A Milestone for NRIs: Complete Ownership of Global Funds at GIFT City

Explore the new SEBI regulations permitting NRIs full ownership of global funds at GIFT City, boosting passive fund investment limits, and implementing fresh measures against market manipulation.

The Securities and Exchange Board of India (SEBI) has recently unveiled a key regulatory change allowing Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to possess up to 100% of global funds situated in GIFT City. This groundbreaking decision is set to transform the investment scene for the Indian diaspora and strengthen the financial ecosystem within India’s emerging International Financial Services Centre (IFSC).

Let’s start with the fundamentals.

What are Global Funds located in GIFT City?

A global fund is a variety of mutual fund or ETF that invests broadly in companies worldwide—including the investor’s home country. Its aim? To identify the most promising investment opportunities from an extensive global array of securities. Thus, a global fund may concentrate on a single asset class or spread across multiple asset classes – based on investment goals.

Now, let’s examine these new regulations and their implications for NRIs and OCIs.

Unpacking the New Ownership Regulations

• Previously, NRIs and OCIs were limited to owning no more than 50% of any foreign portfolio investor (FPI).
• Under the new rules, they can now fully own global funds at GIFT City, provided they meet certain documentation requirements, such as submitting PAN card copies and revealing their economic interests in these FPIs.
• This shift is anticipated to simplify investment procedures and attract larger financial inflows from overseas Indians into the domestic market.

Expanded Exposure Limits for Passive Funds

• Along with the changes for NRIs and OCIs, SEBI has also modified investment ceilings for passive funds.
• Mutual funds, especially ETFs, can now invest up to 35% of their net asset value (NAV) in the sponsor’s group companies, an increase from the previous 25% limit.
• This adjustment aids funds in better mirroring their underlying indexes, particularly when group companies form a significant portion of these indexes.

Additional Investment Opportunities for NRIs at GIFT City

NRIs have access to a wide range of investment options within GIFT City, including:

1. Offshore Deposits: NRIs can open offshore accounts in GIFT City and deposit funds in various currencies, earning attractive interest rates.
2. Foreign Currency Term Deposits: NRIs can choose foreign currency term deposits, investing for a fixed period and receiving steady returns.
3. Global Equities and Bonds: GIFT City offers access to a wide range of global equities and bonds, allowing NRIs to diversify their portfolios with international assets.
4. Alternative Investment Funds (AIFs): NRIs can invest in AIFs established in GIFT City, gaining exposure to various asset classes like private equity, venture capital, and real estate.
5. Real Estate Investment Trusts (REITs): NRIs can invest in REITs listed on the GIFT City IFSC exchange, enabling them to participate in the Indian real estate market without the complexities of direct property ownership.

Future Outlook: The Effect on the Financial Industry

The opportunity for NRIs and OCIs to fully own global funds at GIFT City represents a crucial development in India’s financial services sector. It not only eases access to domestic equities for the Indian diaspora but also reinforces GIFT City’s status as a competitive international financial center. As these changes take effect, they are expected to draw more investors, increase market liquidity, and contribute to a more dynamic and diverse financial ecosystem in India.

FAQs’

1. What is GIFT City, and why is it important for NRIs?
Ans- GIFT City (Gujarat International Finance Tec-City) is a special financial area in India. It offers many financial services, including global funds, which NRIs and OCIs can now fully access thanks to new SEBI rules.

2. What are global funds, and how do they work?
Ans- Global funds are types of mutual funds or ETFs that invest in companies around the world, including the investor’s home country. They look for the best investment opportunities globally and can focus on one type of investment or several.

3. What new change has SEBI made about NRI ownership of global funds?
Ans- SEBI now allows NRIs and OCIs to fully own global funds in GIFT City, removing the previous limit of 50% ownership. This makes it easier for NRIs to invest and encourages more investments from them into India.

4. What documents do NRIs need to fully own global funds in GIFT City?
Ans- NRIs and OCIs need to submit a copy of their PAN card and provide details about their financial interests in the FPIs to fully own global funds in GIFT City.

5. How has SEBI changed the investment limits for passive funds?
Ans- SEBI has increased the limit for passive funds, allowing mutual funds, especially ETFs, to invest up to 35% of their total value in the sponsor’s group companies, up from the previous 25% limit.

6. What investment options are available for NRIs in GIFT City?
Ans- NRIs can invest in various options in GIFT City, such as offshore deposits, foreign currency term deposits, global stocks and bonds, alternative investment funds (AIFs), and real estate investment trusts (REITs).

7. Why is full ownership of global funds good for NRIs?
Ans- Full ownership of global funds gives NRIs more control over their investments, makes the investment process easier, and encourages more financial investments into India.

8. What are the benefits of the increased investment limits for passive funds?
Ans- The increased limits help funds better match their underlying indexes, especially when group companies make up a large part of these indexes, leading to better fund performance.

9. How might these new SEBI rules affect India’s financial industry?
Ans- These new rules are expected to attract more investors, increase market activity, and make India’s financial system more diverse and dynamic, boosting GIFT City’s position as an international financial center.

10. What is the future outlook for NRIs investing in GIFT City?
Ans- The new ownership rules and more investment options are likely to attract more NRIs to invest in GIFT City, helping it become a key international financial hub and offering profitable investment opportunities.