Overseas Investing via Mutual Funds: Leveraging GIFT City and LRS for International Diversification

If you’ve ever thought about expanding your portfolio beyond Indian markets, overseas investing may be worth exploring. Global diversification can help you participate in international growth stories while balancing domestic market exposure.

Thanks to the LRS (Liberalised Remittance Scheme) and Gujarat International Finance Tec-City (GIFT City), now you can take your portfolio global while enjoying potential tax benefits and currency appreciation gains. So, if you’re an Indian resident investor looking for overseas MF options, keep reading this article.

Investing overseas through mutual funds allows you to add a global dimension to your portfolio within a regulated structure. It can help balance risks and tap into opportunities beyond domestic markets.

• Diversification benefits: Investing internationally spreads your exposure across economies, sectors, and currencies, potentially reducing dependence on and risk exposure to the domestic market.

• Access to global growth: Overseas mutual funds let you participate in trends driving major global companies and industries.

• Currency advantage: Foreign investments may benefit when global currencies strengthen against the Rupee.

• Professional management: Fund managers handle asset selection and compliance, making it easier to invest globally without direct foreign trading.

• Portfolio balance: Global exposure may help offset volatility in domestic assets, improving long-term stability.

• Ease of access: Overseas mutual funds can be accessed through domestic fund houses offering international feeder schemes.

GIFT City, or Gujarat International Finance Tec-City, is India’s first global financial hub located between Ahmedabad and Gandhinagar. It was built to give investors access to international markets while keeping operations within India’s regulatory framework.

Inside GIFT City lies the International Financial Services Centre (IFSC) — a special financial zone created to handle global transactions. It acts as a link between India and overseas markets.

Governed by the International Financial Services Centres Authority (IFSCA), which oversees all financial activity.

• Transactions take place in foreign currencies, mainly US dollars.

• Banks, brokers, and fund houses can set up IFSC branches to offer international investment options.

• For investors, this creates a smooth route to access global markets and international assets through firms set up in IFSC.

Introduced by the RBI in 2004, the Liberalised Remittance Scheme (LRS) permits individuals (resident) to remit a sum of up to $250,000 in a given financial year (which is from April to March). This includes minors, but here the remittances need to be facilitated by a parent or guardian.


The current LRS scheme limit applies to remittances made for the following purposes:
 

• Education abroad, tuition fees, accommodation, exams or training overseas.

• Travel for personal (except Nepal or Bhutan) or business purposes, or medical treatment overseas.

• Going abroad for employment

• Emigration

• Maintenance of relatives living abroad, gifts or donations to non-residents.

• Investments abroad in shares, securities, mutual funds or real estate (even investments through GIFT City).

When you invest in overseas assets via the GIFT City, these investments still fall under the Liberalised Remittance Scheme (LRS) and are subject to the LRS scheme limit. Here’s how you can start investing through the GIFT City:
 

• Open an IFSCA account: Start with a broker or fund house registered under the International Financial Services Centres Authority (IFSCA).
   
• Complete KYC: Submit PAN, Aadhaar, and address proof. The account is held in foreign currency, typically USD.
   
• Remit funds via LRS: Transfer money (within the LRS scheme limit of USD 250,000 per financial year) for approved overseas investments.
   
• Invest globally: Choose international mutual funds or feeder funds managed by Indian AMCs within Gujarat International Finance Tec-City (GIFT City).
   
• Track performance: Monitor your global investments alongside your domestic holdings for better diversification.

Here’s how resident Indians may benefit from overseas investments via GIFT City under the LRS scheme:

NRIs and foreign investors can enjoy more tax benefits, including exemptions on capital gains tax resulting from gains on global/IFSC security investments.

Adds international exposure and may improve diversification across countries and currencies.

• Indian residents may access these opportunities through familiar fund houses operating within the GIFT IFSC structure.

• Some transaction taxes may be reduced under the IFSC environment, potentially lowering cost of investing.

• Portfolio may be better positioned to handle domestic market risk by adding overseas assets.

• Regulation by IFSCA offers a structured framework that combines international reach with domestic compliance.

Before investing through GIFT City or under the Liberalised Remittance Scheme (LRS), it is essential to understand certain practical considerations and risks.

• Currency risk: Investments denominated in foreign currencies can fluctuate in value due to changes in exchange rates.
   

• Limited fund choices: The retail GIFT City investment ecosystem is still growing.

• Evolving framework: The International Financial Services Centres Authority (IFSCA) continues to refine regulations; updates may affect fund operations or eligibility.
   

• Tax implications: While certain transaction taxes are exempt in the GIFT IFSC zone, capital gains and dividends for resident investors are still taxable under Indian income tax law.
   

• Higher minimum investments: Some funds, especially AIFs, may require higher entry amounts, limiting accessibility.
   

• LRS compliance: All remittances must follow the LRS scheme limit of USD 250,000 per financial year and adhere to FEMA guidelines.
   

• Operational complexity: The process involves foreign currency transfers, additional documentation, and KYC compliance with IFSCA-registered intermediaries.

   

Overseas investing via schemes through GIFT City and the LRS offers Indian resident investors a regulated and tax-efficient way to gain global diversification. The GIFT City investment pathway, backed by IFSCA regulation and Indian fund management, provides a bridge between domestic investing and international markets.

However, it should form part of your broader global diversification strategy rather than being treated as an isolated solution. Your choice of international exposure must align with your overall investment objectives, time horizon, risk appetite and existing portfolio. Use this route as one component of your comprehensive financial plan.

The views expressed in this article are personal in nature and in no way trying to predict the market or to time them. These views are for information purpose only and do not express or construe to be any investment, legal or taxation advice. Please consult your Advisor/ Distributor before investing. TATA Asset Management Private Limited will not be liable in any manner for the consequences of the action taken by you. The views expressed are based on the current market scenario and are subject to change and may not reflect in the scheme/ fund portfolios of Tata Asset Management Private Limited. There are no guaranteed or assured returns under any of the schemes of Tata Asset Management Private Limited.

Securities investments are subject to market risks, read all scheme related documents carefully.