GIFT City AIF: A Simple Guide to Rules, Minimums and Tax for Indian and NRI Investors

If you are an NRI looking to invest in India using dollars, or a resident Indian wanting to diversify beyond domestic markets, you may have come across Gift City AIFs. 

They offer access to investment strategies that regular mutual funds may not provide, along with potential tax advantages for certain investors.

However, they also come with high minimum investments, lock-ins and additional paperwork. 

This guide explains how GIFT City AIFs work, who can invest, how much you need, how taxation differs for residents and NRIs, what risks you should consider, and how you can get started.

What is a GIFT City AIF?

Let’s break the name into two parts.

• GIFT City IFSC: The International Financial Services Centre (IFSC) is located within Gujarat International Finance Tec-City, near Gandhinagar.
  
  It operates under a special regulatory framework that allows financial services to be conducted in foreign currencies while remaining within India.

• AIF (Alternative Investment Fund): An AIF pools money from a limited number of investors and invests it in strategies or assets that may not be available through a regular mutual fund.
  
  These can include unlisted companies, private credit, start-ups, hedge-fund-style strategies and global markets. AIFs generally target investors who can commit substantial amounts and remain invested for longer periods.

A GIFT City AIF is therefore a fund registered in this zone and managed by an entity authorised by IFSCA. These managers are called fund management entities (FMEs).

SEBI regulates AIFs operating in the rest of India, while IFSCA regulates funds established in GIFT City.

As of 30 June 2026, GIFT City had 235 fund managers operating 401 funds and schemes, with cumulative commitments of USD 45.08 billion, according to data reported by Business Standard.

IFSCA’s fund management brochure also shows that NRIs, OCIs and resident Indians form a meaningful part of the investor base.

How does a GIFT City AIF work? Scheme types and categories

Under the 2025 regulations, IFSCA classifies fund management schemes into three broad types.

Venture capital and restricted schemes are the main options relevant to AIF investors, while retail schemes are designed for a wider investor base.

Source: IFSCA’s fund management brochure. Lower minimums apply to the fund manager’s own employees and directors.

Retail schemes are what most investors refer to as GIFT City mutual funds. If you want to explore options with smaller entry amounts, read our guide to investing in GIFT City mutual funds. This article focuses on venture capital and restricted schemes.

Category I, II and III AIFs

A venture capital scheme is treated as a Category I AIF for tax purposes. A restricted scheme may fall under Category I, II or III, depending on its investment strategy. Here is what each category means:

• Category I: These funds invest in areas such as start-ups, small businesses, infrastructure and social ventures.
• Category II: These include private equity, private credit (direct lending to companies) and funds of funds.

They generally do not borrow to invest, except for short-term operational requirements.

• Category III: These funds can follow more active trading strategies and use borrowing or derivatives. Long-short equity and hedge-fund-style strategies fall into this category.

Several GIFT City funds targeting NRIs are Category III funds of funds that invest in Indian mutual funds.

Inbound and outbound AIFs

You should also understand the direction in which your money moves.

• Inbound AIFs receive money from NRIs and foreign investors and invest in India, such as Indian shares or Indian mutual funds.
• Outbound AIFs receive money from resident Indians through the Liberalised Remittance Scheme (LRS) and invest overseas, including in US shares and global exchange-traded funds (ETFs).

Some funds restrict eligibility based on residency, including exclusions for US and Canadian residents.

Who can invest in a GIFT City AIF?

NRIs and OCIs

As an NRI or OCI, you can invest in inbound GIFT City funds.

You can directly invest from your local bank account in your local currency without converting your currency into rupees. However, the exact eligibility conditions depend on the fund.

If you are an NRI, our detailed guide to investing in GIFT City explains the broader range of options available to you.

Resident Indians

If you live in India, you can invest in outbound funds through the Liberalised Remittance Scheme (LRS).

The Reserve Bank of India allows resident individuals to remit up to USD 250,000 abroad per financial year, subject to the scheme’s conditions.

You can check the details in the RBI’s LRS FAQs.

