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India’s GIFT City is widely recognised as the country’s pioneering International Financial Services Centre (IFSC). It is rapidly revolutionising cross-border fund management through its innovative AIF (Alternative Investment Funds).
As of now, 194 Fund Management Organisations manage 310 schemes, and total commitments have crossed USD 26.3 billion by deploying over USD 11 billion. The ecosystem has experienced explosive growth, driven by Category III funds.
GIFT City AIFs give fund managers and investors a competitive platform to capitalise on India’s growth while gaining access to worldwide markets by providing tax neutrality, smooth global access, and regulatory efficiency under IFSCA.
AIF registration is gaining momentum in the current scenario. What’s better than registering an AIF in gift city? This blog explores their varieties, mechanisms, advantages, and potential to influence global finance in the future.
GIFT City is India’s first International Financial Services Centre, located in Gandhinagar, Gujarat. It was conceptualised to compete with global financial hubs such as Singapore and Dubai.
As of late 2025, it has 1,034+ registered entities, including 38 banking units with combined assets of more than $100 billion. This ecosystem acts as an important channel for inbound global investments into the country and outbound capital flows, energising key sectors such as banking, fund management, insurance, fintech, capital markets, and aircraft leasing.
With a unified regulatory framework under the International Financial Services Centres Authority (IFSCA), supported by attractive tax incentives and new-generation infrastructure, GIFT City is fast-tracking economic development, employment opportunities, and integration of India with international finance. It is playing a crucial role in achieving the vision of Viksit Bharat by attracting sovereign wealth funds, multinational banks, and institutional investors, thereby efficiently channelling capital while encouraging innovation in financial services.
GIFT City IFSC is India’s first operational international financial hub, with a unified regulatory framework under IFSCA across banking, capital markets, insurance, and fund management. It offers tax neutrality, ease of foreign participation, and the best infrastructure.
Currently, in 2025 it has attracted several global giants, with banking assets exceeding US$100 billion, and it’s expanded offerings includes bullion trading on the India International Bullion Exchange, among others, and fintech. The framework allows for seamless cross-border transactions and strengthens India’s position in global finance while offering a competitive platform to established offshore centres.
Initiated in 2008 and operational in 2015, GIFT City’s IFSC gained momentum from the IFSCA Act of 2019. Following this, a unified regulator came up in 2020. The most important initiatives include the implementation of a regulatory sandbox in 2020, guidelines on bullion exchange, and the extension of tax holidays in the 2025 Budget.
Indeed, IFSCA has introduced progressive reforms in line with global practices, such as allowing global access providers and third-party fund services, hence fostering innovation while ensuring strong compliance. These efforts have propelled rapid growth, enticed more than 1,000 entities and positioned the GIFT City as a maturing hub for cross-border financial activities.
GIFT City AIFs are pooled investment vehicles registered with the IFSCA within India’s only operational IFSC. They allow global and national managers to raise and deploy capital seamlessly across borders while enjoying unparalleled tax neutrality, regulatory clarity, and operational efficiency in comparison with traditional onshore structures.
GIFT City AIF is an IFSCA-registered, privately pooled fund that raises capital from sophisticated domestic and international investors for investment as per a defined strategy. Structured as trusts, companies, or LLPs, these funds operate under a unified, globally aligned regulatory regime offering tax efficiency to Indian and overseas assets with no traditional FDI/ODI restrictions.
Below is a given table providing clear difference between GIFT AIFs and Domestic AIF under certain parameters, from its regulatory framework, corpus, ticket size for investors, tax regime, and more.
The registration process with IFSCA is simple, easy, and quick. But how? Read the pointers given below:
GIFT City AIFs are advanced pooled investment structures under a unified regulatory framework of IFSCA, which have facilitated capital raising by fund managers from both global and domestic investors in an effective manner. With operations mainly in foreign currencies, these funds enjoy easy set-ups, tax-neutral transactions, and flexible investment mandates.
Managers invest the raised corpus in Indian and international securities, utilising the ease of cross-border investing and maintaining strong governance standards. This model reduces frictions in costs and expedites deployments, drawing institutional interest to GIFT City as an emerging rival to key traditional offshore jurisdictions like Singapore or Luxembourg for India-focused strategies.
Setting up a GIFT City AIF is notably faster and more efficient than onshore counterparts, often completing registration within 30-45 days via IFSCA’s online portal. Managers appoint a Fund Management Entity (FME) with India-resident key personnel and secure sponsor commitments. Ongoing management benefits from digital compliance, third-party service providers for administration and custody, and relaxed norms on outsourcing. This efficiency reduces operational overheads, allowing managers to focus on strategy execution rather than bureaucratic hurdles.
