Investors seeking to diversify their portfolios are increasingly looking at international funds, and experts say GIFT City, coupled with the Liberalised Remittance Scheme (LRS), offers a viable route for long-term global exposure.
Speaking to CNBC-TV18, Aashish Somaiyaa, CEO of WhiteOak Capital AMC, highlighted that traditional feeder funds in India have reached their investment limits, restricting domestic mutual funds from sending money abroad.
“As an industry, we could not invest more than $7 billion, and currently that limit is full. So, there are no domestic feeders available for investing outside the country,” he said.
Somaiyaa explained that under the LRS, individuals can remit up to $250,000 annually to invest abroad. By combining this with GIFT City funds, investors can access global markets more efficiently.
“You could diversify your exposure into other emerging markets, or invest in US tech or the Chinese market. Given that domestic feeder funds have a capacity constraint right now, remitting under LRS and investing via GIFT City is an equally good option,” he added.
Addressing concerns about accessibility, Somaiyaa said the minimum investment for retail investors through GIFT City is $5,000, roughly ₹4.5 lakh. While this is higher than traditional feeder funds, he noted it is still within reach for many. He also highlighted that the process requires familiarisation with documentation and tax procedures.
“The tax collected at source is about 20%, but it is refunded when you file your taxes annually. People will get used to it eventually,” he said.
Kalpen Parekh, MD & CEO of DSP Mutual Fund, emphasised that costs for retail GIFT City funds have been kept competitive with onshore mutual funds.
“Our cost structure for the retail outbound fund is 100 basis points for direct plan investors and 1.75% for regular plan investors, slightly lower than actively managed mutual funds in India,” he said. He added that the GIFT City platform is new, and operational processes are still being refined to ensure a smooth customer experience.
On the question of taxation benefits for Indian investors, Somaiyaa clarified that while GIFT City provides significant advantages for inbound investing, there is no special tax benefit for Indians investing abroad through GIFT City. “It is treated like any other international investment. If you withdraw in less than two years, it is taxed at the marginal rate. If you hold for two years, it is treated as long-term at 12.5% plus surcharges,” he said.
Parekh, however, stressed the strategic benefits of investing globally through GIFT City. “A lot of businesses which are not present in India have profit pools that are not correlated with Indian sectors. If you want to be a more holistic, balanced investor for the next 20–30 years, investing in a fund that combines Indian and global stocks is the best way to do that,” he said. He added that using the LRS route allows investors to create long-term financial plans, such as funding a child’s overseas education, while keeping revenues and profit pools within India.
Experts say that with rising interest in global diversification, tools like GIFT City and LRS are helping investors build more resilient portfolios that are not dependent on the performance of a single market or asset class.
Below is the excerpt of the discussion.
Q: For a retail investor who wants exposure to international markets, such as US tech or China consumption, how does GIFT City make it easier compared to traditional overseas feeder funds?
Somaiyaa: Global investing is an area of growing interest currently. As you may know, since around 2007-08, we have had the ability to file feeder funds with SEBI as the regulator. These are local mutual funds that act as feeder funds investing into international markets. For example, in my previous role at Motilal Oswal, we created NASDAQ 100 and S&P 500 feeder funds in India to provide such exposure.
However, the Reserve Bank of India imposed a limit on the domestic mutual fund industry, restricting aggregate investments abroad to $7 billion, a cap which is now fully utilised. As a result, no domestic feeder funds are currently available for overseas investments.
Given this, the alternative is the Liberalised Remittance Scheme (LRS), which allows individuals to remit up to $250,000 annually per PAN card. Under LRS, investors can send money to GIFT City funds. These funds enable investment into various emerging markets, including India, US tech, China, or other sectors, offering a way to diversify beyond domestic limits. So, with domestic feeder funds at capacity, remitting under LRS and investing via GIFT City is an equally good option.
Q: Is there a minimum investment size for international funds via GIFT City, and is it accessible for retail investors like feeder funds were?
Somaiyaa: Yes, it is accessible. DSP recently launched a fund with a $5,000 minimum investment for retail investors. For alternate investment funds (AIFs) like ours, the minimum is currently $150,000, as AIFs are meant for accredited investors, who can also invest from $10,000 upwards. Going forward, we plan to create more retail-oriented funds.
While $5,000 (around ₹4.5 lakh) is higher than typical domestic minimums of ₹100, it remains affordable for many retail investors.
