On 24 September 2026, Aditya Birla Sun Life Mutual Fund reopened three international schemes and shut them again the same day, according to Value Research. Four days later, Invesco Mutual Fund resumed subscriptions in three international fund of funds schemes, but capped each investor at ₹10 lakh a day. For clients who want a steadier route into global markets, this stop and start pattern has turned attention to GIFT City investment, where funds sit outside the SEBI ceiling that keeps closing domestic schemes.
What clients often miss is that a GIFT City investment is not a mutual fund switch. For a resident Indian, it is a foreign remittance, with the limits, tax collection and paperwork that come with one. An advisor who explains it in those terms sets the right expectations before the client commits any money. Our guide to GIFT City mutual funds covers the products themselves, while the sections below cover what changes for the client once the money leaves a rupee account.
Why domestic international funds keep closing
Domestic mutual funds work under an industry-wide ceiling of USD 7 billion on overseas investment, set by SEBI. When a fund house uses up its share, its international schemes stop taking fresh money, sometimes within hours of reopening. Value Research reported on 25 September 2026 that only four international funds were accepting lump sum investments, and none of them focused on US stocks. Our earlier article on why international mutual funds keep closing explains how the ceiling works in more detail.
GIFT City funds are regulated by the International Financial Services Centres Authority (IFSCA), not SEBI, so the domestic ceiling does not apply to them. Many are feeder funds, which pool investor money and place it in an established global fund or exchange-traded fund. They are usually priced in US dollars. That is why the route comes up in client conversations whenever a domestic scheme pauses.
How GIFT City investment works for a resident Indian
Resident individuals have been able to send money to International Financial Services Centres under the Liberalised Remittance Scheme since February 2021, when the RBI first allowed remittances there for investment in securities. In July 2024, the RBI widened the permitted uses to cover financial products and services offered under the IFSCA framework, and allowed residents to hold a foreign currency account in an IFSC, as EY summarised the circular. Because the money goes out under LRS, it moves in dollars and is treated like any other overseas remittance, even though GIFT City sits in Gujarat.
In practice, the client first completes KYC with the GIFT City fund or platform, which is separate from any domestic mutual fund folio, according to Value Research. The client then asks their bank to remit under LRS, with Form A2 and the bank's own declaration. Each remittance counts towards the client's LRS limit of USD 250,000 a financial year, which covers every purpose together, from tuition fees to foreign shares. A client who has already paid a child's overseas fees this year may have less room left than they expect.
What TCS does to the client's cash flow
From 1 April 2026, banks collect tax at source on LRS remittances under Section 394 of the Income-tax Act, 2025. Budget 2026 cut the rate on education and medical remittances to 2 per cent, but the rate for other purposes stayed unchanged, Business Standard reported on 1 February 2026. For investment, including a GIFT City remittance, that means TCS of 20 per cent on the amount above ₹10 lakh in a tax year. Our guide to TCS on foreign remittance sets out the full rate chart.
For example, a client who remits ₹25 lakh to a GIFT City fund in tax year 2026-27, with no other LRS remittances that year, would have TCS of 20 per cent collected on the ₹15 lakh above the threshold, which is ₹3 lakh. That amount is not a final tax. It appears in Form 26AS, the bank issues a Form 133 certificate for it, and the client claims it against their income tax for the year, with any excess refunded after the return is processed. The real cost is the cash that stays locked up until then.
Tax and reporting questions to settle early
Fund houses describe GIFT City funds as taxed at the fund level. In other words, the fund pays tax when it sells securities or receives income, and redemption proceeds reach the investor net of that tax. DSP's GIFT City tax note, last updated on 20 August 2026, says resident investors pay no capital gains tax on redemption and show the income as exempt in their return. That treatment depends on how each product is structured, so it should be checked scheme by scheme rather than assumed for every GIFT City offering.