GIFT City AIFs offer significant portfolio flexibility. It allows them to take exposure in Indian onshore assets, overseas markets, or hybrid strategies with very limited FDI/ODI restrictions.
Portfolio managers could actively change allocations across geographies and asset classes based on investor requirements and market opportunities efficiently from a tax perspective.
Cross-border transactions in AIFs within GIFT City will be frictionless, while there are liberalised external commercial borrowing norms and direct access to IFSC banking units. The funds can be raised in USD or other foreign currency from investors of any country without the FEMA complications for non-residents.
There is free flow of capital for investments, unlimited repatriation, and settlements through IFSC banking units to minimise currency conversion risks and improve liquidity for both inbound and outbound strategies.
GIFT City AIFs have maintained high governance standards: independent trustees, auditors, and custodians are typically sourced from global providers such as HSBC or Deutsche Bank operating in the IFSC. Managers are teamed up with IFSCA-compliant local administrators, valuers, and legal advisors.
Stringent AML/KYC systems, regular reporting, and investor protection mechanisms also accord with international best practices, ensuring clarity and risk management while building investor trust in the ecosystem.
GIFT City AIFs have emerged as the go-to avenue for unmatched tax efficiency, ease of global investor onboarding, unified regulatory oversight, and fast setup timelines. With commitments exceeding $26 billion as of late 2025, they provide fund managers with cost-effective structures and investors with a regulated and tax-neutral entry into India’s growth.
GIFT City AIFs have pass-through status, 10-year tax holidays on business income, capital gains tax exemptions for non-residents, and GST relief on fund management services. Some transactions achieve full tax neutrality, and returns are globally competitive with significantly better post-tax yields than their onshore counterparts.
Foreign investors participate without FDI compliance, Liberalised Remittance Scheme (LRS) limits, or roundabout structures. Onboarding is direct, KYC is streamlined, and contributions are made in USD or other currencies through IFSC banking units without traditional entry barriers. This provides easy access to capital from the US, the Middle East, Singapore, and Europe.
A single regulator with globally aligned guidelines and digital submission processes enables fund registration within 30-45 days of timeline. It reduces uncertainty and speeds up the market entry. Predictable rules, templates pre-approved, and dedicated relationship managers reduce uncertainty and allow managers to bring strategies to the market with confidence.
GIC and ADIA, Blackstone, Hamilton Lane, and multiples are among the sovereign wealth funds, global pensions, endowments, and marquee managers. These top global players either set up or sign up on the GIFT City platform. Coupled with this institutional validation, growing AUM, and successful deployments signal a stable ecosystem and strengthen GIFT City’s credibility as India’s preferred offshore-onshore hub.
The GIFT City proposes fund structures similar to global hubs under the IFSCA (Fund Management) Regulations, 2025, including Category I, II, and III AIFs for restricted schemes, and retail schemes comprising mutual funds and feeder funds investing in ETFs for private, hedge, and broader retail strategies.
Category I and II AIFs in GIFT City are, by and large, close-ended restricted schemes for sophisticated investors.
These funds enjoy the advantage of pass-through taxation, tax exemptions for non-residents, and flexibility in cross-border investments, thus attracting global managers for growth strategies with minimum corpus requirements and strong governance parameters.
Category III AIFs are for complex, leveraged strategies and can be open-ended or closed-ended. Long-short equity, market-neutral approaches, trading in derivatives, and public market investments are some of the hedge fund strategies that are typically deployed in Category III. With no investment restrictions beyond leverage caps, these funds are sought after by institutional investors desiring higher returns through varied strategies.
Category III has been the fastest growing in GIFT City of late 2025, with commitments surging because of tax efficiency, global access, and alignment with international norms for hedge funds, which thus enables active portfolio management across onshore and offshore assets.
Under the amended regulations of 2025, GIFT City also allows retail schemes there, such as open-ended mutual funds and feeder funds investing primarily in global mutual funds, ETFs, and UCITS-compliant instruments. Examples include PPFAS IFSC S&P 500 and Nasdaq 100 FoFs, DSP Global Equity Fund, and Tata Dynamic Equity Fund, offering Indian residents’ outbound exposure via LRS without onshore limits.
Direct ETFs are allowed to trade on IFSC exchanges, while venture capital schemes and family investment funds are among other specialised vehicles that widen access to retail and high-net-worth investors with competitive taxation and multi-currency operations.
While highly appealing, the benefits offered by GIFT City AIFs rely on careful consideration: strong compliance, cross-border tax understanding, underlying risk assessment, and due diligence to achieve goals and regulatory requirements in the evolving ecosystem for fund managers/investors.
