GIFT City Fund of Funds: How Feeder Structures Really Work

Open the factsheet of a GIFT City fund and you will often find that it owns very few things. Sometimes it owns one thing: units of another fund. The scheme you bought in dollars at Gandhinagar is a wrapper, and the shares that drive your return sit one level below, in a mutual fund in Mumbai or an ETF listed abroad.

This is deliberate. A fund house that already runs a large Indian equity scheme does not want to rebuild the portfolio in a second vehicle, and one that wants to offer the S&P 500 need not buy 500 shares when a low-cost ETF already holds them. The cheapest route is a thin vehicle in the International Financial Services Centre (IFSC) that collects money and passes it on.

Three kinds of reader meet this structure:

• NRIs and OCIs who want Indian equity exposure in dollars.
• Foreign investors and family offices who want India without registering as a foreign portfolio investor themselves.
• Resident Indians who want global exposure and are sending money under the Liberalised Remittance Scheme (LRS).

They buy the same kind of product, but the money flows in opposite directions and the tax result differs. This article, written as on 7 October 2026, follows the money both ways. Rules change, so take advice on your own case.

Marketing uses the two terms loosely, so it helps to pin them down.

A feeder fund collects money from investors and places almost all of it in a single other fund, called the master fund. The feeder does no stock picking. Its job is access: a different currency, jurisdiction or set of eligible investors. When several feeders in different places point to one master, the arrangement is a master-feeder structure.

A fund of funds pools capital into a portfolio of other investment funds, and its manager may shift money between them. Layered fees are its main drawback.

The regulator in GIFT City uses one term for both. Regulation 2(1)(p) of the IFSCA (Fund Management) Regulations, 2025 defines a "fund of funds scheme" as a scheme that invests in other schemes, whether in the IFSC, India or foreign jurisdictions, except to the extent of funds required for expenses, hedging or liquidity for repurchases, redemptions and distribution, as disclosed in the placement memorandum or offer document.

Two points follow. A single-master feeder is legally an IFSC fund of funds scheme, because the definition does not ask how many underlying schemes there are. And the scheme must be almost fully invested in other schemes.

Feeder vehicles in GIFT City are recent, as the dates show.

• April 2022. IFSCA notified its first consolidated fund rules, the IFSCA (Fund Management) Regulations, 2022.
• 27 June 2024. SEBI allowed NRIs, OCIs and resident Indian individuals to contribute up to 100% of the corpus of a foreign portfolio investor based in the IFSC, subject to conditions.
• 10 July 2024. RBI widened LRS so that resident individuals could remit money to an IFSC for any financial service or product covered by the IFSCA Act. LRS applies to residents only.
• February 2025. The 2025 regulations replaced the 2022 regulations. IFSCA's press release of 19 February 2025 said fund of funds schemes had been given several carve-outs "to facilitate creation and operation of feeder vehicles in IFSC in a cost-effective manner".
• 2025 and 2026. Fund houses launched the first feeders and retail schemes, and minimums fell to USD 500 in some of them.
• 10 September 2026. The Second Amendment Regulations, 2026 revised several provisos that apply to fund of funds schemes.

So the rules in force are the 2025 regulations as amended up to 10 September 2026. Guides that still cite the 2022 regulations are out of date.

The market has grown alongside. IFSCA's funds brochure of February 2026 counts 313 schemes, USD 32.13 billion of commitments and 6,721 investors at the end of December 2025. Among individual investors, 51% were NRIs or OCIs and 45% were residents.

An inbound feeder fund collects foreign currency from people outside India and puts it to work in Indian assets.

1. The investor remits dollars from an overseas or repatriable account to the fund's bank account in the IFSC.
2. The GIFT City feeder fund issues dollar-denominated units at its net asset value.
3. The feeder converts dollars to rupees and buys units of the master: an Indian mutual fund scheme, an ETF or another fund.
4. The master buys Indian shares or bonds.
5. On redemption the chain runs in reverse and the investor receives dollars.

The feeder fund reaches Indian markets through the routes open to foreign investors, most commonly a SEBI foreign portfolio investor registration held by the fund. The investor does not need one.

SEBI's circular of 27 June 2024 makes an NRI-only feeder possible. A fund regulated by IFSCA may have up to 100% NRI, OCI and resident individual contribution on one of two routes. Either it gives its designated depository participant the PAN details of every such investor, or it qualifies as a pooled vehicle: a common portfolio, at least 20 investors with none above 25%, no more than 20% of the corpus in one Indian listed company, and an independent manager that is the asset management company of a bank-sponsored mutual fund or its IFSC arm.

These examples come from press reports and are not recommendations.

• Nippon India Large Cap Fund GIFT (reported 10 January 2025). A feeder into the onshore Nippon India Large Cap Fund.
• Nippon India ETF Nifty 50 BeES GIFT (reported 11 February 2025). A feeder into the onshore Nifty 50 ETF. A Japanese fund, the Nissay India Equity Fund, feeds into the GIFT fund, which makes a three-level chain.
• Tata India Dynamic Equity Fund — GIFT IFSC (approval reported 17 September 2025). A retail-oriented inbound feeder investing in mutual fund equity schemes and ETFs, with a USD 500 minimum. It allocates across several schemes, so it behaves like a fund of funds.
• The Wealth Company IFSC FoF (reported 11 August 2026). An open-ended Category III AIF that invests in Indian mutual funds and ETFs chosen by its manager. Resident Indians cannot invest, and residents of the US and Canada are currently excluded.

The first two are pure feeders. The last two choose among funds, so their managers add a decision, and a fee, of their own.

The outbound fund runs the other way. It takes money from residents of India and invests it abroad.

