Investing abroad through GIFT City: what Indian investors should know

Most of our wealth sits in one country and one currency. Investing a part of it abroad spreads the risk, and gives you a share in companies that don't list in India. The most common way, international mutual funds sold in India, has often been closed to new money because the industry has a cap on overseas investment. GIFT City has become the other route.

What GIFT City is

GIFT City, in Gandhinagar, Gujarat, is India's International Financial Services Centre (IFSC). Funds there are regulated by the IFSCA, an Indian regulator, but they work like offshore funds: you invest in US dollars, and they can invest anywhere in the world. Many of them invest in US and global shares, often through well-known global index or active funds.

How resident Indians invest

Resident Indians invest through the Liberalised Remittance Scheme (LRS), the same route used for studies abroad or foreign travel.

• The limit: up to USD 2,50,000 per person in a financial year, for all LRS purposes together, not only investment.
• The minimum: most GIFT City retail funds start at about USD 5,000, with smaller top-ups; a few start lower. Check each fund's minimum.
• TCS: when your LRS remittances for investment cross ₹10 lakh in a year, the bank collects 20% tax at source on the amount above it. This is not an extra tax. You can set it off against your income tax or claim it back when you file your return, but your money is held up until then.

NRIs can invest too, from their NRE or foreign accounts, without the LRS route.

Why investors choose it

• Open when Indian international funds are not. GIFT City funds are outside the cap that often stops Indian fund houses from taking new money for overseas funds.
• Dollar investment. Your money stays in US dollars. When the rupee weakens against the dollar, your returns in rupees rise. If the rupee strengthens, they fall.
• Indian regulation and paperwork. Accounts are opened with Indian KYC, and the fund is regulated in India, which many find simpler than opening an account with a foreign broker.
• Holding through an Indian fund. Because you own units of a fund in India rather than US shares directly, this is often cited as avoiding US estate tax, which can apply to foreigners holding US shares directly. Check this for your own situation.

What to watch

• Costs. Look at the total cost: the GIFT City fund's own fee, the fee of any global fund it invests in, and the bank's charge for converting rupees to dollars.
• Currency works both ways. A stronger rupee reduces your rupee returns.
• The money is tied up longer. Redemptions take longer than in Indian funds, and the money comes back through your bank, converted into rupees.
• TCS on large amounts. Plan large investments so the 20% TCS doesn't hold up more money than you need.
• Tax. Gains are taxed in India. For international funds, gains on units held over 24 months are generally taxed at 12.5%, and shorter-term gains at your slab rate. GIFT City funds can be set up in different ways, so check how a fund is taxed before you invest, and keep records for your tax return.

How much to invest abroad

For most families, a part of the equity portfolio, often around 10% to 20%, is enough to spread risk without swinging too much on currency or one foreign market. It depends on your goals: someone planning a child's studies abroad, for example, may want more in dollars.

Global investing through GIFT City is one of our services. Talk to us if you'd like help choosing a fund and planning the remittance.