{"id":89793,"date":"2025-12-17T12:58:18","date_gmt":"2025-12-17T07:28:18","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=89793"},"modified":"2025-12-17T12:58:22","modified_gmt":"2025-12-17T07:28:22","slug":"comprehensive-guide-gift-city-aif-structure","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/comprehensive-guide-gift-city-aif-structure\/","title":{"rendered":"Comprehensive Guide to GIFT City AIF Structure:\u00a0Functioning,\u00a0Benefits &amp; Rising Popularity\u00a0"},"content":{"rendered":"<p>India&rsquo;s GIFT City is widely recognised as the country&rsquo;s pioneering International Financial Services Centre (IFSC).&#8239; It is rapidly revolutionising cross-border fund management through its innovative AIF (Alternative Investment Funds).&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>GIFT City AIFs give fund managers and investors a competitive platform to capitalise on India&rsquo;s growth while gaining access to worldwide markets by providing tax neutrality, smooth global access, and regulatory efficiency under IFSCA.&nbsp;&nbsp;<\/p>\n\n\n\n<p><a href=\"https:\/\/enterslice.com\/alternative-investment-fund-registration\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>AIF registration<\/strong><\/a>&nbsp;is gaining momentum in the current scenario.&nbsp;What&rsquo;s&nbsp;better than registering an AIF in gift city?&nbsp;This blog explores their varieties, mechanisms, advantages, and potential to influence global finance in the future.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">GIFT City and&nbsp;its Role in India&rsquo;s Financial&nbsp;Prospect&nbsp;<\/h2>\n\n\n\n<p>GIFT City is India&rsquo;s first International Financial Services Centre,&nbsp;located&nbsp;in Gandhinagar, Gujarat. It was conceptualised to compete with global financial hubs such as Singapore and Dubai.&nbsp;&nbsp;<\/p>\n\n\n\n<p>As of late 2025, it has 1,034+&nbsp;registered entities, including 38 banking units&nbsp;with&nbsp;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&nbsp;aircraft&nbsp;leasing.&nbsp;&nbsp;<\/p>\n\n\n\n<p>With a unified regulatory framework under the International Financial Services Centres Authority&nbsp;(IFSCA), supported by attractive tax incentives and new-generation infrastructure, GIFT City is fast-tracking economic development, employment opportunities, and integration&nbsp;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.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">An&nbsp;Overview of GIFT City as an International Financial Services Centre&nbsp;<\/h2>\n\n\n\n<p>GIFT City IFSC is India&rsquo;s first operational international financial hub, with a unified regulatory framework under IFSCA across banking, capital markets, insurance, and fund management. It&nbsp;offers&nbsp;tax neutrality, ease of foreign participation, and the best infrastructure.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Currently, in 2025 it has attracted several global giants, with banking assets&nbsp;exceeding&nbsp;US$100 billion, and&nbsp;it&rsquo;s&nbsp;expanded offerings includes bullion trading on the India International Bullion Exchange, among others, and fintech. The framework&nbsp;allows for seamless cross-border&nbsp;transactions and&nbsp;strengthens&nbsp;India&rsquo;s position in global finance while offering a competitive platform to&nbsp;established&nbsp;offshore centres.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Evolution and Regulatory Framework of IFSC&nbsp;<\/h2>\n\n\n\n<p>Initiated in 2008 and operational in 2015, GIFT City&rsquo;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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Indeed, IFSCA has&nbsp;introduced&nbsp;progressive reforms in line with&nbsp;global&nbsp;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,&nbsp;enticed&nbsp;more than 1,000&nbsp;entities&nbsp;and&nbsp;positioned the&nbsp;GIFT City&nbsp;as a maturing&nbsp;hub for cross-border financial activities.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Understanding the GIFT City AIF Structure&nbsp;<\/h2>\n\n\n\n<p>GIFT City AIFs are pooled investment vehicles registered with the IFSCA within India&rsquo;s only operational IFSC. They allow global and&nbsp;national&nbsp;managers to raise and deploy capital&nbsp;seamlessly across borders while enjoying unparalleled tax neutrality, regulatory clarity, and operational efficiency in comparison with traditional onshore structures.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is an Alternative Investment Fund (AIF) in GIFT City?&nbsp;&nbsp;<\/h2>\n\n\n\n<p>GIFT City AIF is an IFSCA-registered, privately pooled fund that&nbsp;raises&nbsp;capital from sophisticated domestic and international investors for investment as per a defined strategy. Structured as trusts, companies,&nbsp;or LLPs, these funds&nbsp;operate&nbsp;under a unified, globally aligned regulatory regime offering tax efficiency to Indian and overseas assets with no traditional FDI\/ODI restrictions.