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The Securities and Exchange Board of India (SEBI) has recently introduced a significant regulatory update that allows Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to own up to 100% of global funds based at GIFT City.
This landmark decision is poised to reshape the investment landscape for the Indian diaspora and bolster the financial ecosystem within India's burgeoning International Financial Services Centre (IFSC).
Let’s begin with the basics first.
What are Global Funds based at GIFT City?
A global fund is a type of mutual fund or ETF that casts its net wide, investing in companies located anywhere in the world—including the investor’s own country.
Its goal? To scout out the best investment opportunities from a vast global pool of securities. Therefore, a global fund may be focused on a single asset class or allocated to multiple asset classes - depending on investment objectives.
Now, let’s understand what these new rules are and how they will affect NRIs and OCIs.
Breaking Down the New Ownership Rules
- Previously, NRIs and OCIs were restricted to owning no more than 50% of any foreign portfolio investor (FPI).
- With the new regulations, they can now fully own global funds at GIFT City, provided they comply with specific documentation requirements, such as submitting copies of their PAN cards and disclosing their economic interests in these FPIs.
- This change is expected to streamline investment processes and invite more substantial financial inflows from overseas Indians into the domestic market.
Increased Exposure Limits for Passive Funds
- Alongside the adjustments for NRIs and OCIs, SEBI has also revised investment caps for passive funds.
- Mutual funds, particularly ETFs, can now invest up to 35% of their net asset value (NAV) in the sponsor's group companies, up from the previous 25% limit.
- This adjustment helps funds better replicate their underlying indexes, especially when group companies constitute a significant portion of these indexes.
Other Investment Avenues That Exist for NRIs at GIFT City
NRIs have the opportunity to explore a diverse array of investment options within GIFT City, including:
- Offshore Deposits: NRIs can establish offshore accounts in GIFT City and deposit funds in various currencies, earning competitive interest rates.
- Foreign Currency Term Deposits: NRIs can opt for foreign currency term deposits, committing their investments for a fixed duration and receiving consistent returns.
- Global Equities and Bonds: GIFT City provides access to a broad spectrum of global equities and bonds, enabling NRIs to diversify their investment portfolios with international assets.
- 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.
- Real Estate Investment Trusts (REITs): NRIs can invest in REITs listed on the GIFT City IFSC exchange, allowing them to participate in the Indian real estate market without the complexities of direct property ownership.
Looking Ahead: The Impact on the Financial Sector
The ability for NRIs and OCIs to fully own global funds at GIFT City marks a pivotal development in India's financial services sector. It not only facilitates easier access to domestic equities for the Indian diaspora but also strengthens GIFT City's position as a competitive international financial hub. As these changes unfold, they are expected to attract more investors, enhance market liquidity, and contribute to a more vibrant and diverse financial ecosystem in India.
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