On 8 October 2026, Value Research counted just two of India's 60 international mutual funds accepting lump-sum investments, according to its weekly tracker. A day earlier, the Motilal Oswal Nasdaq Q50 ETF had closed at about 110 per cent above its net asset value. Buyers were paying more than twice what the underlying shares were worth. With the domestic doors mostly shut, more clients are asking advisors whether a GIFT City fund is the better way abroad, and our guide to GIFT City mutual funds and other global routes sets out the full range of options.
Neither route is better in every case, because each asks the client to give up something different. An international mutual fund keeps the client in rupees and outside the remittance rules, but access to it has become unreliable. A GIFT City fund offers steadier access in exchange for an overseas remittance, tax collected at source, dollar exposure and terms that vary by scheme. The advisor's task is to make that trade visible before the client chooses, and to recognise that one label covers quite different products.
Why the domestic route has narrowed this autumn
Indian mutual funds that invest abroad share an industry ceiling of USD 7 billion, with USD 1 billion for any one fund house, under limits SEBI set in 2021. Once a fund house uses its share, its international schemes stop taking fresh money until redemptions or falling markets create room. Our article on why international mutual funds keep closing traces that pattern through 2026. Edelweiss Mutual Fund, for example, suspended even existing SIP and STP instalments in seven overseas schemes from 12 August 2026, Value Research reported.
Listed international exchange traded funds (ETFs) were the obvious way around the pauses, and demand has pushed their prices well above the value of what they hold. On 25 September 2026, the National Stock Exchange advised investors to exercise extreme caution. It warned that buyers at steep premiums face the risk of an abrupt fall in price. By 8 October, Value Research found that premiums on several US-focused ETFs had widened further in a single week. For a client, that premium is a cost paid on entry, and it can vanish quickly.
What a GIFT City fund is and why the label covers several products
A GIFT City fund is set up in the International Financial Services Centre at Gandhinagar and regulated by the International Financial Services Centres Authority (IFSCA), not by SEBI. As a result, the USD 7 billion ceiling does not apply to it. Most such funds are priced in US dollars, and many are feeder funds that place money in an established overseas fund. Resident individuals invest by remitting money under the Liberalised Remittance Scheme, which allows USD 250,000 per person per financial year across all purposes.
The label hides real differences. The IFSCA (Fund Management) Regulations, 2025 separate schemes offered widely through a filed offer document from restricted schemes, which are placed privately. Restricted schemes require each investor to put in at least USD 150,000, according to SCC Online's summary of the regulations. This week Marcellus Investment Managers announced a strategy with VanEck that uses a Category III alternative investment fund feeder structure aimed at high-net-worth investors, Whalesbook reported on 7 October. Such a product has little in common with an open-ended fund tracking a US index, apart from its address.
How a GIFT City fund compares with an international mutual fund
The first difference is how the money leaves India. An international mutual fund is bought in rupees from an Indian fund house, so it uses none of the client's LRS limit and attracts no tax collected at source (TCS). A GIFT City fund needs a dollar remittance, which counts towards the LRS limit. For tax year 2026-27, that remittance attracts TCS of 20 per cent on investment remittances above ₹10 lakh under Section 394 of the Income-tax Act, 2025, as the guide to TCS on foreign remittance explains.
For example, a client who remits ₹30 lakh to a GIFT City fund in tax year 2026-27, with no other remittances that year, would have TCS collected on the ₹20 lakh above the threshold. At 20 per cent, that is ₹4 lakh. The amount is not a final tax, because it appears in Form 26AS and is claimed against the client's income tax. Even so, the cash stays locked up until the return is processed, while ₹30 lakh placed in an open domestic scheme carries no such delay.
Tax on gains differs as well. According to Mirae Asset's tax reckoner for 2026-27, gains on a domestic overseas fund of funds held for more than two years are taxed at 12.5 per cent, with shorter holdings taxed at slab rates. Many GIFT City funds are taxed at the fund level instead. DSP's GIFT City tax note, last updated on 20 August 2026, says resident investors pay no capital gains tax on redemption. That treatment depends on each scheme's structure, so the client's CA should confirm it for the specific fund.
Currency and access complete the comparison. Both routes expose the client to the rupee against the dollar, but a GIFT City holding stays in dollars until it is redeemed and brought home. A GIFT City scheme does not depend on a shared industry ceiling, although each fund sets its own dealing days, minimum amounts, exit loads and redemption terms. The domestic fund remains simpler to hold and to report, whenever it is open.
