Indians get a new route to the world's markets via GIFT City

Summary: International funds shut the door. GIFT City may have just opened another. Learn how PPFAS’s new S&P 500 and Nasdaq 100 FoFs work, how LRS-based investing bypasses SEBI’s cap and what this means for your portfolio’s global allocation.

A quiet revolution in how Indians invest abroad is taking shape in Gandhinagar.

For the past three years, anyone trying to start a fresh SIP in an “international fund” has run into the same dead end: the scheme is either temporarily closed for fresh subscriptions or accepting only token money. The reason has nothing to do with investor demand and everything to do with regulation. Indian mutual funds collectively hit the industry-wide ceiling on how much they can invest overseas – and then got stuck there.

Now, a new window is opening through GIFT City’s International Financial Services Centre (IFSC). PPFAS, long associated with sensible global investing, is among the first few to build a retail “outbound” bridge: US equity funds based in GIFT City that Indian residents can access under the RBI’s Liberalised Remittance Scheme (LRS).

This is not just another product launch. It is the beginning of a parallel route for Indians to own the world’s biggest companies – outside the old, congested mutual fund channel.

How the old overseas route choked up

Until recently, the simplest way for a regular Indian investor to gain global exposure was to invest in a domestic mutual fund that invested abroad – either directly in foreign stocks or via overseas ETFs and funds.

SEBI, however, capped how much the Indian mutual fund industry could invest overseas. USD 7 billion in total for all schemes investing in foreign securities, with an additional USD 1 billion window for schemes investing in overseas ETFs, and a per-AMC cap of USD 1 billion (excluding foreign ETFs).

As US and other global markets boomed post-Covid, investor flows surged, and the industry collectively crept up to that ceiling. Rather than risk breaching RBI’s comfort zone on foreign exchange outflows, SEBI told fund houses to stop taking in fresh money into overseas-oriented schemes once the limits were effectively used up

Existing investors could stay; portfolios could be managed, but the window for new money was effectively shut.

For investors who believed in diversification through global index funds or international flexi-cap schemes, this was frustrating. Yes, they could still invest abroad directly using LRS – opening foreign brokerage accounts, wiring dollars, dealing with foreign tax forms and complex reporting – but the “simple Indian mutual fund” route that had democratised global investing had hit a hard stop.

Enter GIFT City: a new outbound bridge

While the domestic mutual fund route remains constrained by the USD 7 billion cap, a separate ecosystem has been quietly growing at GIFT City’s IFSC in Gujarat.

GIFT IFSC is treated as an offshore jurisdiction for many purposes, with its own regulator, the International Financial Services Centres Authority (IFSCA) and a distinct tax and legal framework designed to compete with global financial hubs. Fund structures there already enjoy fund-level taxation and significant exemptions on many types of foreign securities.

So far, most of the action in GIFT City has been in high-ticket structures such as Alternative Investment Funds (AIFs), aimed at HNIs, family offices, and institutions. Minimum tickets often start at USD 150,000 or more. What’s new – and important for ordinary investors – is the emergence of retail outbound funds: pooled vehicles in GIFT City that Indian residents can access via LRS or the Overseas Portfolio Investment (OPI) route, with much lower ticket sizes and mutual-fund-like simplicity.

PPFAS is among the first few to put a recognisable brand and a clear retail design on this structure.

What exactly is PPFAS launching?

PPFAS Gift City has received approval to launch two passive funds. The Parag Parikh IFSC S&P 500 Fund of Fund and Parag Parikh IFSC Nasdaq 100 Fund of Fund. Both will be funds of funds (FoFs) that invest all their capital in ETFs/UCITS tracking the S&P 500 and the Nasdaq 100, respectively. In simple terms, these are dollar-denominated funds based in GIFT City whose only job is to buy and hold low-cost, accumulating index funds on the two most widely tracked US indices.

“Our first two retail funds will be Fund of Funds investing in accumulating ETFs/UCITS tracking the S&P 500 and NASDAQ 100, respectively,” says Neil Parikh, Chairman & CEO of PPFAS. “This will be tax-efficient vs. replicating the index, as transaction costs would be minimal and there would be no churn or dividends to trigger taxes.”

