India’s First Retail Mutual Fund in GIFT City A Tax-Free Opportunity?
The newly launched GIFT City mutual fund by DSP Mutual Fund has created buzz among Indian investors. This is the first retail-oriented fund registered in GIFT IFSC — and it offers zero tax on capital gains in your hands. But how does this actually work? Let’s break it down.
What Is GIFT City and Why It Matters
GIFT City (Gujarat International Finance Tec-City) is India’s first IFSC (International Financial Services Centre), created to attract global capital and offer competitive tax benefits.
Mutual funds registered in GIFT City operate under a special SEBI framework and are regulated by IFSCA (International Financial Services Centres Authority).
They allow Indian investors to access global markets like the US, Europe, and China — with much better tax outcomes.
Key Features of DSP’s GIFT City Mutual Fund
| Feature | Details |
|---|---|
| Fund Type | Feeder Fund (invests overseas) |
| Investment Geography | US, Europe, China, Global Equities |
| Minimum Investment | USD 5,000 (approx ₹4.15 lakh) |
| Structure | GIFT IFSC-registered AIF or mutual fund |
| Taxation | Taxed at fund level, not investor level |
| Who Regulates It | IFSCA + SEBI framework |
Taxation Benefit: Why It’s a Gamechanger
One of the biggest advantages of a GIFT City mutual fund is the pass-through taxation feature:
- Capital gains and dividend income are taxed within the fund as per IFSC regulations.
- Investors pay no tax in India on redemption or dividend.
- This is possible due to CBDT Notification No. 16/2021 dated 12.03.2021 and Section 10(4D) of the Income Tax Act.
Legal References:
- ✅ Section 10(4D): Exempts income earned by specified funds in IFSC from capital gains tax, subject to conditions.
- ✅ CBDT Notification 16/2021: Specifies the class of “specified funds” eligible for exemption.
- ✅ IFSCA Circular No. 146/2021: Operational guidelines for mutual fund units in GIFT City.
How Is It Different from Indian Mutual Funds?
| Criteria | Indian Mutual Fund | GIFT City Mutual Fund |
|---|---|---|
| Tax on Gains | 10%-20% LTCG/STCG | Zero tax for investor |
| Asset Class Access | Limited to Indian stocks | Global stocks & sectors |
| Regulator | SEBI | IFSCA (under SEBI rules) |
| Currency | INR | USD |
| Minimum Investment | ₹500 – ₹5,000 | USD 5,000 |
Expert Tip: Use LRS Wisely
You’ll need to invest through Liberalised Remittance Scheme (LRS) under RBI rules — which allows up to USD 250,000 per individual per financial year.
✔ Pro Tip: Plan your LRS usage across education, travel, or other foreign expenses before committing the full amount to GIFT funds.
Who Should Consider This Fund?
- HNIs and NRIs looking for global exposure
- Investors in the highest tax bracket
- People planning for long-term USD-based goals (foreign education, retirement abroad)
This fund is not ideal for those needing frequent redemptions or INR-based goals.
Step-by-Step: How to Invest
- Open an account with the GIFT City unit of the AMC
- Complete KYC via IFSCA-approved channels
- Use your bank to remit funds under RBI’s LRS
- Invest in the chosen feeder fund (e.g., global ETF, fund-of-funds)
- Track returns and NAV — no tax until the fund level
FAQ Section
Q1. Do I need to file anything in my ITR for this fund?
No income is taxed in your hands, but declare it under Exempt Income in your ITR.
Q2. Can I repatriate money freely?
Yes. Funds invested and redeemed via LRS are fully repatriable, subject to RBI norms.
Q3. Will TDS apply on redemption?
No TDS is deducted as the tax is absorbed at the fund level.
Q4. Can I invest in INR?
No. All investments are to be made in USD from your LRS quota.
Summary
GIFT City mutual fund by DSP MF offers tax-free global investing for Indian investors. Zero capital gains tax in your hands, thanks to IFSC regulations and Section 10(4D) of Income Tax Act.
Final Thoughts
With India’s first retail GIFT City mutual fund, global investing just became simpler and tax-efficient. This opens a bold new path for Indian HNIs to legally avoid double taxation and diversify overseas.
🔗 Want help tracking your global income and LRS disclosures? Connect with Efiletax today for expert filing and compliance support.