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">GIFT AIFs Vs. Domestic AIFs: What Fund Founders must know?&nbsp;<\/h2>\n\n\n\n<p>Below is a given table&nbsp;providing clear difference between&nbsp;GIFT AIFs and Domestic AIF under certain parameters, from its regulatory framework, corpus, ticket&nbsp;size for investors, tax regime, and more.&nbsp;&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Parameters&nbsp;&nbsp;<\/strong>&nbsp;<\/td><td><strong>GIFT AIFs&nbsp;<\/strong>&nbsp;<\/td><td><strong>Domestic AIFs<\/strong>&nbsp;<\/td><\/tr><tr><td>Governing Regulator&nbsp;<\/td><td>Regulated by&nbsp;the&nbsp;International Finance Services Centres Authority (IFSCA)&nbsp;<\/td><td>Regulated&nbsp;by&nbsp;the&nbsp;Securities and Exchange Board of India&nbsp;(SEBI).&nbsp;<\/td><\/tr><tr><td>Regulatory Framework&nbsp;<\/td><td>IFSC regulatory regime aligned with global fund standards&nbsp;<\/td><td>SEBI AIF Regulations created for domestic capital markets.&nbsp;&nbsp;<\/td><\/tr><tr><td>Minimum&nbsp;Corpus&nbsp;<\/td><td>The&nbsp;minimum&nbsp;corpus for Gift AIFs for most schemes is USD 3 million.&nbsp;&nbsp;<\/td><td>Minimum&nbsp;corpus requirement of&nbsp;Rs.20 Crore.&nbsp;<\/td><\/tr><tr><td>Minimum&nbsp;Investor Ticket size&nbsp;<\/td><td>USD1,50,000 ticket size&nbsp;per investor.&nbsp;&nbsp;<\/td><td>Ticket size&nbsp;&#8377;&nbsp;1 crore for each investor.&nbsp;<\/td><\/tr><tr><td>Platform Play (3<sup>rd<\/sup>&nbsp;Party Fund Management)&nbsp;&nbsp;<\/td><td>IFSCA&nbsp;permits&nbsp;3<sup>rd<\/sup>&nbsp;party fund management allowing regulated global managers to&nbsp;operate&nbsp;via an FME&nbsp;<\/td><td>Not&nbsp;permitted.&nbsp;SEBI&nbsp;has not created a comparable&nbsp;equivalent platform.&nbsp;<\/td><\/tr><tr><td>Operating&nbsp;Currency Capital&nbsp;&nbsp;<\/td><td>Functions in liberal foreign currency&nbsp;(USD currency), easily convertible allowing for easy transfer of foreign capital.&nbsp;&nbsp;&nbsp;<\/td><td>Operates in&nbsp;Indian Rupees&nbsp;(INR).&nbsp;<\/td><\/tr><tr><td>Capital &amp; FEMA functioning&nbsp;<\/td><td>Transactions between an Indian resident and the foreign resident are not same as transactions between within GIFT, and outside India.&nbsp;<\/td><td>Inbound foreign capital is subjective to change due to FEMA registrations.&nbsp;<\/td><\/tr><tr><td>Investor Base&nbsp;&nbsp;<\/td><td>Optimized&nbsp;for non-resident or foreign capital<strong>&nbsp;<\/strong>(inbound funds)&nbsp;and for Indian residents investing globally&nbsp;with fewer FEMA restrictions&nbsp;(outbound&nbsp;funds).&nbsp;&nbsp;&nbsp;<\/td><td>Easily fits Indian investors and domestic capital pools.&nbsp;&nbsp;<\/td><\/tr><tr><td>Investment Scope&nbsp;&nbsp;<\/td><td>Global mandate&nbsp;&ndash; allows to invest in India, overseas, or a mix of both without any friction in framework&nbsp;<\/td><td>Primarily domestic mandate &ndash; majority of investments must be in India; overseas exposure is restricted and capped.&nbsp;&nbsp;<\/td><\/tr><tr><td>Tax Regime&nbsp;&nbsp;<\/td><td>Distinct and favourable: 100% tax exemption for 10 consecutive years out of 15.&nbsp;<\/td><td>Subject to standard domestic tax laws.&nbsp;&nbsp;<\/td><\/tr><tr><td>Product Scope&nbsp;&nbsp;<\/td><td>Leverage flexibility is higher, subject to disclosure and IFSCA norms.&nbsp;&nbsp;<\/td><td>Leverage is restricted, especially for&nbsp;Category I and II AIFs. Category&nbsp;III&nbsp;AIFs are regulated with limits.&nbsp;&nbsp;&nbsp;<\/td><\/tr><tr><td>Jurisdictional Positioning&nbsp;<\/td><td>Operates under a foreign&nbsp;jurisdiction&nbsp;fiction within India, enabling free capital movement.&nbsp;<\/td><td>Fully under domestic&nbsp;jurisdiction.&nbsp;&nbsp;<\/td><\/tr><tr><td>FEMA Restrictions&nbsp;<\/td><td>No FEMA restrictions on capital movement between GIFT IFSC and global markets.&nbsp;<\/td><td>Fully&nbsp;subject to FEMA for all cross-border transactions.&nbsp;&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">What is the Registration Process with IFSCA?&nbsp;<\/h2>\n\n\n\n<p>The registration process with IFSCA is simple, easy, and quick. But how? Read the pointers given below:&nbsp;&nbsp;<\/p>\n\n\n\n<ul>\n<li>Form A with details of the sponsor\/manager, along with the scheme memorandum and the KYC documents, should be filed.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Appoint at least two Key Managerial Personnel who should be resident in India.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Secure sponsor commitment &ndash; Minimum 5% of corpus or USD 750,000&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Obtain Certificate of Registration&nbsp;&ndash; usually 30-45 days. Launch the scheme after filing the private placement memorandum.&nbsp;Comply with&nbsp;continuing reporting and governance requirements.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">How&nbsp;Does&nbsp;GIFT City AIFs Operate?