Fund-of-Funds (FoF) Ecosystem in GIFT IFSC: Global Capital’s Gateway into India

GIFT IFSC (Gujarat International Finance Tec-City International Financial Services Centre) is rapidly evolving into a premier global fund jurisdiction—offering the regulatory finesse of international financial centers while inherently based in India. By treating IFSC-domiciled entities as non-resident for exchange control and tax purposes, GIFT IFSC has enabled foreign investors to route capital into Indian markets through familiar offshore structures, but with onshore benefits.

This Fund of Funds (FoF) ecosystem aligns with India’s strategic vision to reduce financial leakage into offshore havens and retain higher value-add in its economy. For global investors, it provides an efficient, transparent, and tax-efficient conduit into Indian assets.

Growth Trajectory: A Flourishing Hub

• Rapid expansion in scale
  As of December 31, 2024, over 200 funds including multiple Fund of Funds (FoF) structures had registered in GIFT IFSC, with combined commitments exceeding US $15 billion—up from US $8.41 billion at March 2024 (an 87% YoY increase) . Of that, US $8.08 billion had already been deployed into Indian markets via SEBI-regulated vehicles.
• Diverse fund types
  Both Category I & II AIFs (e.g., venture capital, private equity) and Category III (hedge, quant, hybrid) fund types are represented—reflecting the breadth of investor appetite, with FoF frameworks gaining increasing traction.
• Growing fund base
  By early 2025, 229 funds were domiciled in GIFT IFSC, a leap from merely 70 in mid-2023. Asset management dominates IFSC activity—with nearly half of all registered entities involved in fund management or fund vehicles, including Fund of Funds managers.

Fund-of-Funds and Feeder Structures: The Strategic Bridge

• Feeder funds defined
  At its core, a feeder fund in GIFT IFSC pools funds from overseas investors, then invests into Indian assets—typically through SEBI-licensed mutual funds or AIFs. This dual-layer approach , common in FoF arrangements, enables global capital to access Indian opportunities via an offshore-segmented entity.
• Regulatory clarity & flexibility
  The IFSCA Fund Management Regulations explicitly accommodate fund-of-funds structures, and recent amendments (2025) have eased their operational constraints. IFSC funds can invest directly as FPIs or indirectly into Indian fund structures, with a streamlined compliance model.
• Tax advantages for investors
  IFSC-domiciled feeders enjoy tax-neutrality on capital gains and distributions; profits from mutual fund units and securities are exempt. Moreover, funds receive a 100% tax holiday for 10 years, with concessional withholding on distributions (10%) and GST waiver on fund services—making returns more attractive than traditional offshore domiciles.
• NRI/OCI investor support
  GIFT IFSC removes caps on NRI/OCI ownership (unlike domestic structures capped at 50%), and investors are exempt from requiring PAN cards or filing Indian tax returns if their only Indian income stems from the IFSC fund.

Exemplars and Capital Flow Dynamics

• Relocations from offshore jurisdictions
  • Alchemy India Long Term Fund: The first fund to relocate from Mauritius (May 2023), marking a precedent for onshore fund domicile migration.
  • Mirae Asset India Midcap Equity Fund and Artha Global Opportunities Fund also shifted to GIFT IFSC, reinforcing confidence in GIFT as a viable domicile for India-centric funds, including Fund of Funds models.

• Large-scale feeder launches
  • Kotak Strategic Situations Fund II (Category II AIF) set up in GIFT IFSC with a $1.6 billion target, raised $1.25 billion in first close from global LPs.
  • Majority of the capital deployed via GIFT-based funds has flowed into Indian venture, credit, and infrastructure assets.

• Retail and outbound innovation
  • DSP’s Global Equity Fund—India’s first retail offshore fund in GIFT—allows domestic investors to invest globally using LRS, bypassing SEBI limits.
  • Multiple outbound funds and FoF platforms now operate from GIFT IFSC, serving the growing need for Indian investor access to global assets.

Competitive Advantages: Why GIFT Stands Out

These advantages are prompting a shift from traditional offshore hubs. For example, one regulator from Mauritius is reportedly considering a presence in GIFT to stay relevant to the Indian capital flow.

Broader Impact: Stakeholder Benefits

• Global Investors: Access India via a sophisticated Fund of Funds gateway offering regulatory assurance, local market exposure, and tax optimization.
• Domestic Fund Managers (Sponsors): Launch feeder vehicles without foreign setup, enabling global LP reach with onshore operations; increased fundraising flexibility and product innovation.
• Policy Makers: Enhance financial center credentials; retain financial services within India; improve capital flow visibility and governance.
• IFSC Professionals: Expanding ecosystem of FMEs, fund services, custodians, audit/CA/CS firms supports GIFT’s growing critical mass.
• Indian Markets: Capital inflows via regulated Fund of Funds routes bolster growth, transparency, and efficiency in AIFs and primary/debt markets.

Challenges and Regulatory Refinements

• Substance requirements
  The mandate for two resident fund managers may deter purely offshore wizardry, but enhances credibility and employment for FoF structures.
• Tax credit handling
  Certain AIF distributions still require investors to manage Indian tax credits—a complexity compared with traditional offshore models.
• Relocation friction
  Regulatory approvals across jurisdictions (Mauritius, Cayman, etc.) can delay fund moves; many prefer launching new GIFT-based vehicles instead.
• Ongoing regulatory evolution
  IFSCA’s 2025 “FM Regulations 2.0” introduced easier fund size requirements, fund-of-fund relaxations, and simplified qualification norms. Proposal for a Variable Capital Company (VCC) structure—allowing flexible capital movement—is under consideration, potentially enhancing GIFT’s investor appeal further.

Conclusion: A Compelling Ecosystem with Momentum

GIFT IFSC’s fund-of-funds (FoF) ecosystem is not just growing—it’s redefining how global capital accesses Indian markets. By merging offshore flexibility with onshore governance and incentives, GIFT offers a unique value proposition for investors, fund managers, and policymakers alike. Over 200 feeders and FoF-based alternative funds are now domiciled in GIFT, channeling billions into Indian AIFs and markets.

Its appeal lies in intelligent structuring, tax efficiency, operational convenience, and increasing international confidence. As the regulatory environment keeps evolving—with proposals like VCCs and further ease of business—the Fund of Funds framework is poised to mature rapidly. GIFT IFSC is on track to become India’s flagship financial center—a magnet for capital, talent, and innovation in the global fund landscape.