Reporting is less settled. The same DSP note says investors are not required to show the units in Schedule FA, because the client holds units of a fund based in India rather than foreign securities. Even so, a July 2026 practitioner note advises disclosure in Schedule FA as a precaution, given the penalties under the Black Money Act, 2015. A client who discloses needs ITR-2 or ITR-3, because ITR-1 and ITR-4 have no Schedule FA. This is a judgement for the client's CA, and it is easier to make before the first remittance than at filing time.
The risks a client takes on
A GIFT City fund is still an investment in foreign markets, and the client can lose capital if those markets fall. Because the units are priced in dollars, the rupee value of the holding also moves with the exchange rate, in either direction. The range of products is narrower than in the domestic market, which can leave a client concentrated in a few indices or themes. Bringing money home involves a redemption in dollars and a transfer back to an Indian account, so the client should understand the steps for the specific product before investing. Being regulated in India does not remove any of these risks.
What advisors should do before a client invests
The first step is to treat the decision as a remittance plan rather than a fund choice. That means confirming how much of the client's LRS limit and ₹10 lakh TCS threshold has already been used this tax year, and whether other family members are also remitting. Where one family member funds another's remittance, the clubbing of income and gift tax questions should be settled with the CA before any money moves.
The next step is to compare the GIFT City product with the other routes on the same terms, covering cost, currency, liquidity, tax treatment and what happens if a scheme pauses. Domestic international funds avoid LRS but can stop taking money at short notice, while GIFT City funds use LRS but sit outside the SEBI ceiling. Private US commercial real estate, such as net lease, self-storage and multifamily property, is another route, and Raveum offers it to eligible investors with each deal reviewed by Raveum and held in its own legal entity. Indian clients invest through a US corporation that holds the property interest, and the route is less liquid than a fund, as our guide to US commercial real estate investment explains. Advisors who introduce eligible clients through Raveum's partner page will find the same remittance questions apply.
As long as the SEBI ceiling stays where it is, domestic international funds are likely to keep opening and closing, and clients will keep asking about GIFT City. The useful answer describes what the client is actually buying, which is a dollar holding funded by an LRS remittance, with TCS, separate KYC and a reporting decision attached. Explained that way, a GIFT City investment becomes one more global route to weigh calmly against the others, and our guide to GIFT City mutual funds shows how the products compare.
Frequently asked questions
Can resident Indians invest in GIFT City funds?
Yes. Resident individuals can invest in GIFT City funds through the RBI's Liberalised Remittance Scheme, which has allowed remittances to IFSCs since February 2021 and was widened in July 2024. The client completes separate KYC with the fund or platform, and the bank sends the money in dollars like any other LRS remittance.
Does a GIFT City investment count towards the LRS limit?
Yes. Money sent to GIFT City under the Liberalised Remittance Scheme counts towards the client's limit of USD 250,000 a financial year. The limit covers every LRS purpose together, including education, travel and overseas investment, so remittances made earlier in the same year reduce the room left for a GIFT City investment.
Is TCS charged on money sent to a GIFT City fund?
Yes. For tax year 2026-27, TCS of 20 per cent applies to investment remittances above ₹10 lakh in a tax year, and a GIFT City remittance falls in that category. TCS is not a final tax. The client claims it against their income tax using Form 133 and Form 26AS, and any excess is refunded.
Do GIFT City fund units need to be reported in Schedule FA?
Practice differs. DSP's GIFT City tax note says investors need not show the units in Schedule FA, because they hold units of a fund based in India. Some practitioners still advise disclosure as a precaution, given Black Money Act penalties. The client's CA should decide before filing, and disclosure requires ITR-2 or ITR-3.
Are GIFT City funds held in rupees or dollars?
GIFT City funds are usually priced in US dollars. The client remits rupees through their bank, the money is converted, and the units are valued in dollars. As a result, the rupee value of the holding rises or falls with the exchange rate, separately from how the underlying investments perform.
What risks should a client weigh before a GIFT City investment?
The client can lose capital if the underlying foreign markets fall, and currency movements can change the rupee value either way. The product range is narrow, which can concentrate exposure. TCS ties up cash until the refund, and getting money home needs a redemption and a transfer back, so suitability depends on the client's wider plan.
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.
