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What is Gujarat International Finance Tec (GIFT) Gift City?
Gift city is a piece of foreign land within India.
One of the biggest advantages of GIFT City is tax efficiency. Any product and service available at GIFT City are exempted from domestic laws.
GIFT City follows international practices. Simply put, investors need not pay any tax in India; however, they will have to pay taxes in their respective geographies.
If you have clients from Dubai and Singapore, they will not be required to pay any taxes on these investments.
Another key benefit to investing through GIFT city is dealing with a single regulator for all financial products. All financial products in IFSC – mutual funds, stocks, PMS, AIFs, insurance and pension are regulated by a single regulator – International Financial Services Centres Authority (IFSCA).
Can MFDs distribute products listed in Gift City?
Yes, MFDs can distribute mutual fund schemes offered by AMCs from the IFSC situated GIFT City.
MFDs simply need to empanel with service providers operating in GIFT City like fund houses, PMS providers, AIF managers and insurance companies.
Currently, there is no need to appear for any separate exam. Existing MFDs with necessary NISM certification for MFs and PMS can directly become distributors with the IFSCA regulated entities like fund houses, PMS and AIF managers.
Another option is setting up an office at GIFT City. However, there are some stringent requirements and individual MFDs may it complicated and expensive to obtain such a distribution license.
What is the business opportunity for MFDs?
According to industry officials operating in GIFT City, fund houses offer upfront commission along with trail commission in IFSC. They offer a two year upfront commission of up to 2.70% in most cases.
Also, MFDs can opt for an all trail commission model, which could be around 1.35%.
In terms of management fees, fund houses can charge management fees of up to 1.50%. If we include other expenses, the expense ratio can go up to 2%.
Who can invest in GIFT City?
NRIs and foreign nationals can invest in inbound funds i.e. funds which invest in Indian markets through direct stocks or mutual funds.
Many fund houses offer feeder funds or fund of funds structure in which they collect money from NRIs and foreign nationals and invest in their own domestic schemes.
Resident Indians can also invest through IFSC provided the fund should have outbound structure i.e. funds investing in other geographies.
However, investors will have to invest a minimum of USD 1.50 lakh or Rs.1.30 crore (in today’s term). Moreover, investors have an option to invest in tranches of six months or 1 year.
Very soon, entities operating at GIFT City can launch retail funds. In fact, the IFCSA has recently issued a consultation paper in which it has proposed allowing the fund management entities (FMEs) operating in GIFT city can launch retail schemes without obtaining approval from IFSCA to appoint a fiduciary person.
Providing more clarity on retail funds, IFSCA clarified that retail schemes can invest in India or foreign through listed, to be listed and unlisted securities, money market instrument and debt papers, securities debt instruments both asset backed or mortgage backed, units of mutual funds and AIFs, commodity derivatives for hedging purposes and liquid funds or bank deposits.
Experts say that the ticket size in retail schemes will be USD 5000 or Rs.4.32 lakh (In today’s term).
What is the KYC requirement?
There is no need to do stringent KYC of clients. IDs like passports and utility bills are adequate. Also, there is no need to invest through NRI or NRO accounts. All transactions can be executed through any foreign bank account. However, transactions have to be done in dollars.
While a few fund houses offer a digital onboarding process, there is a requirement to send physical copies of documents.
Once your clients key in their details digitally, the system will generate a form which needs to be signed and has to be sent within 15-20 days through post or courier.
In any case, there is no need to be physically present in GIFT City to invest money.
Which are fund houses operating in IFSC?
Currently, many fund houses are offering AIFs in GIFT city - Aditya Birla Sun Life, DSP, HDFC, IIFL, ITI, Kotak, Mirae Asset, Motilal Oswal and Nippon India.
Also, there are 132 PMS and AIF players like 360 One, Abakkus, Abans, Aequitas, Alchemy, Ambit, ASK and Marcellus.