Q: Given this, will it take some time for investors to move to such funds compared to feeder funds? The feeder funds had limits, but GIFT City funds also have limits.
Somaiyaa: It’s largely about familiarisation—understanding how the LRS works, how to remit money, and the required documentation. While bank payments domestically are straightforward, LRS remittances to GIFT City require a different process. GIFT City is an offshore financial centre, so although geographically in India, it is regulated as offshore. This means sending money from an Indian account in US dollars to the fund’s account in GIFT City involves additional steps.
Also, there is a tax collected at source (TCS) of about 20% on LRS remittances, which is refundable when you file your annual taxes. It’s like paying advance tax, which can be set off against future tax or reclaimed during filing. Although the process and TCS are different, it’s not onerous, and people will adapt over time.
Q: Regarding costs, are expenses for GIFT City funds different compared to feeder funds?
Parekh: Ashish has covered a lot, so I’ll just add that we have kept the cost structure competitive with Indian mutual funds. SEBI has done a great job over the last decade in making costs transparent and reasonable, allowing market returns to flow to investors.
Our retail outbound fund charges 100 basis points for direct plans and 1.75% for regular plans, which is slightly lower than many actively managed Indian mutual funds. So, costs are quite competitive.
One challenge is that the GIFT City platform is new. While Indian mutual fund investments are seamless with mobile apps, GIFT City’s platform is still evolving operationally. We are working through a learning curve and expect smoother customer experiences in the next three to six months.
Q: Ashish, is there any taxation benefit for GIFT City international funds, such as simplification in capital gains, dividends, or double taxation treaties?
Somaiyaa: GIFT City is particularly advantageous for inbound investments into India, as it is completely tax-free. For instance, when NRIs invest via their NRE accounts, withdrawals attract TDS and capital gains tax, requiring PAN and filing. But investments through GIFT City funds avoid these taxes on redemption.
For NRIs investing from tax-friendly jurisdictions like Dubai or Singapore, investing into India via GIFT City is much more beneficial.
However, for Indians investing abroad through GIFT City, there is no tax advantage; these investments are treated like any other international investment. Withdrawals within two years are taxed at the marginal rate, while those held longer attract long-term capital gains tax at 12.5% plus surcharges.
Q: Costs and taxation are similar to feeder funds. Why would one choose GIFT City for international exposure?
Parekh: I’d say it’s about portfolio diversification and accessing global profit pools unavailable in India. Indian markets are well known and fairly valued after nearly 30 years of growth. Many dominant global businesses don’t have Indian equivalents, offering complementary economic cycles.
Investing globally isn’t about chasing last year’s returns or next year’s hype; it’s about owning world-class businesses for the long term. Ideally, one should invest in funds combining Indian and global stocks.
Since mutual funds’ global exposure limits are currently capped, the LRS route via GIFT City offers an alternative. For example, I plan to build a fund for my son’s future education abroad via LRS and GIFT City, rather than letting money sit idle overseas or giving it to foreign fund managers. This way, profits remain in India and benefit Indian companies.
Ultimately, having a balanced portfolio of Indian and global stocks makes investing more resilient, not reliant on one market cycle.
Speaking to CNBC-TV18, Aashish Somaiyaa, CEO of WhiteOak Capital AMC, highlighted that traditional feeder funds in India have reached their investment limits, restricting domestic mutual funds from sending money abroad.
“As an industry, we could not invest more than $7 billion, and currently that limit is full. So, there are no domestic feeders available for investing outside the country,” he said.
Somaiyaa explained that under the LRS, individuals can remit up to $250,000 annually to invest abroad. By combining this with GIFT City funds, investors can access global markets more efficiently.
“You could diversify your exposure into other emerging markets, or invest in US tech or the Chinese market. Given that domestic feeder funds have a capacity constraint right now, remitting under LRS and investing via GIFT City is an equally good option,” he added.
Addressing concerns about accessibility, Somaiyaa said the minimum investment for retail investors through GIFT City is $5,000, roughly ₹4.5 lakh. While this is higher than traditional feeder funds, he noted it is still within reach for many. He also highlighted that the process requires familiarisation with documentation and tax procedures.
“The tax collected at source is about 20%, but it is refunded when you file your taxes annually. People will get used to it eventually,” he said.
Kalpen Parekh, MD & CEO of DSP Mutual Fund, emphasised that costs for retail GIFT City funds have been kept competitive with onshore mutual funds.