In July 2024, the RBI also permitted authorised persons to facilitate LRS remittances to IFSCs for all permissible purposes. This expanded the available routes for resident investors.

Accredited investors

You may come across the terms regular investor and accredited investor when evaluating GIFT City funds.

An accredited investor is someone who meets IFSCA’s financial eligibility criteria and is considered sufficiently experienced to take on certain investments with fewer regulatory protections.

One benefit is that the usual minimum investment requirement may not apply, although the fund can still set its own minimum.

Under IFSCA’s accredited investor framework, an individual can qualify by meeting either of these conditions:

• Annual gross income of at least USD 200,000 in the previous financial year.
• Net assets of at least USD 1 million, including at least USD 500,000 in financial assets. Your primary residence is excluded from this calculation.

You must also provide a chartered accountant’s certificate issued within the preceding six months and confirm in writing that you understand the reduced investor protections.

GIFT City AIF minimum investment

For most investors, the minimum is USD 150,000 for a normal scheme and USD 250,000 for a venture capital scheme.

At an illustrative exchange rate of ₹95 per dollar, USD 150,000 works out to approximately ₹1.43 crore. Accredited investors may be exempt from the prescribed minimum, subject to the applicable rules and the fund’s own terms.

Another useful provision under the 2025 regulations allows up to two joint investors who are spouses, parents or children to combine their investments to meet the minimum, subject to the conditions. You can read more about this provision in S&R Associates’ regulatory update.

For comparison, a domestic SEBI-registered AIF generally requires ₹1 crore per investor, unless an applicable exemption applies. You can read about the relevant changes to the SEBI AIF framework.

Portfolio management services (PMS), meanwhile, have a minimum investment of ₹50 lakh under the applicable framework, including SEBI’s 2026 PMS regulations.

Example: Suppose Sunita, 53, and Prakash, 56, live in Ahmedabad and want to invest USD 150,000 in an outbound AIF. Each remits USD 75,000, equivalent to approximately ₹71.25 lakh at ₹95 per dollar.

LRS investment remittances above ₹10 lakh in a financial year generally attract tax collected at source (TCS) at 20%, subject to applicable rules.

This could mean approximately ₹12.25 lakh in TCS for each investor on a remittance of ₹71.25 lakh. The amount can generally be claimed as a tax credit or refund, depending on their tax position, but it can affect cash flow until adjusted or refunded.

Figures are illustrative and depend on the exchange rate and applicable tax rules.

Anuj says, “USD 150,000 is roughly ₹1.4 crore, which is a substantial amount for most Indian families to commit to one fund. Before investing, check how much of your overall portfolio this represents. If one fund would account for around 10% or more of your investments, take a closer look at the concentration risk. Your retirement and your child’s education should not depend on the performance of a single investment.”

The 10% figure is general guidance, not a regulatory limit. Your appropriate allocation depends on your goals, existing assets and investment horizon.

How are AIFs at GIFT City taxed?

Tax is one of the main reasons investors consider GIFT City AIFs. However, the benefits can differ considerably between NRIs and resident Indians.

Here is the general summary of tax treatment of AIFs. Though, the actual treatment depends on the fund’s category, its investments, your residential status and the applicable tax provisions.

Source: IFSCA’s fund management | GIFT Gujarat.

For NRIs

If you are an NRI, the potential benefits include investing and redeeming in dollars without rupee conversion and, in qualifying cases, relief from certain Indian tax filing requirements.

For example, The Wealth Company’s GIFT City fund of funds was reported to be structured to qualify as a specified fund under the Income-tax Act, 2025, subject to the relevant conditions.

However, an exemption in India does not automatically mean you are exempt from tax everywhere. Your country of residence may tax the income.

If you are a US taxpayer, you should also check whether the fund could be treated as a passive foreign investment company (PFIC) under US tax rules.

The PPFAS GIFT outbound fund tax note discusses this issue in the context of its fund.

