GIFT City’s promise as a two-way investment gateway is facing an early reality check. While a few inbound and outbound funds have made cross-border investing easier than ever, weak dollar returns from Indian equities and geopolitical uncertainty have tempered investor enthusiasm, slowing the flow of capital through the financial hub.
For global investors looking to put money into India, the process is a breeze through GIFT City. New retail funds such as the TATA Dynamic Equity Fund have dropped entry limits to just $500. Other MF schemes in Gift City include the DSP Global Equity Fund (outbound), Edelweiss Greater China Equity Fund (outbound) and Sundaram India Mid Cap Fund (inbound). PPFAS Asset Management has launched two outbound passive funds – The Parag Parikh IFSC S&P 500 Fund and IFSC Nasdaq 100 Fund of Fund.
Tata India Dynamic Fund has an asset under management of $2.97 million as of Feb-end.
However, the low returns has made Indian markets unattractive for global investors. In dollar terms, the Nifty and Sensex have delivered a negative return of 5 per cent and 6 per cent in last one year, while returns from individual stocks of these indices have plunged 16 per cent.
Meanwhile, for Indian residents, GIFT City has become a vital escape route for investing abroad particularly after the most popular avenue through MF schemes was shut.
LRS route
GIFT City outbound funds bypass this bottleneck entirely, allowing locals to use Liberalised Remittance Scheme (LRS) quota of $250,000 to buy into global markets.
Nirmal Bari, Principal Officer and Director, Parag Parikh Financial Advisory Services (PPFAS Alternate Asset Managers IFSC), said the two funds were launched at the peak of West Asia war and the markets had corrected significantly only to bounce back by 20 per cent since launch.
Hema Thakkar, Head-Business Development, Parag Parikh Financial Advisory Services, said the Indian markets have been flat for the last one-and-a-half years while Nasdaq and S&P have registered strong growth supported by companies with better long-term prospects.
Akshat Garg, AVP Research & Product, Choice Wealth, said despite clear demand, everyday adoption is still in its early stages. On the outbound side, the current minimum ticket size of about $5,000 positions this as a product built for the serious, informed investor, a deliberate and structured entry point for a cross-border product of this nature, he said.
Moreover, the upfront Tax Collected at Source (TCS) on foreign remittances temporarily locks up investor liquidity and a basic lack of public awareness keeps the market small, he said.
Saurabh Jain, Head of Fundamental Research, SMC Global Securities, said the mutual fund schemes launched through GIFT City may face initial challenges in attracting large global investor inflows, as overseas investors already have multiple established avenues to invest in India.
Limited track record, liquidity concerns and low global awareness may restrict near-term traction. However, favourable tax benefits and regulatory support could improve adoption over time, he said.