Risks of GIFT City Funds: What to Know Before You Invest
By Anup Vatyani, AMFI-registered MFD (ARN 106715) · Last reviewed October 2026
The short answer. GIFT City funds are regulated, but they are not risk-free. They carry the same market risk as any fund, plus risks that come from investing in foreign currency, through a newer framework, at a higher minimum. Knowing these before you invest is more useful than any list of benefits.
The eight risks to understand
1. Market risk
A GIFT City fund holds shares, bonds or other funds, and its value rises and falls with them. Registration in the IFSC does not protect you from a falling market. Returns are not guaranteed.
2. Currency risk
Most GIFT City funds are in US Dollars. If your spending is in rupees, your result depends on the exchange rate as well as on the fund. A stronger rupee reduces the rupee value of a dollar investment; a weaker rupee increases it.
3. Liquidity and exit terms
Some structures, particularly AIFs, have lock-ins, notice periods or exit loads. Redemption can take longer than with a domestic open-ended mutual fund. Read the exit terms before you invest, not when you need the money.
4. High minimum investment
Entry tickets are far larger than for domestic mutual funds, which can concentrate a lot of your money in one fund. A large minimum is not a reason to invest more than suits your overall portfolio.
5. Tax complexity
Tax depends on the fund structure, the direction of the fund and your country of residence. US-based investors face PFIC rules that can change the outcome sharply. Tax rules also change over time.
6. Regulatory change
The IFSC framework is still developing. IFSCA revises its regulations, and rules on remittances and tax collection are set by other authorities. A change can affect eligibility, costs or reporting.
7. Limited track record
Many GIFT City funds were launched recently. There may be only a short history to judge the fund or the Fund Management Entity's IFSC operations on.
8. Costs
Management fees, operating expenses, exit loads and bank charges on international transfers all reduce your return. Feeder funds also bear the costs of the fund they invest in.
Questions to ask before you invest
- Is the Fund Management Entity registered with IFSCA, and under which category?
- What does the fund actually hold, and in which markets?
- What are the lock-in, notice period and exit load?
- What are the total annual costs, including those of any underlying fund?
- How will this be taxed in my country of residence, and what must I report?
- How much of my total portfolio would this one investment be?
For how the structures differ, see GIFT City fund categories. For tax, see Regulation and Taxation. To compare with rupee funds, see GIFT City funds vs regular mutual funds.
Common questions
Are GIFT City funds safe?
GIFT City funds are regulated by IFSCA, and their Fund Management Entities must be registered. Regulation governs how a fund is run and disclosed. It does not guarantee returns or protect against market losses, so safety depends on the specific fund, its manager and what it holds.
Can I lose money in a GIFT City fund?
Yes. These are market-linked investments. You can lose part of your capital through market falls, currency movements or costs.
How can I check that a fund manager is genuine?
Look the Fund Management Entity up in the IFSCA Directory of regulated entities, and read the fund's offer document for its registration details.
Official sources
Rules change. Check the current position with the authority that sets it.
- IFSCA — International Financial Services Centres Authority — The regulator for all financial services in GIFT IFSC.
- IFSCA Directory of regulated entities — Check that a Fund Management Entity is registered.
- RBI — FAQs on the Liberalised Remittance Scheme — The annual limit and permitted purposes for resident Indians.
- IRS — About Form 8621 (PFIC reporting) — US reporting for shareholders of passive foreign investment companies.
This page is educational and is not investment or tax advice. Investments are subject to market risks; read all scheme-related documents carefully.