For resident Indians

If you live in India and invest in an outbound AIF, account for the following:

• TCS: LRS investment remittances above ₹10 lakh in a financial year generally attract 20% TCS, subject to the applicable provisions.

You can claim the eligible amount as a tax credit or refund through your tax return. Business Standard’s report on GIFT City outbound funds discusses the practical issues residents face when investing through this route.

• Schedule FA: You may need to disclose the overseas investment under the foreign assets schedule in your income tax return.
• ITR form: Depending on your income and circumstances, you will generally need ITR-2 rather than the simpler ITR-1.
• Category I and II gains: Tax is generally payable in your hands. The applicable rate depends on the underlying investment, the holding period and the nature of the income. 

For eligible equity investments, long-term capital gains may be taxed at 12.5%, while short-term gains, interest and dividends may be taxed at other applicable rates. Review the relevant long-term capital gains rules and seek tax advice for your specific situation.

Also remember that the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. As a result, references to section numbers in erstwhile Act may no longer match the current law.

Anuj says, “For some NRIs, the tax treatment can be a major advantage. For resident Indians, you need to look beyond the headline tax benefit. Consider the investment return after tax, currency conversion costs and the cash-flow impact of TCS.”

Examples of GIFT City AIFs

Here are four GIFT City AIFs. These examples are for understanding different fund structures, not investment recommendations. Fund terms, eligibility and availability can change.

If you come across the term SIF in a fund’s investment strategy, our guide to specialised investment funds explains how these products differ from traditional mutual funds.

GIFT City AIF vs domestic SEBI AIF

Benefits of investing through a GIFT City AIF

• Dollar investing for NRIs: You can invest and redeem in US dollars without converting your overseas funds into rupees.
• Potential tax efficiency for non-residents: Category I and II funds follow pass-through taxation, while Category III funds generally pay tax at the fund level. The benefits depend on your eligibility and the applicable conditions.
• Global diversification for residents: India’s international mutual fund options have been restricted by industry-wide overseas investment limits. By July 2026, 54 of 66 international funds were reportedly closed to fresh investments.

An outbound AIF can offer another route for investors with large amounts to deploy. If you want to invest smaller sums, options such as the HDFC International Developed Markets Equity Fund may be worth exploring.

• Access to specialised strategies: AIFs can offer exposure to private equity, private credit, long-short strategies and multi-manager structures that may not be available through ordinary mutual funds.
• A developing financial centre: GIFT City rose to 37th in the Global Financial Centres Index in September 2026, as discussed in our coverage of its latest ranking.

The tax-neutral relocation window for eligible offshore funds to GIFT City has also been extended to 31 March 2030, which may encourage more fund managers to establish operations there.

The applicable conditions are explained in this Budget 2025 update on alternative investment funds.

Risks and drawbacks to weigh

Before investing, consider these practical limitations.

• Concentration risk: A USD 150,000 minimum can represent a large share of your total investments. If you have to commit too much to one fund, your portfolio may become less diversified.
• Lock-ins and limited liquidity: Close-ended funds can keep your money invested for several years. For example, the Mirae Asset fund mentioned earlier has a three-year lock-in that may be extended by another two years.
• Fees and currency conversion costs: AIFs generally charge management fees, and some also charge performance fees based on profits. If you are a resident investing overseas, you must also account for currency conversion spreads, which can reach ₹0.50 per dollar at retail rates unless negotiated, according to Business Standard’s coverage.
• Currency risk: If you invest in an outbound fund, a stronger rupee can reduce the rupee value of your overseas investment. If you are an NRI investing in India through an inbound fund, a weaker rupee can reduce the dollar value of your Indian assets.
• Less frequent reporting: Under IFSCA’s August 2026 amendments, open-ended restricted schemes report NAV monthly, while close-ended schemes report it half-yearly. Portfolio disclosures are quarterly. Check the latest reporting terms in the fund documents and the updated regulatory framework.
• Eligibility restrictions: Some funds exclude US and Canadian residents. US taxpayers may also face additional PFIC-related tax and reporting requirements, even where they are permitted to invest.
• Additional paperwork for residents: You may have to manage TCS, foreign asset disclosures and ITR-2 filing requirements each year.