A third, active global equity fund is planned later. Its structure is still being finalised – it may or may not be a FoF – but the investment style, Parikh says, will mirror PPFAS’ long-standing philosophy in India:

“We will strive to invest in large companies with a globally diversified revenue pool, a history of generating strong cash flows, decent RoCEs, and clean corporate governance records, available at reasonable valuations. There is no bar on the country of listing, but you can expect high allocation to developed economies.”

The passive funds, PPFAS says, have already been filed with the regulator, with an NFO expected within a quarter. The active fund is slated for the next financial year.

How these GIFT City funds will actually work

Structurally, these are retail funds in GIFT City that behave much like mutual funds, but with a few crucial differences.

1. Taxation at the fund level

The biggest structural departure is taxation.

“The taxation is at the fund level,” explains Parikh. “That means the fund will be paying taxes whenever it sells securities or receives dividends/interest, and the proceeds in the hands of investors on redemption are net of tax – effectively tax-free.”

In other words, rather than each unitholder calculating and paying capital gains tax on foreign assets, the fund itself is the taxpayer under the IFSC regime. Investors receive after-tax proceeds, eliminating the annual tax filing headache that often comes with direct LRS investing in US stocks or ETFs.

Of course, investors should remember that tax frameworks can evolve. But as things stand, fund-level taxation in IFSC is a meaningful simplification compared to do-it-yourself foreign investing.

2. Investments via LRS/OPI – within your USD 2,50,000 limit

These outbound funds do not count against SEBI’s mutual fund overseas cap. Instead, each Indian resident invests in them using the RBI’s Liberalised Remittance Scheme (LRS) or OPI framework, up to the annual USD 2,50,000 limit per individual.

“Investments can happen only through the LRS or OPI route,” says Parikh. “Individuals can invest through LRS up to their annual limit of $2,50,000.”

That means the constraint is now your personal LRS headroom, not the industry’s USD 7 billion ceiling.

There’s also the question of Tax Collected at Source (TCS) on LRS remittances: “For LRS transfers of more than INR 10 lakh in a year, a 20% TCS is applicable.” Parikh notes. “With a ticket size of USD 5,000, the funds launched will be well below this threshold.”

In effect, PPFAS is trying to set the minimum investment at USD 5,000 (roughly Rs 4 lakh at current rates) so that many investors can participate without immediately triggering the higher TCS slab.

3. Separate onboarding, moving to digital

Because these are not domestic mutual funds, existing KYC and folios with Indian AMCs do not automatically apply.

“Onboarding for the funds would be separate from mutual fund onboarding,” says Parikh. “The process may initially involve physical forms, but we are looking to have a complete digital process as well for smaller-ticket clients.”

In practical terms, think of this as opening a new relationship with a GIFT City fund platform – still far simpler than opening a foreign brokerage account directly in the US, but not yet as seamless as clicking “start SIP” on your regular mutual fund app. Over time, the expectation is that the user experience will converge.

Why use a GIFT City fund instead of going directly?

If you already know how to open a US brokerage account, handle W-8BEN forms, interpret foreign tax statements and manage LRS transfers, you may not need an intermediary. But most investors don’t want that complexity.

Outbound GIFT City funds sit in the middle:

• No need to pick individual foreign stocks or ETFs – you outsource that to a proven investment team or to plain-vanilla indices like the S&P 500 and Nasdaq 100.
• No direct foreign tax filings – the fund handles withholding taxes and capital gains at its level.
• Rupee in, rupee out – even though the underlying is in dollars, your practical experience is still that of subscribing and redeeming “units” with a professional fund house, with clear NAVs and statements.
• Regulated environment – IFSCA oversees the fund; LRS rules govern your remittances; and Indian regulations continue to apply to you as a resident.

In other words, the proposition is: global exposure with less operational noise.

Value Research’s view: why global investing matters

At Value Research, we have argued for years that a well-designed portfolio for an Indian saver should include exposure to overseas equities. Not because India is weak – but precisely because investors are over-exposed to it already:

• Your job, business and real estate are all in India.
• Your future spending – retirement, healthcare, children’s education – is mostly rupee-denominated.
• Your equity investments, if entirely domestic, rise and fall with the same political, regulatory and macroeconomic cycles.