The risks on both sides
Neither route removes market risk, and the client can lose capital in either if the underlying markets fall. A domestic international fund can stop taking money just as the client wants to add, leaving a planned allocation half built. A listed ETF bought at a premium adds the risk of that premium collapsing. A GIFT City fund adds the cash-flow cost of TCS, separate KYC, a narrower choice of products and tax treatment that varies by scheme. Restricted schemes and alternative investment funds may also carry lock-ins or exit loads, which make them less liquid.
What advisors should do before a client chooses
The first step is to establish what the client is trying to do. A client adding a small global sleeve in instalments may be content to wait for a domestic scheme to reopen, accepting that access can close again. A client moving a larger sum on a fixed timetable needs a route that will not stall, which usually means a remittance with planning for the LRS limit and TCS. Where family members fund each other's remittances, the clubbing of income and gift tax questions should be settled with the client's CA first.
The second step is to read a GIFT City scheme's offer document as carefully as a domestic one. The advisor should confirm whether it is a widely offered scheme, a restricted scheme or an alternative investment fund. The document should also show what the fund holds, its currency, its redemption terms, its total costs including any master fund, and how the fund house says it is taxed. Before a client buys a listed international ETF, the advisor should compare its price with the NAV on the exchange or AMFI website, as the NSE has asked.
Some clients asking about global routes are really asking about property. Private US commercial real estate carries its own risks, including illiquidity, leverage, falling property values, tenants leaving and distributions not being paid, as the guide to US commercial real estate investment for advisors explains. Advisors who introduce eligible clients through Raveum's partner page will find diversified US commercial real estate, meaning net lease, self-storage, multifamily and other income-producing commercial property. Each deal is reviewed by Raveum and held in its own legal entity, and the client's Indian tax position stays with the client and their CA.
This autumn has made the trade-off easier to see. With only two of 60 international funds taking lump sums, the domestic route's price is now paid in access and ETF premiums. A GIFT City fund's price is paid in remittance rules, cash flow and due diligence on each scheme. Clients who see both prices clearly can choose the route that suits their plan rather than the one that happens to be open, and the guide to GIFT City mutual funds sets those routes side by side.
Frequently asked questions
What is a GIFT City fund?
A GIFT City fund is an investment fund set up in the International Financial Services Centre at Gandhinagar and regulated by IFSCA rather than SEBI. Most are priced in US dollars, and many feed money into an established overseas fund. Resident Indians invest through an LRS remittance, so the domestic USD 7 billion overseas ceiling does not apply.
Is a GIFT City fund better than an international mutual fund?
Neither is better in every case. An international mutual fund is bought in rupees and avoids LRS and TCS, but subscriptions can stop when its fund house reaches the SEBI overseas limit. A GIFT City fund offers steadier access, but it uses the client's LRS limit, attracts TCS above ₹10 lakh and varies by scheme.
How is a GIFT City fund taxed compared with an international mutual fund?
For tax year 2026-27, gains on a domestic overseas fund of funds held over two years are taxed at 12.5 per cent, with shorter holdings at slab rates. Many GIFT City funds pay tax at the fund level, and fund houses such as DSP say residents pay no capital gains tax on redemption. A CA should confirm each scheme.
What is the minimum investment in a GIFT City fund?
Each scheme sets its own minimum in US dollars, so the offer document is the only reliable source. Under the IFSCA (Fund Management) Regulations, 2025, restricted schemes require each investor to put in at least USD 150,000, while widely offered schemes set their own amounts. Every remittance also counts towards the client's LRS limit.
Why do international ETFs in India trade above their NAV?
When domestic international funds stop taking money, demand shifts to listed international ETFs, whose fund houses also work under overseas limits, so new units are scarce. Prices then rise above the value of the holdings. The NSE warned on 25 September 2026 that investors buying at steep premiums face the risk of an abrupt fall in price.
Are GIFT City funds riskier than regular mutual funds?
They carry different risks rather than fewer. The client can lose capital if foreign markets fall, the rupee value moves with the exchange rate, and the product range is narrower. TCS ties up cash until it is credited, and some schemes carry lock-ins or exit loads, so suitability depends on the client's wider plan and time horizon.
This article is for general education and is not tax, legal or investment advice. Rules change and depend on individual circumstances. All investing involves risk, including loss of capital, illiquidity and currency movements. Offerings on Raveum are available to eligible investors only and are not open to the general public.