&nbsp;<\/h2>\n\n\n\n<p>GIFT City AIFs are advanced pooled investment structures under a unified regulatory framework of IFSCA, which have&nbsp;facilitated&nbsp;capital raising by fund managers from both global and domestic investors in an effective manner. With operations&nbsp;mainly in&nbsp;foreign currencies, these funds enjoy easy set-ups, tax-neutral transactions, and flexible investment mandates.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Managers invest the raised corpus in Indian and international securities, utilising the ease of cross-border investing and&nbsp;maintaining&nbsp;strong governance standards. This model reduces&nbsp;frictions in costs and&nbsp;expedites&nbsp;deployments, drawing institutional interest to GIFT City as an emerging rival to key traditional offshore&nbsp;jurisdictions&nbsp;like Singapore or Luxembourg for India-focused strategies.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Fund Setup and Management Efficiency &#8239;&nbsp;<\/h3>\n\n\n\n<p>Setting up a GIFT City AIF is notably faster and more efficient than onshore counterparts, often completing registration within 30-45 days via IFSCA&rsquo;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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Investment Strategies and Portfolio Flexibility&nbsp;&nbsp;<\/h3>\n\n\n\n<p>GIFT City AIFs offer significant portfolio flexibility.&nbsp;It allows them&nbsp;to take exposure in Indian onshore assets, overseas markets, or hybrid strategies with&nbsp;very limited&nbsp;FDI\/ODI restrictions.&nbsp;&nbsp;<\/p>\n\n\n\n<ol start=\"1\">\n<li>Category I and II funds would target private equity, venture capital, infrastructure, and private credit.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<ol start=\"2\">\n<li>Category III is for hedge funds, long-short positions, and derivatives.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<p>Portfolio managers could actively change allocations across geographies and asset classes based on investor requirements and <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Market&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A market is a structured environment, either physical or virtual, where buyers and sellers convene to trade goods and services. This trading hub operates based on the principles of supply and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/market\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>market<\/a> opportunities efficiently from a tax perspective.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Cross-Border Transactions and Capital Flows&nbsp;&nbsp;<\/h3>\n\n\n\n<p>Cross-border transactions in AIFs within GIFT City will be frictionless, while there are liberalised external commercial borrowing norms and direct access to&nbsp;IFSC banking units. The funds can&nbsp;be raised in&nbsp;USD or other foreign currency from investors of any country without the <strong><a href=\"https:\/\/enterslice.com\/compliance-under-fema\">FEMA complications<\/a><\/strong> for non-residents.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Operational Partners and Governance Standards&nbsp;&nbsp;<\/h3>\n\n\n\n<p>GIFT City AIFs have&nbsp;maintained&nbsp;high&nbsp;governance&nbsp;standards: independent trustees, auditors, and custodians are typically sourced from global providers such as HSBC or Deutsche Bank&nbsp;operating&nbsp;in the IFSC. Managers are teamed up with&nbsp;IFSCA-compliant local&nbsp;administrators, valuers, and legal advisors.&nbsp;<\/p>\n\n\n\n<p>Stringent AML\/KYC systems, regular reporting, and investor protection mechanisms also&nbsp;accord&nbsp;with international best practices, ensuring clarity and risk management while building investor trust in the ecosystem.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why are GIFT City AIFs Gaining Popularity among Investors and Managers?&nbsp;<\/h2>\n\n\n\n<p>GIFT City AIFs have&nbsp;emerged&nbsp;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&rsquo;s growth.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Tax Efficiency and Neutrality Benefits &#8239;&#8239;&nbsp;<\/h3>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Ease of Access for Global Capital&nbsp;<\/h3>\n\n\n\n<p>Foreign investors&nbsp;participate&nbsp;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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Regulatory Clarity and Faster Approvals&nbsp;<\/h3>\n\n\n\n<p>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&nbsp;entry. Predictable rules, templates pre-approved, and dedicated relationship managers reduce uncertainty and allow managers to bring strategies to the market with confidence.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Recognition by Institutional Investors&nbsp;&nbsp;<\/h3>\n\n\n\n<p>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&rsquo;s credibility as India&rsquo;s preferred offshore-onshore hub.