This GIFT City fund allows NRIs, foreigners to invest $500. Should they consider it?
Inbound retail funds in GIFT City offer a lower ticket size for NRIs and overseas investors than AIFs. And capital gains on such schemes are not taxed in India. Here's what investors should keep in mind before taking the plunge.
Non-residents and overseas investors who could not invest in India through the GIFT City because of the high upfront fund requirement can now take exposure to the domestic market for as low as $500.
Until recently, such investors had to set aside $150,000 ( ₹1.32 crore) to invest in India through inbound GIFT City Alternate Investment Funds (AIFs). But the launch of retail funds has lowered this barrier.
Tata India Dynamic Equity Fund, a retail fund domiciled in GIFT City, accepts a ticket size of $500, which will feed into domestic equity mutual funds and exchange-traded funds of Tata Asset Management Co. The fund will invest between 50% and 100% in large, mid-, small, multi-, and flexi-cap schemes and allocate 0% to 50% to sectoral and thematic opportunities.
Another GIFT City retail inbound fund, NJ India Opportunities Fund, feeds into the NJ Flexi Cap Fund in India, but the minimum investment is $10,000.
Apart from NRIs and foreigners, Overseas Citizens of India (OCIs) can also invest in such GIFT City retail inbound funds. However, US and Canadian citizens and investors from regions black/grey-listed by the Financial Action Task Force (FAFT) are restricted from investing in such funds. Also, Indians are not allowed to invest in inbound funds to prevent round-tripping.
Unlike most other feeder funds (which pool in money from investors) that have a separate total expense ratio (TER) from the underlying fund, the Tata GIFT Inbound Fund has a maximum TER cap, including the cost of the feeder and the fund it invests in. It is 1.75% for direct investments and 2.5% for investments through distributor and advisor-led channels. There is no entry or exit load in this fund.
“The Tata India Dynamic Equity Fund from GIFT IFSC stands out for three key reasons: a minimum ticket size of USD 500, significant tax advantages for non-residents (subject to current regulations of the jurisdictions), and our ability to offer a gateway for global investors—both large and small—to directly participate in India’s growth story," said Abhinav Sharma, head, international business, Tata Asset Management Pvt. Ltd.
“The fund will dynamically allocate assets based on prevailing market conditions. In the current scenario, it will allocate 50–100% of the AUM (assets under management) to broad-based funds and 0–50% to sectoral and thematic opportunities, ensuring diversified access to India’s growth potential while maintaining optimal flexibility."
Tax treatment
If an inbound fund feeds into direct equities, long-term capital gains tax of 12.5% and short-term capital gains tax of 20% apply. Since the Tata India Dynamic Equity Fund will feed into mutual funds and ETFs in India, it is completely tax-exempt for NRIs in India.
However, investors might face a tax liability in their home country. Investors from the UAE, Singapore, and Mauritius will pay zero tax as these countries levy no capital gains tax.
What experts say
According to Nirav Karkera, head of research at Fisdom, think of the offering as a Tata AMC proposition in a box. The low entry ticket size and favourable taxation are key, he said.
“This could attract NRI and overseas investments seeking India exposure with limited amounts and less operational fuss. The AMC has a decent bouquet of products with a good mix of diversified equity, thematic funds, and debt offerings," said Karkera. “The fund house has some demonstrable ability to manage allocations dynamically across market cycles."
While it will take time to ascertain the efficacy of their allocation model, “the foundation looks well-built", according to Karkera. “Among others, the biggest challenge this proposition appears to solve is that of friction for overseas and NRI investors to invest and participate in the Indian equity story."
Juzer Gabajiwala, director at Ventura Securities, said lowering the threshold will invite investors to get a taste of the Indian equity markets. A great advantage is that “you do not need a PAN card or a bank account", he said. “An icing on the cake is no tax in India; tax only in the country of residence, and if you are from the UAE or Singapore, even that is nil. Only forex risk exposure, which would be there even when investing without the GIFT City route."
How to invest
Here’s the step-by-step process for investing in the Tata India Dynamic Equity Fund. The fund is likely to open for subscriptions in October.
1) Apply via TATA Asset Management-empanelled distributor or direct route.
2) Submit the application form, KYC (know your customer) and other documents to the GIFT City branch or CAMS (email/physical).
3) CAMS performs manual data entry, KYC, anti-money laundering (AML), and foreign account tax compliance (FATCA) checks.
4) Zero balance folio opened after successful checks.
5) Investor receives an email on the opening of an account; remittance of funds to the scheme collection account may be initiated thereafter.
6) Once funds are received, the scheme allocates units and issues a statement of account (SOA).
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