How NRIs and Foreign Investors Can Access AIFs via GIFT City AIF

India’s onshore fund market has long been difficult for non-resident Indians (NRIs) and foreign portfolio investors (FPIs) to enter. Capital-account restrictions, multiple regulators, and tax ambiguity often outweighed the attraction of high-growth Indian assets. The Gujarat International Finance Tec-City (“GIFT City AIF”) has changed that. By creating a tightly regulated enclave operating under near-offshore conditions, India now offers a practical route into its alternative-investment universe.

This blog explains how overseas capital can subscribe to Indian Category II alternative investment funds (AIFs) domiciled in GIFT City AIF, the safeguards in place, and the operational details investors should understand before committing capital.

Why GIFT City AIF Exists and What an AIF Is

Set up in 2015 as India’s first International Financial Services Centre (IFSC), GIFT City AIF is treated as foreign territory for exchange-control purposes yet lies within India. Inside its towers, banks, brokers, custodians, and funds transact in fully convertible currencies, free from most domestic stamp duty, capital-gains, and withholding-tax rules.

An AIF is a pooled vehicle regulated by SEBI. Category II AIFs—common in GIFT City AIF—invest in private equity, venture capital, real estate, and distressed credit but cannot use external leverage. When formed inside an IFSC, an AIF is governed by the IFSCA (Fund) Regulations, 2022—a lighter-touch regime that accepts English-law documentation, permits onboarding via power-of-attorney, and allows repatriation in the same currency contributed.

Who Can Invest

The IFSCA imposes no minimum Indian-connection requirement. NRIs, Persons of Indian Origin (PIOs), overseas trusts, corporates, funds-of-funds, and regulated pension plans are eligible. The only exclusions are residents of India (except IFSC entities) and parties on UN or FATF sanctions lists. A single investor can hold up to 49% of the corpus before reclassification as a private-equity fund.

KYC documentation is accepted in English, with self-certification of tax residence allowed for FATF-compliant jurisdictions. Physical presence is unnecessary—subscriptions, notarised IDs, and resolutions can be couriered or uploaded to the secure portal of a GIFT City AIF company.

Regulatory Architecture and Investor Protections

IFSCA regulations borrow from both English and Indian company law and include several investor safeguards:

• Mandatory custody by an IFSC-licensed custodian to segregate fund assets.
• Quarterly NAV disclosure and annual audit by an IFSC-approved auditor.
• Oversight committee or trustee if AUM exceeds USD 250 million or 25 investors.
• Recognition of foreign judgments, lowering enforcement risk in global courts.

Because funds are foreign-currency denominated, investors avoid rupee settlement risk. Further, IFSCA clarifies that capital gains on Indian assets are deemed “accrued outside India,” so the fund and its distributions are not taxable in India, though investors must report gains in their home jurisdictions.

Operational Steps: From Subscription to Drawdown

Pre-screening: The manager sends an eligibility questionnaire and sample contribution agreement.

Entity setup: The fund forms an IFSC trust or limited partnership, often titled “XYZ India Opportunities IFSC Fund.” Incorporation is same-day with digital signatures.

Documentation: The limited-partnership agreement (LPA) follows ILPA standards with side-letter flexibility.

Banking: Investors receive a USD account with an IFSC bank; SWIFT transfers mirror those to Singapore or Dubai.

Registration: The fund files Form A with IFSCA attaching LPA and KYC documents; approvals typically arrive within two weeks.

First closing: Once the minimum corpus (around USD 10 million) is reached, a capital-call notice is issued, with ten business days to fund.

From term sheet to first drawdown generally takes eight to ten weeks—faster than most Cayman or Mauritius setups.

Tax and Repatriation

India’s 94 double-taxation treaties apply, and the IFSC is treated as a “territory outside India.” Managers often list two share classes: a direct class for treaty-eligible investors and a feeder class routed through Mauritius or Singapore.

Repatriation is unrestricted after annual audit filing. Proceeds return in the original currency, without Indian withholding. Secondary transfers attract minimal stamp duty (0.05%) compared to 3–5% onshore.

Risks That Require Attention

Concentration risk: Category II AIFs can invest up to 25% in one company; most managers self-impose a 10% cap.

Liquidity: GIFT City AIF structures are usually ten-year, closed-end funds with limited secondary liquidity—investors should expect full hold-to-maturity.

Regulatory drift: Future amendments could alter treatment, though managers protect investors via “material-adverse-law” clauses enabling early wind-down.

Currency hedging: Allowed at the fund level but only through IFSC banks, where spreads may be wider than global markets.

Costs and Fees

Management fees average 1.75% on committed capital, with 10% carry above an 8% hurdle. Setup costs range from USD 150k–250k, amortised over the fund’s life. Administrators and custodians charge around 12–15 basis points on NAV. Overall annual expenses rarely exceed 2.5%, competitive with other emerging-market vehicles.

What Comes Next

India is nearing a 4% weight in MSCI ACWI and will soon receive dedicated global allocations. GIFT City AIF vehicles offer international investors a regulated, dollar-denominated, tax-neutral route into this growth story without domestic friction. Early movers among North American pensions have already sized allocations around USD 500 million, with European insurers following.

By 2025, IFSCA is expected to allow umbrella-fund structures, enabling one master trust to manage multiple sub-strategies—private credit, infrastructure, or climate equity—cutting costs and opening participation to smaller investors.

ALTPORT: A Purpose-Built Gateway for Global Capital

For NRIs and foreign institutions seeking exposure to Indian private markets without complex domestic regulation, the GIFT City AIF route is the most efficient entry point. Combining English-law documentation, dollar denomination, and SEBI-level oversight, it provides the certainty fiduciary investors demand while preserving India’s growth potential.

ALTPORT, an IFSC-registered GIFT City AIF company, specialises in launching and managing such funds, guiding investors from initial KYC to final distribution within a ten-week cycle. For investors viewing Indian growth as a strategic allocation, the only question is how soon they can close before the next capital call arrives.