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Three&nbsp;Types of Funds&nbsp;Available in GIFT City&nbsp;&nbsp;<\/h2>\n\n\n\n<p>The GIFT City&nbsp;proposes fund structures&nbsp;similar to&nbsp;global hubs under the IFSCA (Fund Management) Regulations, 2025, including Category I, II, and III AIFs for restricted schemes, and retail schemes&nbsp;comprising&nbsp;mutual funds and feeder funds investing in ETFs for private, hedge, and broader retail strategies.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Category I and II AIFs: Focus on Private Equity, Venture Capital, and Private Credit&nbsp;&nbsp;<\/h3>\n\n\n\n<p>Category I and II AIFs in GIFT City are, by and large, close-ended&nbsp;restricted schemes for sophisticated investors.&nbsp;&nbsp;<\/p>\n\n\n\n<ol start=\"1\">\n<li>Category I covers socially desirable sectors of venture capital, startups, SMEs, infrastructure, and social venture funds,&nbsp;generally with&nbsp;government incentives.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<ol start=\"2\">\n<li>Category II includes private equity, private credit, distressed assets, and real estate funds with no specific incentives or leverage limits.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<p>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&nbsp;minimum&nbsp;corpus requirements and strong governance parameters.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Category III AIFs: Hedge Funds and Derivative Strategies&nbsp;<\/h3>\n\n\n\n<p>Category III AIFs are for complex,&nbsp;leveraged&nbsp;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&nbsp;desiring&nbsp;higher returns through varied strategies.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Mutual Funds, ETFs, and Other Permitted Vehicles&nbsp;<\/h3>\n\n\n\n<p>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&amp;P 500 and Nasdaq 100&nbsp;FoFs, DSP Global Equity Fund, and Tata Dynamic Equity Fund, offering Indian&nbsp;residents&rsquo;&nbsp;outbound exposure via LRS without onshore limits.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What are the&nbsp;Key Considerations for Fund Managers and Investors?&nbsp;<\/h2>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Compliance and Regulatory Requirements&nbsp;<\/h3>\n\n\n\n<p>Look for the compliance and regulatory requirements given below:&nbsp;&nbsp;<\/p>\n\n\n\n<ul>\n<li>Appoint at least two Indian-resident Key Managerial Personnel with requisite experience.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Retain sponsor commitment: minimum 5% of corpus or USD 750,000&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Adhere to IFSCA&rsquo;s fit-and-proper criteria for sponsor and manager.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Implement efficient AML\/KYC frameworks based on FATF standards.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>File periodic reports on investments, valuations, and investor disclosures&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Engage IFSCA-approved custodians,&nbsp;administrators&nbsp;and auditors.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Comply with&nbsp;leverage limits, especially for Category III funds.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Ensure investor eligibility &ndash; only sophisticated investors for restricted schemes.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Tax Implications Across Jurisdictions&nbsp;<\/h3>\n\n\n\n<p>Follow current governance practices, including independent board oversight\/trustee oversight. Taxation in GIFT City is&nbsp;very attractive&nbsp;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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Risk Assessment: Market, Credit, and Liquidity&nbsp;<\/h3>\n\n\n\n<p>Despite these structural efficiencies, fundamental portfolio risks&nbsp;remain&nbsp;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&nbsp;required.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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&nbsp;and startups, adds to macro sensitivity. Managers need to stress-test portfolios and&nbsp;maintain&nbsp;sufficient diversification and contingency plans.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Due Diligence Best Practices&nbsp;<\/h3>\n\n\n\n<p>Extensive due diligence on the fund manager&rsquo;s&nbsp;track record,&nbsp;expertise&nbsp;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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>Analysis of underlying assets with respect to valuation&nbsp;methodology&nbsp;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.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Future Outlook&nbsp;and Projections for GIFT City AIFs&nbsp;<\/h2>\n\n\n\n<p>The GIFT City AIF ecosystem is bound to&nbsp;witness&nbsp;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&rsquo;s progressive reforms and global investor appetite, especially in Category III funds. This will further&nbsp;establish&nbsp;India as a key fund management hub along with Singapore.