“Our cost structure for the retail outbound fund is 100 basis points for direct plan investors and 1.75% for regular plan investors, slightly lower than actively managed mutual funds in India,” he said. He added that the GIFT City platform is new, and operational processes are still being refined to ensure a smooth customer experience.
On the question of taxation benefits for Indian investors, Somaiyaa clarified that while GIFT City provides significant advantages for inbound investing, there is no special tax benefit for Indians investing abroad through GIFT City. “It is treated like any other international investment. If you withdraw in less than two years, it is taxed at the marginal rate. If you hold for two years, it is treated as long-term at 12.5% plus surcharges,” he said.
Parekh, however, stressed the strategic benefits of investing globally through GIFT City. “A lot of businesses which are not present in India have profit pools that are not correlated with Indian sectors. If you want to be a more holistic, balanced investor for the next 20–30 years, investing in a fund that combines Indian and global stocks is the best way to do that,” he said. He added that using the LRS route allows investors to create long-term financial plans, such as funding a child’s overseas education, while keeping revenues and profit pools within India.
Experts say that with rising interest in global diversification, tools like GIFT City and LRS are helping investors build more resilient portfolios that are not dependent on the performance of a single market or asset class.
Below is the excerpt of the discussion.
Q: For a retail investor who wants exposure to international markets, such as US tech or China consumption, how does GIFT City make it easier compared to traditional overseas feeder funds?
Somaiyaa: Global investing is an area of growing interest currently. As you may know, since around 2007-08, we have had the ability to file feeder funds with SEBI as the regulator. These are local mutual funds that act as feeder funds investing into international markets. For example, in my previous role at Motilal Oswal, we created NASDAQ 100 and S&P 500 feeder funds in India to provide such exposure.
However, the Reserve Bank of India imposed a limit on the domestic mutual fund industry, restricting aggregate investments abroad to $7 billion, a cap which is now fully utilised. As a result, no domestic feeder funds are currently available for overseas investments.
Given this, the alternative is the Liberalised Remittance Scheme (LRS), which allows individuals to remit up to $250,000 annually per PAN card. Under LRS, investors can send money to GIFT City funds. These funds enable investment into various emerging markets, including India, US tech, China, or other sectors, offering a way to diversify beyond domestic limits. So, with domestic feeder funds at capacity, remitting under LRS and investing via GIFT City is an equally good option.
Q: Is there a minimum investment size for international funds via GIFT City, and is it accessible for retail investors like feeder funds were?
Somaiyaa: Yes, it is accessible. DSP recently launched a fund with a $5,000 minimum investment for retail investors. For alternate investment funds (AIFs) like ours, the minimum is currently $150,000, as AIFs are meant for accredited investors, who can also invest from $10,000 upwards. Going forward, we plan to create more retail-oriented funds.
While $5,000 (around ₹4.5 lakh) is higher than typical domestic minimums of ₹100, it remains affordable for many retail investors.
Q: Given this, will it take some time for investors to move to such funds compared to feeder funds? The feeder funds had limits, but GIFT City funds also have limits.
Somaiyaa: It’s largely about familiarisation—understanding how the LRS works, how to remit money, and the required documentation. While bank payments domestically are straightforward, LRS remittances to GIFT City require a different process. GIFT City is an offshore financial centre, so although geographically in India, it is regulated as offshore. This means sending money from an Indian account in US dollars to the fund’s account in GIFT City involves additional steps.
Also, there is a tax collected at source (TCS) of about 20% on LRS remittances, which is refundable when you file your annual taxes. It’s like paying advance tax, which can be set off against future tax or reclaimed during filing. Although the process and TCS are different, it’s not onerous, and people will adapt over time.
Q: Regarding costs, are expenses for GIFT City funds different compared to feeder funds?
Parekh: Ashish has covered a lot, so I’ll just add that we have kept the cost structure competitive with Indian mutual funds. SEBI has done a great job over the last decade in making costs transparent and reasonable, allowing market returns to flow to investors.
Our retail outbound fund charges 100 basis points for direct plans and 1.75% for regular plans, which is slightly lower than many actively managed Indian mutual funds. So, costs are quite competitive.
One challenge is that the GIFT City platform is new. While Indian mutual fund investments are seamless with mobile apps, GIFT City’s platform is still evolving operationally. We are working through a learning curve and expect smoother customer experiences in the next three to six months.
Q: Ashish, is there any taxation benefit for GIFT City international funds, such as simplification in capital gains, dividends, or double taxation treaties?