Look for the compliance and regulatory requirements given below:
Follow current governance practices, including independent board oversight/trustee oversight. Taxation in GIFT City is very attractive but depends on investor residency. For example, non-residents enjoy exemptions on capital gains, dividends, and interest income, along with a pass-through for Category I/II funds. Indian residents will be subject to home-country tax on distributions; however, overseas investments from India through LRS have some tax efficiency.
Investors must consider home-country rules, such as those imposed upon US persons, with PFIC/GILTI implications, while Singapore or Mauritius residents enjoy DTAA benefits from treaty access, withholding requirements, and information exchange regimes like the CRS/FATCA. Careful planning with a tax advisor is usually necessary to avoid double taxation or other unforeseen liabilities.
Despite these structural efficiencies, fundamental portfolio risks remain unchanged. Market risk emanates from the volatility of Indian or global assets, which is accentuated in leveraged Category III strategies. Credit risk is high in private credit or distressed classes, with stringent borrower analysis required.
Liquidity risk is variable: close-ended PE/VC funds tie up capital for several years, while open-ended hedge funds have much better redemption flexibility but are nevertheless subject to gating pressures in stressed markets. Concentration in India-specific sectors, such as real estate and startups, adds to macro sensitivity. Managers need to stress-test portfolios and maintain sufficient diversification and contingency plans.
Extensive due diligence on the fund manager’s track record, expertise of the team, and operational infrastructure. In-depth review of the investment mandate, fee structure, and performance history. Verification of service providers (custodian, administrator, auditor) and governance mechanisms. Interest alignment through co-investment and clawback arrangements.
Analysis of underlying assets with respect to valuation methodology and risk concentration. Independent legal and tax counsel who are versed in IFSCA regulations should be engaged. For investor verification, confirm eligibility and ease of repatriation; for managers, ensure scalable compliance frameworks that would allow for long-term growth.
The GIFT City AIF ecosystem is bound to witness exponential growth, with commitments estimated to surpass the USD 100 billion mark by 2030 at a 35% CAGR, from USD 26.3 billion in September 2025, driven by IFSCA’s progressive reforms and global investor appetite, especially in Category III funds. This will further establish India as a key fund management hub along with Singapore.
Enhanced tax incentives and digital infrastructure will catalyse both inbound and outbound flows, although this may be dampened to an extent due to regulatory scrutiny over structures, including family offices. Overall, AIFs at GIFT City represent a transformative force in cross-border finance, promising sustained innovation and mobilisation of capital.
GIFT City’s AIF ecosystem has seen a tremendous pace of acceleration as total commitments surged 117% year-on-year to US$ 26.3 billion by September 2025 from US$ 12.1 billion in September 2024. Fund Management Entities expanded from 83 to 194, and schemes tripled to 310 in the same time, led by the 94% CAGR in Category III registrations reaching 188. Category III commitments nearly tripled to US$ 10.15 billion in a year, reflecting the strong global demand for hedge and derivative strategies. Overall, AUM soared to US$ 23.5 billion by June 2025 as 177 FMEs managed 272 schemes.
This momentum has been propelled by some fundamental policy reforms. The Finance Act 2025 introduced enhancements for tax neutrality with extensions of pass-through status and exemptions for non-residents on capital gains, coupled with a 10-year tax holiday on business income. IFSCA’s Fund Management Regulations, 2025, effective February, replaced the pre-existing rules by way of simplification of set-up: the minimum corpus for restricted schemes was reduced to USD 3 million from USD 5 million; the validity of a Private Placement Memorandum was extended to 12 months; and no prior approval would be required for the appointment of Key Managerial Personnel.
A July 24, 2025, Gazette notification enabled third-party fund management services to allow global managers to outsource to IFSC-registered entities for mutual funds, PMS, and AIFs and encouraged deeper integration.
October 2025 amendments further relaxed the compliance burden by introducing co-investment SPVs, granting recognition to FIFs under AIF categories, and providing clarification regarding Pari passu investor rights. Budget 2025 relaxed conditions under Section 9A for funds managed from IFSC, exempted MNC treasury centres from deemed dividend tax, and extended tax holidays to 2030. Clarifications issued in November allowed INR-denominated invoices in limited cases and mandated AML/CTF certification for directors, balancing flexibility with safeguards.
These international-standard reforms have democratized access for NRIs through the Liberalised Remittance Scheme, while attracting sovereign funds; this projects a fourfold expansion to more than USD 100 billion by 2030 at a 35% CAGR. As digital KYC and regulatory sandboxes mature, GIFT City is set to channelise greater cross-border flows and make India the prime domicile for funds in Asia.
Despite robust growth, GIFT City AIFs face challenges that may impact scalability. There has been a rising regulatory scrutiny on Category III Schemes, with IFSCA asking managers in November 2025 a spate of questions to check for genuine pooling versus disguised family offices, amid a freeze on FIF approvals. This has its roots in RBI sensitivities regarding ODI versus OPI distinctions, which have stalled outbound flows for SFOs and created workarounds for multi-family pooling.
