat International Finance Tec-City (GIFT). This was set up to promote international financial services and is regulated by the International Financial Services Centres Authority, an independent regulator exclusive to the zone.

It was started in 2015 and is slowly beginning to get some scale now. “The vision is to create a world-class finance and IT zone for India to provide services not only to India, but to the entire world,” goes a quote by Prime Minister Narendra Modi on the GIFT city website.

So, what opportunities does this offer HNIs from a wealth management perspective?

Inbound opportunities

It is a distribution leg for managers of Indian funds registered in GIFT IFSC. They can raise money from international investors, provided:

a) Investments in the designated fund are made from overseas accounts of the investor, in foreign currency.

b) Redemption proceeds are credited back in foreign currency to an international account. So, no need to open a bank account in India.

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c) Withholding tax is deducted based on treaties between the countries and there's no need to pay taxes in India.

d) Investments can be made remotely even when the investor (e.g., NRI) is not in India.

Outbound opportunities

Indian funds can play a global role by launching products which mandate investments in overseas jurisdictions. This allows Indian fund managers to create a global scale over time. Investment managers such as Marcellus are offering products under this route, and other funds are also planning to join the fray in the days to come.

Banking services

Regulations permit banks to open accounts at GIFT city for managing international investments, and several leading banks have already opened their branches at GIFT city.

Inbound opportunities – some details

Inbound opportunities seem to have the highest traction so far. Investments can be made under the alternative investment fund (AIF) route, where:

1. The minimum investment size is $1,50,000.

2. The underlying for the AIF can be equity, debt, or alternative products.

3. There's no tax deducted at source (TDS), ensuring simplified taxation.

4. There's no GST on fund management and other charges for GIFT city investments (unlike regular PMSs and AIFs).

5. There could be restrictions on the maximum number of customers an AIF can accept, hence not all schemes may be open-ended.

Where can one invest?

The GIFT IFSC website lists  124 fund managers as of September 15, 2024. These include marquee names such as HDFC, Mirae, SBI, Kotak, DSP, Motilal Oswal, Unifi Rangoli, Carnelian, Lighthouse Canton, Vivriti, etc. In addition, there are a number of niche players. Ergo, the basket of funds one can choose from is reasonably broad, and growing.

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One needs to be conscious of the jurisdictions from which these funds can raise money, as not all funds can raise money from every international jurisdiction. Further, the minimum ticket size could also vary. For example, the Unifi Rangoli fund is available to US citizens for a minimum ticket size of $5,00,000, while it is available to others for $1,50,000.

Conclusion

Gift city has opened a new investment avenue for NRIs (and international investors) to invest in India without the need to convert the money to INR (reduced exchange risk) while availing of a simplified tax structure (no withholding tax, TDS or GST).  Also, they can invest remotely.

However, the minimum ticket size of $1,50,000 and the AIF route restrict this for pure retail investors and should fit their diversification strategy well. We expect this space to expand in time to come with more fund managers coming in with diverse products, simplified onboarding and management, and greater transparency. Time to take note of this segment, for those who haven't already.