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Growth Trends and Policy Reforms for Gift City AIF&nbsp;<\/h2>\n\n\n\n<p>GIFT City&rsquo;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&nbsp;in&nbsp;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.&nbsp;<\/p>\n\n\n\n<p>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&rsquo;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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<p>October 2025 amendments further relaxed the compliance burden by introducing co-investment SPVs, granting recognition to FIFs under AIF categories, and providing clarification&nbsp;regarding&nbsp;Pari&nbsp;passu investor rights. Budget 2025 relaxed conditions under Section 9A for funds managed from IFSC, exempted MNC treasury centres from&nbsp;deemed&nbsp;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.&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Challenges and Opportunities Ahead&nbsp;<\/h2>\n\n\n\n<p>Despite robust growth, GIFT City AIFs face challenges that may&nbsp;impact&nbsp;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&nbsp;regarding&nbsp;ODI versus OPI distinctions, which have stalled outbound flows for SFOs and created workarounds for multi-family pooling.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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.&nbsp;<\/p>\n\n\n\n<p>Conversely, opportunities abound. Third-party management rules open doors for global giants like Blackstone to outsource, enhancing GIFT&rsquo;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&rsquo;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.&nbsp;&nbsp;<\/p>\n\n\n\n<p>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&rsquo;s global financial ascent.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Wrapping Up&nbsp;<\/h2>\n\n\n\n<p>GIFT City AIFs&nbsp;represent&nbsp;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&nbsp;indicate&nbsp;that commitments will blow past USD 100 billion by 2030, driven by ongoing reforms and institutional endorsement.&nbsp;&nbsp;<\/p>\n\n\n\n<p>For fund managers and investors&nbsp;seeking&nbsp;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.&nbsp;<\/p>\n\n\n\n<p>To get expert&nbsp;assistance&nbsp;in registering an AIF in Gift City, talk to our experts at&nbsp;<a href=\"https:\/\/enterslice.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Enterslice<\/strong><\/a>.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions&nbsp;About GIFT City AIF Structure<\/h2>\n\n\n<div class=\"saswp-faq-block-section\"><ol style=\"list-style-type:none\"><li style=\"list-style-type: none\"><h3>What is AIF in the GIFT City?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">AIFs&nbsp;established&nbsp;in the Gift City provide exposure to a variety of asset classes, including real estate, venture capital investments, debt instruments, stocks, and private equity.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>What is an AIF structure?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">An alternative investment fund (AIF) is a kind of group investment in which&nbsp;a number of&nbsp;participants contribute money with the intention of investing it in line with a predetermined investment philosophy.<\/p><\/li><li style=\"list-style-type: none\"><h3>What is the structure of AIF in India?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">Trust, Company, Limited Liability Partnership, and Body corporate are among the asset classes that AIFs are commonly utilised to invest in.&#8239; Under the SEBI (Alternative Investment Funds) Regulations, the Securities and Exchange Board of India (SEBI) first proposed the idea of AIFs in 2012.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>What are the three types of AIF?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">According to SEBI, Alternative Investment Funds (AIFs) in India fall into three main categories: Category I (growth-oriented, such as Venture Capital &amp; Infrastructure), Category II (wide range, no leverage, such as Private Equity &amp; Debt), and Category III (complex strategies, using leverage, such as Hedge Funds). Each of these categories targets distinct investment&nbsp;objectives&nbsp;and risk profiles.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>&#8239;Can GIFT AIF take leverage?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">Category I and Category II AIFs are prohibited from borrowing or using any kind of leverage per the SEBI AIF regulations.&#8239; 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.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>What are the 4 types of investment funds?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">The four main categories of investing options are equities, bonds, mutual funds, and exchange-traded funds, or ETFs.