GIFT City unveils exciting global investment opportunities for HNIs

GIFT City, an International Financial Services Center (IFSC), is considered a separate jurisdiction from the rest of India and provides financial services in foreign currency. It has been viewed as an international finance center. The subsequent transformation of SGX Derivatives into GIFT City is one of the major developments in this direction. Several portfolio management services (PMS) are setting up shop here, offering inbound and outbound investment services.

Global portfolio management services offered by firms such as PhillipCapital and Marcellus have created a new international investment opportunity for HNIs and Ultra High Net Worth Individuals. The market regulator has mandated a minimum investment of $150,000 in such funds. Note that these investments will also be subject to the Liberalized Remittance Scheme (LRS) limit of $250,000 per year.

To be sure, by opening an account with an international broker, or through mutual funds investing globally or readymade portfolios managed by platforms such as Cristal.AI and Stockal, which are primarily registered outside India, International investments can be made from India. , They either have tie-ups with international brokers and managers or recommend portfolios on the basis of an advisor license. Some wealth managers in India are also tied up with external fund managers and recommend products on a distribution-commission model. But there are limited options to avail customized global fund management services from India.

While SEBI regulations are not clear whether a PMS manager can invest in global securities, the IFSC (International Financial Services Centre) fund management regulations framed in 2022 allow such investments.

“Indians have invested less internationally, while their liabilities globally are increasing day by day for expenses including children’s education, holidays abroad etc. Investing in global businesses has been sought. Hence, our choice has been to set up a unit in GIFT City that caters to international investment services for Indian citizens,” said Pramod Gubbi of Marcellus.

Funds managed under GIFT City are not regulated by SEBI or the Reserve Bank of India, but are governed by the IFSCA (Fund Management) Regulations, 2022.

If not for GIFT City, the Indian managers may have had to set up a fund outside India, such as in Singapore or Dubai, which are considered financial centers and provide global investment services. Parimal Deuskar, who is the head of compliance and legal at Marcellus, also highlighted that the license to start a fund from GIFT City can be obtained in a short span of 3-4 months.

This story highlights the global funds currently available from GIFT City and the operational and tax aspects of investing in such funds for investors.

Pros and cons

Firstly, for portfolio managers serving in IFSC, there is a tax holiday on their profits. “They can claim a deduction for 100% of the income earned (investment charges) for 10 years. Kunal Savani, partner, Cyril Amarchand Mangaldas, said the manager has the flexibility to choose any 10 years out of a block of 15 years. This is a great incentive to set up a unit in GIFT City. Managers in GIFT City can obtain a single unified registration for multiple activities, and investment diversification norms are not applicable to funds set up in the city,” said Amit Gupta, managing director, SAG Infotech.

An investor, whether an Indian resident or not, is not required to open a bank account in GIFT City. For global investment funds, “the client becomes the client of the portfolio manager as well as the international brokers/custodian with a tripartite arrangement,” Deusker said.

When it comes to taxation, residents and non-residents are taxed differently for investment in outbound funds in GIFT City.

Any income of a non-resident from PMS investing outside the GIFT City is exempt in India. “At present, income from investment in foreign securities by non-residents through overseas PMS is not chargeable to tax in India. With a view to providing a level playing field to such non-residents, investment in foreign securities through PMS in IFSC has been granted a specific exemption from tax in India on income earned by Dhruv,” said Puneet Shah, Partner, Dhruv. Associates. Note that, such income will be taxed as per the tax rules applicable in the resident country for non-residents. Also, non-residents are not liable to pay GST (Goods and Services Tax) in India on services received from anyone. Fund in Gift City.

For residents, no special dispensation is given for availing portfolio management services from GIFT City.

Money invested through PMS is treated as direct investment and will be taxed at capital gains tax of 20% with indexation benefit for investments made for more than two years (36 months for investment in ETFs).

Note that the above tax treatment is advantageous in comparison to global mutual funds. As per the Finance Act, 2023, gains from mutual funds investing globally are taxed at the slab rate regardless of the holding period. For HNI investors, this tax rate can go up to 39-42% depending on the tax regime chosen by them.

Having said that, the provision of Tax Collection at Source (TCS) at 20% for foreign remittances, which will come into effect from July this year, could be a major hurdle in the GIFT City PMS route.

There are conflicting views on whether Indian residents are liable to pay GST on services received from global PMS in GIFT City. Industry experts say that if the PMS service provider provides any service to Indian residents, then the PMS service provider will be liable to pay GST under the forward charge mechanism. Accordingly, the investors will not be liable under reverse charge.

available funds

Philip Ventures IFSC in Gift City offers a range of offshore products that invest globally. PMS is a part of PhillipCapital Group, an investment and wealth management firm headquartered in Singapore. Global PMS Strategies is open to both non-residents and Indian residents who wish to invest outside India. When asked about the USPs of the above global strategies managed at GIFT City, Ankush Datar of PhilipCapital (India) says, “Our global PMS team follows an extensive process of fundamental research, which is backed by in-house data-driven capabilities. businesses and countries. The team is also able to leverage the global reach of the PhillipCapital Group by engaging regularly with peers operating in diverse sectors.” Global PMS Strategies is managed by Mihir Shirgaonkar, CFA, who is a Chartered Accountant and MBA-PGPX from Indian Institute. Of Management Ahmedabad.

The other outbound PMS fund in GIFT City is the Saurabh Mukherjee-backed Marcellus ‘Global Compounders Portfolio’, which invests in overseas stocks. Gubbi said, “The fund follows an investment philosophy that is similar to what we do domestically, which is buying and holding high quality listed companies in North America and Developed Europe and holding them for the long term.” Is.” Arindam Mondal, who spent nearly a decade in the US working for Principal Global Investors before joining Marcellus in 2022.

SBI Funds Management, a joint venture between SBI and Amundi (a European asset manager), is planning to set up a fund in GIFT City. The firm already has a branch in Mauritius, which it plans to shift to GIFT City. The fund will offer products that will invest in both international and Indian securities. “We have not launched any fund yet. We will have a bouquet of products once the compliance procedures are in place, said DP Singh of SBI MF.

What do experts say?

Before investing in PMS in GIFT City, it is important to check whether the fund manager has sufficient expertise in international markets or not.

“As long as the PMS is attracting global investors to India funds, it is fine. But if they are trying to copy or compete with globally active fund managers, I believe it will be very difficult. You may know the fund manager very well over several decades, but if he/she does not have expertise in investing abroad, it is not something we look forward to,” says Munish, Founder and CEO, Cervin Family Office Randev said.

Randev also advises caution while investing globally through a wealth management firm (which operates on a distribution model) or through the advisory model. “Just because they are easily available and someone sitting in India will open your account, don’t ignore research. You need to thoroughly understand the background of the managers as well as the products.”