The DWP minimum investment limit of USD 150,000 is continued unabashed, despite industry representations, restricting retail participation and conflating the distinction with mutual funds. Sponsor commitment requirements-5% of corpus or USD 750,000, as a sponsor commitment, are a drag on first-time managers who often need to borrow.
Talent scarcity, experienced compliance officers, and the substance requirements for FMEs. Market volatility in global equities and AIFs, policies in flux, adds to the risk, while liquidity constraints in closed-ended funds are best navigated with care.
Conversely, opportunities abound. Third-party management rules open doors for global giants like Blackstone to outsource, enhancing GIFT’s hub status. FIF recognition and co-investment SPVs enable tailored family strategies with tax parity to Category III AIFs. Diversification into REITs, infrastructure debt, and fintech-driven AIFs aligns with India’s USD 2 trillion AIF market projection by 2034. NRIs gain tax-exempt capital gains and seamless access to startups, renewables, and private equity via the Liberalised Remittance Scheme.
Enhanced connectivity via the Multi-Modal Transportation Hub and digital infrastructure will boost cross-border efficiency. Platform-based compliance sharing could ease entry for startups, while extended tax treaties and P-note relaxations attract sovereign wealth. By addressing ambiguities, GIFT City can unlock boundless potential, fostering innovation and positioning AIFs as vehicles for India’s global financial ascent.
GIFT City AIFs represent a revolution in cross-border investing through a confluence of tax efficiency, regulatory clarity, and unprecedented flexibility for attracting global capital into the vibrant Indian economy. As of September 2025, commitments have reached USD 26.3 billion through 194 fund management entities and 310 schemes, with this ecosystem maturing rapidly. Projections indicate that commitments will blow past USD 100 billion by 2030, driven by ongoing reforms and institutional endorsement.
For fund managers and investors seeking to tap into inbound growth or achieve outbound diversification, GIFT City offers a competitive and regulated platform that is a rival of Singapore or Luxembourg. As India further integrates with the global markets, embracing GIFT City AIFs places stakeholders at the bleeding edge of financial evolution and opens sustained opportunities in a dynamically changing landscape.
To get expert assistance in registering an AIF in Gift City, talk to our experts at Enterslice.
AIFs established in the Gift City provide exposure to a variety of asset classes, including real estate, venture capital investments, debt instruments, stocks, and private equity.
An alternative investment fund (AIF) is a kind of group investment in which a number of participants contribute money with the intention of investing it in line with a predetermined investment philosophy.
Trust, Company, Limited Liability Partnership, and Body corporate are among the asset classes that AIFs are commonly utilised to invest in. Under the SEBI (Alternative Investment Funds) Regulations, the Securities and Exchange Board of India (SEBI) first proposed the idea of AIFs in 2012.
According to SEBI, Alternative Investment Funds (AIFs) in India fall into three main categories: Category I (growth-oriented, such as Venture Capital & Infrastructure), Category II (wide range, no leverage, such as Private Equity & Debt), and Category III (complex strategies, using leverage, such as Hedge Funds). Each of these categories targets distinct investment objectives and risk profiles.
Category I and Category II AIFs are prohibited from borrowing or using any kind of leverage per the SEBI AIF regulations. The sole exception is to satisfy short-term finance needs for up to 30 days, no more than four times a year, and up to 10% of investable money.
The four main categories of investing options are equities, bonds, mutual funds, and exchange-traded funds, or ETFs. They involve a larger risk of loss if they are sold when the market is down, but they also have the potential to yield a bigger return.
With a minimum investment of ₹1 crore, AIFs are intended for sophisticated investors who want to participate in complicated strategies, derivatives, and unlisted shares. Mutual funds, which are carefully regulated to invest mostly in listed securities with minimal risk and good liquidity, are intended for retail investors (minimum ₹500).
An arrangement where many investor types, each with unique investing preferences and needs, are combined into a single fund structure is known as a unified structure of an AIF.
Depending on the kind of investor, Alternative Investment Funds (AIFs) have different investment caps. Individual investment for regulated enterprises (REs) such as banks and NBFCs is limited to 10% of the AIF's corpus, with a total restriction of 20% from all REs. The minimum investment for private investors is typically ₹1 crore, while for AIF employees, directors, or managers, it is ₹25 lakh, with no higher limit
Investing in an Alternative Investment Fund (AIF) entails a number of risks, such as market timing risk when attempting to forecast market movements, manager skill risk relating to the fund management's experience, and performance risk owing to the possibility of making bad investment selections.
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