Somaiyaa: GIFT City is particularly advantageous for inbound investments into India, as it is completely tax-free. For instance, when NRIs invest via their NRE accounts, withdrawals attract TDS and capital gains tax, requiring PAN and filing. But investments through GIFT City funds avoid these taxes on redemption.
For NRIs investing from tax-friendly jurisdictions like Dubai or Singapore, investing into India via GIFT City is much more beneficial.
However, for Indians investing abroad through GIFT City, there is no tax advantage; these investments are treated like any other international investment. Withdrawals within two years are taxed at the marginal rate, while those held longer attract long-term capital gains tax at 12.5% plus surcharges.
Q: Costs and taxation are similar to feeder funds. Why would one choose GIFT City for international exposure?
Parekh: I’d say it’s about portfolio diversification and accessing global profit pools unavailable in India. Indian markets are well known and fairly valued after nearly 30 years of growth. Many dominant global businesses don’t have Indian equivalents, offering complementary economic cycles.
Investing globally isn’t about chasing last year’s returns or next year’s hype; it’s about owning world-class businesses for the long term. Ideally, one should invest in funds combining Indian and global stocks.
Since mutual funds’ global exposure limits are currently capped, the LRS route via GIFT City offers an alternative. For example, I plan to build a fund for my son’s future education abroad via LRS and GIFT City, rather than letting money sit idle overseas or giving it to foreign fund managers. This way, profits remain in India and benefit Indian companies.
Ultimately, having a balanced portfolio of Indian and global stocks makes investing more resilient, not reliant on one market cycle.
Addressing concerns about accessibility, Somaiyaa said the minimum investment for retail investors through GIFT City is $5,000, roughly ₹4.5 lakh. While this is higher than traditional feeder funds, he noted it is still within reach for many. He also highlighted that the process requires familiarisation with documentation and tax procedures.
“The tax collected at source is about 20%, but it is refunded when you file your taxes annually. People will get used to it eventually,” he said.
Kalpen Parekh, MD & CEO of DSP Mutual Fund, emphasised that costs for retail GIFT City funds have been kept competitive with onshore mutual funds.
“Our cost structure for the retail outbound fund is 100 basis points for direct plan investors and 1.75% for regular plan investors, slightly lower than actively managed mutual funds in India,” he said. He added that the GIFT City platform is new, and operational processes are still being refined to ensure a smooth customer experience.
On the question of taxation benefits for Indian investors, Somaiyaa clarified that while GIFT City provides significant advantages for inbound investing, there is no special tax benefit for Indians investing abroad through GIFT City. “It is treated like any other international investment. If you withdraw in less than two years, it is taxed at the marginal rate. If you hold for two years, it is treated as long-term at 12.5% plus surcharges,” he said.
“The tax collected at source is about 20%, but it is refunded when you file your taxes annually. People will get used to it eventually,” he said.
Kalpen Parekh, MD & CEO of DSP Mutual Fund, emphasised that costs for retail GIFT City funds have been kept competitive with onshore mutual funds.
“Our cost structure for the retail outbound fund is 100 basis points for direct plan investors and 1.75% for regular plan investors, slightly lower than actively managed mutual funds in India,” he said. He added that the GIFT City platform is new, and operational processes are still being refined to ensure a smooth customer experience.
On the question of taxation benefits for Indian investors, Somaiyaa clarified that while GIFT City provides significant advantages for inbound investing, there is no special tax benefit for Indians investing abroad through GIFT City. “It is treated like any other international investment. If you withdraw in less than two years, it is taxed at the marginal rate. If you hold for two years, it is treated as long-term at 12.5% plus surcharges,” he said.
Parekh, however, stressed the strategic benefits of investing globally through GIFT City. “A lot of businesses which are not present in India have profit pools that are not correlated with Indian sectors. If you want to be a more holistic, balanced investor for the next 20–30 years, investing in a fund that combines Indian and global stocks is the best way to do that,” he said. He added that using the LRS route allows investors to create long-term financial plans, such as funding a child’s overseas education, while keeping revenues and profit pools within India.
Experts say that with rising interest in global diversification, tools like GIFT City and LRS are helping investors build more resilient portfolios that are not dependent on the performance of a single market or asset class.
Experts say that with rising interest in global diversification, tools like GIFT City and LRS are helping investors build more resilient portfolios that are not dependent on the performance of a single market or asset class.