Adding a reasonable allocation to global markets does three important things:

1. Sector diversification
   Many of the world’s dominant businesses in technology platforms, enterprise software, global consumer brands and some areas of healthcare are not listed in India at all. Indices like the S&P 500 and Nasdaq 100 give you exposure to these structural winners in one shot.
2. Currency diversification
   Over long periods, the rupee has tended to depreciate against the US dollar. That is not guaranteed to continue in a straight line, but holding some assets in strong foreign currencies is a sensible hedge against domestic crises and inflation.
3. Smoother long-term journey
   Indian markets can go through multi-year phases where returns are muted. Global markets don’t move in lockstep with India. A mix of domestic and overseas equities can help reduce the risk of your financial life being hostage to one country’s cycles.

The problem wasn’t the idea of investing abroad; it was the clogged pipe. Domestic international funds were full. Direct LRS was complex and intimidating. For many investors, the “global allocation” box was conceptually important but practically empty.

Outbound GIFT City funds are a credible attempt to unclog that pipe.

What investors should watch out for

That said, this is not a free lunch. A few caveats are important.

1. Market and concentration risk

These first two PPFAS funds are tied specifically to US large-cap indices:

• The S&P 500 is broad, but still dominated by a handful of mega-cap tech and consumer names.
• The Nasdaq 100 is even more growth- and tech-heavy; it can be far more volatile on the downside.

They are excellent building blocks for global exposure, but not a magic shield. If US markets correct sharply or go through a flat period, these funds will fully reflect that.

2. Currency risk

When you invest via LRS into a dollar fund, you are implicitly long the US dollar and short the rupee.

If the rupee depreciates over time, that enhances your rupee returns. If, for a stretch, the rupee strengthens, it can dilute returns even if the underlying index does well in dollar terms.

Currency risk is not a reason to avoid global investing, but investors should understand it rather than be surprised by it.

3. Regulatory and tax evolution

Fund-level taxation in GIFT City is a major selling point today. But tax regimes evolve. Future changes – in India or in treaty partner countries – could alter the post-tax outcomes.

Investors should also remember that, while redemption proceeds may be tax-free in their current form, they must still comply with all reporting requirements under Indian law. When in doubt, consult a competent tax advisor.

4. Ticket sizes and role in the portfolio

With a minimum ticket of USD 5,000, these are not “Rs 500 SIP” products yet. They sit somewhere between mass retail and the affluent.

From a portfolio-design perspective, we would still treat domestic equity as the core of an Indian investor’s growth capital, with global exposure playing a supporting role. Think of it as a meaningful slice – not the whole pie.

For many long-term investors, a moderate allocation to overseas equities – calibrated to their risk appetite and goals – is enough to reap diversification benefits without over-complicating their financial life.

A new chapter, not a curiosity

It is easy to dismiss GIFT City as a far-off experiment in financial engineering. That would be a mistake.

Fund commitments at GIFT IFSC are growing rapidly, and on current projections, the ecosystem is on track to cross USD 100 billion of commitments by the end of the decade, driven by a mix of AIFs, funds and new structures. What has been missing so far is a clean, retail-friendly on-ramp for resident Indians who simply want to own a slice of the global equity market without jumping through too many hoops.

PPFAS’s outbound funds are among the first few serious attempts to build that on-ramp:

• Simple, index-linked exposures to the world’s deepest equity market,
• Dollar assets accessed via a familiar fund-house brand,
• Fund-level taxation that hides the plumbing from the end investor, and
• A regulatory route that bypasses the industry-wide overseas cap that has paralysed domestic international funds.

There will be competitors. Structures will evolve. Ticket sizes will likely come down. Over time, the line between “domestic” and “offshore” for the Indian investor may blur.

But for now, one thing is clear:

After a long pause, the global investing window for Indian savers is opening again. It just happens to be opening from a glass tower in GIFT City.

But the bigger question remains: How much global exposure is right for you and where should it fit in your overall portfolio? That depends on your goals, your risk appetite and your time horizon. Having a clear plan, one that balances domestic and international assets in line with your needs, is far more important than chasing the newest route.

For investors seeking that clarity, a well-structured framework and thoughtful fund selection can make all the difference between scattered bets and a cohesive, long-term strategy.

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