&#8239; 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.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>&#8239;What is the minimum capital in an AIF?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">With a minimum investment of &#8377;1 crore, AIFs are intended for sophisticated investors who want to&nbsp;participate&nbsp;in complicated strategies, derivatives, and unlisted shares.&#8239; Mutual funds, which are carefully regulated to invest mostly in listed securities with minimal risk and good liquidity, are intended for retail investors (minimum &#8377;500).&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>&#8239;What is a unified structure in AIF?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">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.&nbsp;<\/p><\/li><li style=\"list-style-type: none\"><h3>What is the maximum allowed limit under the AIF scheme?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">Depending on the kind of investor, Alternative Investment Funds (AIFs) have different investment caps.&#8239; 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&nbsp;REs.&#8239; The minimum investment for private investors is typically &#8377;1 crore, while for AIF employees, directors, or managers, it is &#8377;25 lakh, with no higher limit<\/p><\/li><li style=\"list-style-type: none\"><h3>&#8239;What are the risks of AIF?&nbsp;<\/h3><p class=\"saswp-faq-answer-text\">&#8239;Investing in an Alternative Investment Fund (AIF) entails&nbsp;a number of&nbsp;risks, such as market timing risk when&nbsp;attempting&nbsp;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.&nbsp;<\/p><\/li><\/ol><\/div>\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India&rsquo;s GIFT City is widely recognised as the country&rsquo;s pioneering International Financial Services Centre (IFSC).&#8239; It is rapidly revolutionising cross-border fund management through its innovative AIF (Alternative Investment Funds).&nbsp;&nbsp; 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 [&hellip;]<\/p>\n","protected":false},"author":56,"featured_media":89796,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1485],"tags":[1487,12323],"acf":{"service_id":"199"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Comprehensive Guide to GIFT City AIF Structure in India<\/title>\n<meta name=\"description\" content=\"Explore the GIFT City AIF structure, its functioning, benefits, and rising popularity among investors seeking growth and compliance in India.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/comprehensive-guide-gift-city-aif-structure\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Comprehensive Guide to GIFT City AIF Structure in India\" \/>\n<meta property=\"og:description\" content=\"Explore the GIFT City AIF structure, its functioning, benefits, and rising popularity among investors seeking growth and compliance in India.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/comprehensive-guide-gift-city-aif-structure\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2025-12-17T07:28:18+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-12-17T07:28:22+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2025\/12\/Comprehensive-Guide-to-GIFT-City-AIF-Structure-Functioning-Benefits-Rising-Popularity.webp\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Margesh Rai","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2024\/03\/margesh.kumar_.rai_.png","authorDescription":"Margesh Kumar Rai is a passionate and versatile content writer with 6+ years of combined experience as a content writer and content moderator in BFSI, Fintech, Growth Advisory, Business Valuation, Debt Recovery, etc. His interest in the field of startup consulting and compliance support pulled him into the space of legal fintech research.","postViews":343,"readingTime":13,"nextPost":{"id":89798,"slug":"how-mergers-acquisitions-advisory-services-ensure-deal-success"},"prevPost":{"id":89785,"slug":"trademark-registration-oman"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2025\/12\/Comprehensive-Guide-to-GIFT-City-AIF-Structure-Functioning-Benefits-Rising-Popularity.webp","postTerms":"AIF Registration","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/89793"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/56"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=89793"}],"version-history":[{"count":3,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/89793\/revisions"}],"predecessor-version":[{"id":89797,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/89793\/revisions\/89797"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/89796"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=89793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=89793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=89793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}