How NRIs Can Invest in India Choosing the Right Path
In our last article, we discussed why India is becoming a preferred investment destination for NRIs. With a growing economy, evolving financial markets, and supportive policies, it offers a strong platform for wealth creation. The next important step is understanding how to invest in India.
There are two main investment routes available: the Traditional Route and the GIFT City Route (Gujarat International Finance Tec-City). Each route has its own advantages, and choosing the right one depends on your financial goals and preferences. Understanding these options will help NRIs make informed decisions and invest with confidence.
There are two main investment routes available: the Traditional Route and the GIFT City Route (Gujarat International Finance Tec-City). Each route has its own advantages, and choosing the right one depends on your financial goals and preferences. Understanding these options will help NRIs make informed decisions and invest with confidence.
WHO CAN INVEST?
Resident Indians (RIs) can invest in India only through the Traditional Route, whereas Non-Resident Indians (NRIs) have the flexibility to invest via both the Traditional Route and the GIFT City Route. However, NRIs from the US and Canada may face specific regulatory conditions. Meanwhile, Foreign Investors (non-Indians) can invest exclusively through the GIFT City Route, making it a strategic entry point for global capital.
Understanding The Investment Routes
GIFT City Route - A Global Investment Gateway
The GIFT City Route is specifically designed for non-resident investors, offering a seamless investment avenue in USD without the complexities of currency conversion. One of its most compelling advantages is the significant tax benefits, as investors are exempt from capital gains tax and all income generated remains entirely tax-free. Furthermore, this route provides full repatriation freedom, ensuring unrestricted transfer of funds back to the investor's home country. However, with a minimum investment requirement of $150,000 as of March 2025, it is primarily suited for high-net-worth individuals and institutional investors seeking a tax-efficient and globally integrated investment framework.
GIFT City Fund Structure
Majority of the investment in Indian Mutual funds via GIFT city are made through Feeder Fund structure.
A Feeder Fund is an investment vehicle that collects capital from multiple investors and channels it into a Master Fund, which is responsible for making investment decisions. This Master-Feeder structure is widely used in hedge funds, private equity, and mutual fund setups to optimize fund management and enhance investor participation. Any profits or losses from the master fund are proportionally allocated back to the feeder funds, and ultimately to investors
A Feeder Fund is an investment vehicle that collects capital from multiple investors and channels it into a Master Fund, which is responsible for making investment decisions. This Master-Feeder structure is widely used in hedge funds, private equity, and mutual fund setups to optimize fund management and enhance investor participation. Any profits or losses from the master fund are proportionally allocated back to the feeder funds, and ultimately to investors
Advantages of the Feeder Fund Structure
- Efficient Asset Management: Centralizing investments in a master fund reduces duplication of efforts and improves portfolio management.
- Global Investment Access: Investors gain exposure to international markets through a structured and compliant route.
- Economies of Scale: Pooling capital in a master fund reduces transaction costs and enhances operational efficiency.
- Flexibility for Investors: Feeder funds can be setup for various investor types based on risk appetite, currency preference, and taxation considerations.
Traditional Route - The Standard Investment Approach
The Traditional Route is accessible to both Resident Indians and NRIs. Unlike the GIFT City Route, investments here are INR-denominated, and NRIs must invest via NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts, as regular savings accounts are not permitted for investment purposes. Taxation plays a critical role in this route, with capital gains tax applicable and TDS (Tax Deducted at Source) levied at the rates in force upon redemption. However, investors can claim TDS credits while filing their tax returns. Unlike the GIFT City Route, this option has no minimum investment requirement, making it more inclusive and accessible to a wider range of investors.
Taxation on Indian investments via traditional route for a Non-Resident Indian Investor
For NRI investors, all applicable taxes are deducted at source by the AMC at the time of redemption, whether it is through a Switch, SWP, STP, or a direct redemption. The tax rates applied are the same as those applicable to Resident Indian investors.
| Transaction Type | Short term TDS | Long term TDS |
|---|---|---|
| Selling of listed assets (stocks, Bonds, REITS, etc.) | 20% | 12.5% |
| Selling of equity mutual funds | 20% | 12.5% |
| Selling of debt-oriented Mutual Funds | 30% | 30% |
| Selling of unlisted stocks/foreign equity/debt | 30% | 12.5% |
| Selling of physical gold | 30% | 12.5% |
| Selling of real estate | 30% | 12.5% |
| Rental Income | 30% | 30% |
Comparing The Two Routes
Both investment routes cater to distinct investor profiles and offer unique benefits. The GIFT City Route is ideal for those seeking tax-free income, repatriation flexibility, and USD-based investments, whereas the Traditional Route remains the preferred choice for Resident Indians and NRIs looking for INR-denominated investments with no minimum entry barrier.
| Feature | GIFT City Route | Traditional Route |
|---|---|---|
| Who can invest? | NIRS (US/Canada NRIs) & Foreign Investors | NIRS (US/Canada NRIs) & Indian Residents |
| Resident Indians Allowed? | No | Yes |
| Currency of investment | USD | INR |
| Capital Gains Tax | No | Yes |
| Other Tax Benefits | Entire Income is Tax Free | TDS deducted at rates in force |
| Minimum investment size | $150,000 | No minimum limit |
| Repatriations Restrictions | None | Some Restrictions |
| Bank account requirement | No Specific account required | NRI investors must use NRE/NRO accounts |
Conclusion
Selecting the appropriate investment route depends on an investor's residency status, financial goals, and tax considerations. The GIFT City Route presents substantial tax advantages and operational flexibility but comes with a higher entry requirement. On the other hand, the Traditional Route remains a versatile and widely accessible option. A clear understanding of these routes is essential for leveraging India's evolving investment landscape effectively.