Also read: How to Protect Your Wealth: Essential Risk Management Strategies

Is a GIFT City AIF right for you?

A GIFT City AIF may suit you if you have a substantial long-term surplus, have already provided for your emergency fund, insurance and major financial goals, and can leave the money invested for several years.

It may be particularly relevant if you are an NRI seeking dollar-denominated exposure to India or a resident Indian whose investments are concentrated in domestic assets and who wants to diversify internationally.

However, if the minimum investment would account for a large part of your portfolio, you may want to consider other options first.

Take Rohan, 38, a salaried professional in Pune with approximately ₹80 lakh invested. A USD 150,000 investment would be worth more than his entire existing portfolio.

For him, smaller-ticket GIFT City retail funds or regular mutual funds may be more appropriate for now.

This is an illustrative example, not personalised investment advice.

If you are in your forties or fifties and deciding how to allocate your investments across different goals, our guide to financial planning for the 30-to-50 age group can help you think through the broader picture.

Anuj says, “NRIs often consider GIFT City because they want exposure to Indian investments while keeping their money in dollars. Resident Indians generally look at it for international diversification. Both are valid objectives, but they may require very different funds. Start by identifying what you want your money to achieve, then choose the investment structure that fits your needs.”

How to invest in a GIFT City AIF? A Step-by-step guide

If you decide to explore a GIFT City AIF, follow these steps before committing your money.

1. Check whether it fits your financial plan. Decide what role the fund will play in your portfolio and how much you can afford to lock away for several years.
2. Confirm your investment route. Check whether you need an inbound or outbound fund, whether you meet its eligibility criteria and whether you qualify as an accredited investor.
3. Read the private placement memorandum (PPM). This is the fund’s offer document. Examine its investment strategy, category, fees, lock-in, exit conditions and tax treatment before investing.
4. Complete KYC with the fund manager. You may need your passport, address proof, PAN if applicable, FATCA/CRS declarations and source-of-funds documents. Our KYC guide explains the basic process.
5. Transfer the investment amount. NRIs generally invest from overseas accounts in dollars. Resident Indians remit money through their bank under LRS, keeping the applicable TCS requirements in mind.
6. Sign the contribution agreement. Some close-ended funds require you to commit a total amount upfront but draw the money in instalments as investments are made. Understand the payment schedule before signing.
7. Track your investment and meet reporting requirements. Keep your statements, review NAV updates and ensure that any foreign asset disclosures and tax filings required for resident investors are completed each year.

How can Zenith Finserve help you?

Zenith Finserve is a fiduciary financial planning firm led by Anuj Kesarwani, CFP and CTEP. The firm works with resident and NRI families across seven countries, focusing on financial goals.

You can seek help to:

• Assess whether a GIFT City AIF belongs in your portfolio and determine an appropriate allocation.
• Compare inbound and outbound AIFs with retail funds and domestic investment options.
• Understand eligibility, accredited investor status, LRS and TCS implications.
• Coordinate tax reporting requirements with your tax adviser.

You can learn more about our GIFT City investment advisory services. If you are still evaluating professional guidance, our article on how to find a financial adviser in India explains what to consider when choosing one.

Conclusion

A GIFT City AIF can help NRIs invest in India using dollars and may offer favourable tax treatment under specific conditions. 

For resident Indians with substantial investible assets, it can provide access to overseas markets and investment strategies that may not be readily available through traditional mutual funds.

But the entry requirement for most restricted schemes is USD 150,000, or roughly ₹1.4 crore at the illustrative exchange rate used here. Lock-ins, fees, currency movements and additional tax paperwork also need to be considered.

Before you invest, look at your financial goals, existing portfolio and the proportion of your wealth you would be committing. Then examine the fund’s investment strategy, fees, liquidity and tax documents carefully. .

The right choice is not necessarily the fund with the most attractive tax structure, but the one that fits your financial plan and the risks you can afford to take.

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