Learn the easy way to invest in foreign stocks through GIFT City

Indian residents can now invest in foreign stocks by investing in dollar-based funds through GIFT City, an international financial centre located in Gujarat, according to a report by Business Standard. This route is available as an alternative to direct investment through foreign brokers.

Interest in this route is growing as the $7 billion foreign investment limit set by regulators for the Indian mutual fund industry has been exhausted, and many local mutual fund houses have stopped accepting new funds. Funds located in GIFT City are not subject to this limit.

A major advantage of this route for investors is regulatory oversight. GIFT City funds fall under the International Financial Services Centres Authority (IFSCA), which is an Indian regulator. According to Deepesh Raghavah, founder of Personalfinanceplan.in and a SEBI-registered investment advisor, investors using foreign brokers may receive limited assistance from Indian regulators if something goes wrong. Therefore, investors who wish to avoid cross-border disputes may choose Indian funds or the GIFT City route.

Another key advantage is holding assets in dollars. As the rupee has weakened against the dollar over time, dollar-based assets can provide protection against this depreciation. According to Hema Thakkar, Business Development Head at PPFAS, investors use these funds to build dollar pools for goals such as children's education abroad, as those expenses will be in dollars. A. Balasubramanian, Managing Director and Chief Executive of Aditya Birla Sun Life AMC, also cites benefits for foreign education and travel.

However, this market is still developing. According to Raghavah, GIFT City was primarily established to attract foreign and non-resident Indians (NRIs) to India, so outbound funds for retail investors are still a small segment. He added that while there are "not too many outbound funds," the digital process is currently becoming "easy and streamlined." Balasubramanian also agrees that attracting NRI funds is a major priority for GIFT City.

Regarding investment strategy, Raghavah suggests keeping foreign investment at only 10-15% of the portfolio, while Balasubramanian, who himself focuses more on India, says 5-10% of the investment can be used to diversify abroad.

Investors have three types of options: passive funds of funds that invest in index funds or ETFs, feeder funds that send money to foreign funds managed by other institutions, and active funds that directly select global stocks.

Currently available funds include Edelweiss's Greater China Fund (approximately $10.2 million by the end of October) and two funds from PPFAS (approximately $75.8 million by 30 October). Additionally, Aditya Birla Sun Life's Emerging Market Equity Fund, Edelweiss's US Technology Equity Fund, JioBlackRock's Advantage World Equity Fund, and a Franklin Templeton fund are also in the pipeline.

According to fund houses, this process can be completed online in just 10 minutes. Investors must first complete the KYC process and open a folio (account) with the fund house.

GIFT City is an international financial services centre located in Gujarat. It was primarily established to attract foreign investors and NRIs to India.