GIFT City and Global Investing: What Indian Investors Should Know
Now that Indian investors have shown interest in investing in global markets, global diversification has become an integral part of modern wealth planning. Investors can explore the world beyond Indian equities and mutual funds in the form of international securities, foreign currency investments, global funds, and other cross-border investments.
One such development that comes into consideration is the International Financial Services Centre of GIFT City in Gujarat. The GIFT IFSC was set up as an international financial centre of India, where financial services related to global markets and foreign currencies can be offered.
It will be useful for Indian investors willing to diversify globally to know more about how GIFT City operates and what investment avenues can be explored there.
What Is GIFT City and GIFT IFSC?
GIFT City, also known as Gujarat International Finance Tec-City, is a financial services and technology city located in Gandhinagar, Gujarat. There is another city within GIFT City, named International Financial Services Centre or GIFT IFSC, that functions under a special regulatory regime.
The International Financial Services Centres Authority (IFSCA) was set up in April 2020 as a single-window regulator for all financial products, services and institutions functioning in India’s IFSCs. The jurisdiction of the IFSCA includes issues related to banking, capital markets, fund management, insurance, fintech and other financial services.
It is one of the aims of the GIFT IFSC to attract international finance to India and establish a link between the Indian financial markets and the international financial markets.
Why Is GIFT City Relevant to Global Investing?
Investment avenues in India are predominantly denominated in Indian rupees and are based in the domestic market. In contrast, global investments offer exposure to economies, currencies, corporations, and financial markets overseas.
The GIFT IFSC is designed to create a platform where financial services of an international nature can be delivered from India. Investors will be able to get structures related to foreign securities based on eligibility and the nature of the product.
IFSCA’s regulatory model consists of fund management, portfolio management, and capital market transactions. Entities based in the IFSC will be able to deliver services relating to securities and financial instruments within India and other jurisdictions overseas.
What Investment Opportunities Are Available Through GIFT IFSC?
1. International Funds
The fund managers within GIFT IFSC may create funds that can cater to different investment objectives. The fund may allow investors to invest in either Indian or foreign securities based on the mandate of the fund.
The regulatory framework for fund management at IFSCA includes different types of schemes, which include venture capital schemes, restricted schemes, and others.
The investors need to look into the investment objective of the fund, underlying assets, risks, costs, and eligibility.
2. International Securities
An appeal of GIFT IFSC is that it is linked to international capital markets.
It would depend on the intermediary, the structure of the product, and eligibility criteria of the investor for the investor to have exposure to international securities and financial products.
This could be beneficial to investors who wish to diversify their investments in various countries instead of just in India.
3. Exchange-Traded Funds
First, investors will have the opportunity to access a group of stocks with a single fund.
Secondly, it is easy for investors to diversify their portfolios when using international ETFs since they can follow a market, sector, index or asset class.
4. Bonds and Fixed-Income Products
GIFT IFSC is also a facilitator for international and foreign-currency transactions.
Bond investment is one of the possible sources of income through interest payments. However, bonds also pose certain risks to investors, such as interest rate risk, credit risk, liquidity risk, and currency risk.
Thus, high-yield or foreign-currency yield does not necessarily mean a low-risk investment.
5. Alternative Investment Funds
Investments in Alternative Investment Funds (AIFs) allow access to more innovative investment approaches than the conventional stock and bond markets.
They can range from private equity to venture capital, among others, depending on the particular structure of the fund.
Investment in such vehicles entails greater sophistication, longer duration and distinct characteristics of liquidity.
Can Indian Residents Invest Through GIFT IFSC?
The capability of the resident Indian to make an investment in an overseas product using GIFT IFSC will depend upon the nature of the product, category of investor, intermediary and other regulations.
The existing portfolio management framework by IFSCA allows individuals who are eligible as per FEMA to make investments offshore and within the limits allowed under the Liberalised Remittance Scheme (LRS).
Hence, it will be incorrect for investors to presume that all the products available in GIFT IFSC are available for every resident Indian.
It will be crucial to check:
- Investor eligibility
- FEMA conditions
- LRS conditions and limits
- Restrictions of the particular product
- Taxes
- Documentation and remittance process
What About NRIs and OCIs?
GIFT IFSC is also relevant for NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India).
IFSCA has described GIFT IFSC as a platform that would enable NRIs and OCIs to be a part of any financial product that involves India and international markets. The regulatory structure of GIFT IFSC comprises foreign currency banking and investment-related services.
Moreover, IFSCA has implemented provisions that will help NRIs and OCIs invest in the IFSC-based funds that invest in Indian instruments. In 2024, IFSCA has provided an alternate provision whereby NRIs, OCIs and resident Indians may invest 100% of the corpus of some specific FPIs of IFSC.
GIFT City and the Future of Global Investing in India
Investing on a global scale will keep on gaining momentum with Indian investors. Having an idea about what investment options like GIFT City offer can help make better-informed financial decisions. With different investment options available, including international investment options and foreign currency exposure, there is a lot that GIFT IFSC offers that can help investors diversify their investments. To know all about the basics, features, and advantages of GIFT City, check out AJS Wealth Advisors’ guide, “All You Need to Know About GIFT CITY: What It Is, Features, and Advantages.” To get personalized financial advice, visit AJS Wealth Advisors.
