GIFT City (IFSC): How It Works, Who It’s For, and Where It Fits in Global Investing

Background & What Is GIFT / IFSC?

GIFT City was created to establish a globally competitive financial hub within India, comparable to centres such as Singapore or Dubai. Historically, a significant portion of financial activity linked to Indian assets — including foreign investment and offshore structuring — has taken place outside India due to regulatory, currency and operational constraints. GIFT City seeks to bring some of this activity back onshore.

At the heart of GIFT City is the International Financial Services Centre (IFSC). In simple terms, an IFSC is a special financial zone within India that is treated as being outside India for many financial and currency-related rules. Financial institutions operating in the GIFT IFSC are regulated by the IFSCA, are allowed to transact in foreign currencies (typically the US dollar), and therefore operate under regulatory, FEMA and tax frameworks that differ from onshore India.

For investors, GIFT is best understood not as an investment opportunity by itself, but as financial infrastructure — a platform that enables global-style investing and cross-border capital flows from within India.

Two Use-Cases: Inward vs Outward

From an investor’s perspective, GIFT City effectively serves two very different use-cases, depending on whether capital is moving into India or out of India. These two applications are often discussed together, but they cater to different investor groups, objectives and regulatory considerations.

GIFT Inward primarily relates to foreign investors and NRIs seeking exposure to Indian assets through GIFT City. In this case, GIFT acts as a gateway for offshore capital to access India-focused investments under an IFSC framework, often using foreign currency–denominated structures.

GIFT Outward, on the other hand, is relevant for Indian investors, NRIs and global investors looking to access international markets from within India. Here, GIFT functions as a platform for global investing — allowing exposure to overseas assets through structures based in the IFSC, rather than through traditional offshore routes.

Understanding this distinction is critical, as the benefits, limitations and suitability of GIFT differ meaningfully between these two use-cases. We examine each of these separately below.

GIFT Inward - for NRI & Global Investors

For global investors and NRIs looking to invest in India, there are broadly two traditional options. The first is to invest through India-focused funds available in global markets, typically domiciled in jurisdictions such as the US, Ireland or Singapore. The second is to send capital into India directly and invest with an Indian domestic fund manager.

While global India-focused funds offer convenience, they are often managed by regional or global teams where India is just one of several markets under coverage. As a result, these funds may lack the same depth of on-ground insight and market nuance as India-dedicated managers whose sole focus is the Indian economy and capital markets. This becomes particularly relevant in a market like India, where local knowledge, access and experience can materially influence outcomes.

On the other hand, investing directly with Indian domestic managers provides access to high-quality, India-focused investment talent, but comes with its own set of challenges. Global investors must deal with Indian tax frameworks, foreign currency conversion, operational complexity and regulatory friction, which can make the process less efficient and harder to manage.

GIFT City bridges this gap by allowing Indian investment managers to offer India-focused strategies through IFSC-based, foreign currency–denominated structures. This gives global investors access to high-quality Indian investment talent without having to navigate domestic tax, currency and operational complexities. Eligible IFSC investments are exempt from Indian capital gains and withholding taxes.

Gift Outward - For Indian, NRI & Global Investors

For Indian investors seeking exposure to global assets, there have traditionally been two primary routes. The first is investing through overseas feeder funds offered by Indian mutual funds. This route is operationally simple — investments are made in rupees, without any need to remit funds overseas. However, feeder funds are subject to regulatory and fund-level limits, which often leads to availability constraints, making them intermittently closed to fresh investments.

The second route involves sending money overseas and investing through international financial centres. While this allows broader access to global markets, investors need to be careful about how and where they invest. Direct investments into US-domiciled brokers or funds can expose investors to US estate and inheritance tax risks, which can be significant. As a result, many investors prefer investing through funds domiciled in tax-friendly jurisdictions such as Ireland or Singapore, rather than directly in US structures.

GIFT City emerges as an alternative in this context. Funds domiciled in the GIFT IFSC operate out of a tax-friendly jurisdiction, eliminating estate and inheritance tax risks associated with US-domiciled investments. For many investors, GIFT also offers psychological and operational comfort — providing global exposure through a structure that is closer to home, while avoiding some of the complexities of maintaining overseas accounts. Additionally, for non-individual corporate investors without an overseas subsidiary, GIFT is the only option to build a portfolio of overseas assets (apart from feeder funds, which often are not available).

That said, there are important limitations to consider. A large proportion of managers operating out of GIFT are India-focused investment teams, whose core expertise lies in Indian equities rather than global markets. When investing internationally, especially across regions and asset classes, global-dedicated managers with on-ground presence and experience often have a meaningful advantage. The universe of such managers currently operating out of GIFT remains limited.

In addition, GIFT does not fully replicate the flexibility of true offshore investing. Capital invested through GIFT structures is not permanently offshore — upon redemption, proceeds typically need to be repatriated back to India. For investors with objectives such as overseas spending needs, long-term diversification against jurisdictional risk, or broader global capital mobility, this can be a meaningful constraint compared to investing through overseas jurisdictions like Singapore or Ireland.

Products & Structures Emerging in GIFT

GIFT City supports a wide range of investment structures, broadly similar to those available in onshore India, but operating under the IFSC framework. At a high level, the key structures currently in use include mutual fund–like structures, portfolio management services (PMS) and alternative investment funds (AIFs), each designed to cater to different investor profiles and strategy complexity.

Across these structures, it is possible to access a broad spectrum of asset classes and strategies, including equities, fixed income, global securities, and alternative or structured strategies. In principle, most investment products that can be offered through offshore financial centres can also be structured out of GIFT, subject to regulatory approval and commercial viability. As a result, GIFT functions more as a platform than a product category, with the range of offerings largely determined by what investment managers choose to launch.

That said, the GIFT ecosystem is still at a relatively early stage of development. While the regulatory framework allows for significant flexibility, not all asset classes, strategies or product categories are yet fully represented. Investors should therefore expect the breadth and depth of offerings in GIFT to expand over time, as more managers establish operations and the market matures.

IME Capital’s Recommendations on GIFT vs Alternate International Options

At IME Capital, we view GIFT City as a positive and important development in India’s financial ecosystem, with the potential to play a larger role in cross-border investing over time. However, when evaluating structures from a practical portfolio construction and execution standpoint, we believe it is important to distinguish between long-term potential and current on-ground maturity.

At present, for the majority of our clients’ inward and outward investment needs, we continue to prefer Singapore-based structures, primarily through our partnership with the Kristal platform. Kristal offers a fully digital, end-to-end experience across account opening, transactions and consolidated reporting, significantly reducing operational complexity. From an investment perspective, Singapore also provides access to a much wider universe of global, dedicated investment managers and strategies, particularly for outward investments, compared to the currently limited global manager presence in GIFT.

Capital mobility is another important consideration. Investments routed via Singapore involve a genuine transfer of capital to an overseas jurisdiction, allowing greater flexibility over time. Unlike GIFT structures, capital invested offshore does not necessarily need to be repatriated back to India upon redemption — a factor that can be relevant for investors with overseas spending needs or broader diversification objectives.

That said, GIFT City is already relevant in specific edge cases. Certain India-focused managers or strategies may be available through GIFT but not via offshore platforms, and for non-individual investors seeking outward exposure, GIFT may be the only viable structure. In such situations, GIFT can serve as a practical alternative.

Overall, while we remain constructive on the long-term evolution of GIFT City, we believe the ecosystem is still nascent. As product depth increases and participation broadens, its relevance is likely to grow. Until then, for most investors, we continue to recommend offshore structures such as Singapore for global investing, while selectively evaluating GIFT opportunities where they offer clear and specific advantages.