1. A resident individual instructs an authorised dealer bank to remit money under LRS, within USD 250,000 per financial year.
2. The bank converts rupees to dollars and sends them to the fund in the IFSC. Tax collected at source of 20% applies to investment remittances above Rs 10 lakh in a year and can be claimed as a credit.
3. The fund issues dollar units and buys overseas ETFs or funds, or in some cases foreign shares directly.
4. Redemption proceeds come back in dollars to the investor's bank.

Why does this route exist when domestic mutual funds offer international schemes? Because those schemes are rationed. Business Standard reported in December 2025 that domestic mutual funds work under an industry ceiling of USD 7 billion for overseas investment and a separate USD 1 billion for overseas ETFs, which forced several schemes to stop taking fresh money. GIFT City funds are outside those limits.

• Parag Parikh IFSC S&P 500 Fund of Fund and Nasdaq 100 Fund of Fund. Both invest in ETFs and UCITS funds linked to their index. Business Today reported that the minimum initial investment was cut from USD 5,000 to USD 500 with effect from 25 August 2026.
• DSP Global Equity Fund. A retail fund for residents that buys overseas shares directly, so it is an outbound fund but not a feeder. Its public tax FAQ makes it a useful comparison.
• Others. Business Standard counted five outbound retail funds from four fund houses as of July 2026.

A feeder fund is a strategy, and it can be filed under more than one category in the 2025 regulations. The category decides who may invest and how much.

Accredited investors are exempt from the minimums in the first two categories, and two close relatives may invest jointly to reach USD 150,000 in a restricted scheme.

Three practical points:

• The USD 500 and USD 5,000 minimums on retail schemes are set by fund houses. An adviser quoted by Business Standard in July 2026 noted that there is "no regulatory minimum".
• The USD 75,000 figure in some guides is the minimum for portfolio management services in the IFSC. A Category III AIF remains at USD 150,000 under the restricted scheme rules.
• Every scheme needs a minimum size of USD 3 million. An open-ended scheme may begin investing at USD 1 million and must reach USD 3 million within 12 months.

A feeder fund that duplicated every safeguard of its master would cost too much to run, so the regulations let a fund of funds scheme rely on the underlying fund in defined cases.

• Custodian. Regulation 132 requires an independent custodian, but not for fund of funds schemes whose underlying schemes have appointed independent custodians.
• Valuation. A second independent valuation is not needed where the underlying schemes are regulated and independently valued.
• Concentration limits. A retail scheme may not put more than 10% in one company or 25% in one sector. A fund of funds may invest in schemes that meet the limits, and since September 2026 the sector cap does not apply where the underlying schemes are regulated and offered to retail investors in their home jurisdiction.
• Related-party limit. A retail scheme may not invest more than 25% of its assets in an associate. This does not apply to a fund of funds whose offer document discloses the underlying schemes and its association with their managers. That is what lets a fund house's GIFT feeder invest wholly in the same group's onshore scheme.
• Manager's own money. A retail manager normally invests 1% of the scheme's assets or USD 200,000, whichever is lower. This is not mandatory for a passive fund of funds that discloses its allocation.

Each relaxation shifts reliance to the master. The safeguards you depend on sit one level below, which is a reason to read the master's documents as carefully as the feeder's.

The structure exists because it solves real problems.

• One holding instead of many. An NRI who buys a fund of funds leaves scheme selection to the manager. The Wealth Company's product head put the problem as "more than 1,600 schemes to choose from".
• No registration of your own. The fund holds the licences needed to invest in India or abroad. The investor completes one KYC.
• Dollar in, dollar out. Units are usually denominated in US dollars, so an investor with dollar income deals in one currency.
• Access that domestic funds cannot give residents. GIFT City schemes sit outside the overseas ceiling that rations international mutual fund schemes.
• Lower entry tickets. Retail feeders have brought the minimum down to USD 500 in some schemes, against USD 150,000 for a restricted scheme.
• Tax handled inside the fund. Outbound trusts pay the tax themselves and withhold nothing on redemption. For non-residents in a qualifying inbound fund, income from the fund is excluded from Indian tax.
• An Indian regulator. The fund is supervised by IFSCA, and since 26 August 2026 every fund management entity must keep a public website or webpage showing its registration details.

Business Standard also reports daily NAV, fully digital onboarding and distribution through wealth platforms for these funds.

A feeder hides its substance one level down, and that is exactly where most comparisons stop. PMS Sahi Hai is built for the step that comes after you understand the structure: putting strategies next to each other and asking hard questions about each one.

First, the limits. PMS Sahi Hai has no dedicated page or filter for feeder funds, and its site does not publish the underlying scheme or the combined cost of any GIFT City fund of funds. You still need the offer document for those. What the platform does offer is this:

• One shelf for three product classes. The compare page describes itself as "every PMS, AIF & GIFT City strategy, on one shelf". You can filter by product class and fund house and shortlist up to four strategies side by side.
• Nyra, a research tool that cites its sources. The site describes Nyra as an AI tool "grounded only in SEBI, AMC and IFSCA primary sources" that links every claim to a public document. Its about page lists hidden-fee surfacing, overlap detection and post-tax drag among the things it looks at. Those are the same three questions a feeder fund raises.
• NRI context in one place. The GIFT City page for NRIs compares the IFSC route with the mainland route leg by leg, and separate pages cover DTAA by country and PFIC rules for US and Canada investors.

A practical way to use it: take the three facts this article keeps returning to, the master, the total cost and the tax regime, and put them to Nyra as questions about a strategy you are considering. Ask it to show the source for each answer. If a number has no source, the site says Nyra will decline to state it, which tells you where to go back to the fund house.

Two caveats from the site itself. Nyra is "an analytical tool, not a SEBI-registered Investment Adviser", and its output is informational and not personalised advice. And PMS Sahi Hai is an APMI-registered distributor, so treat it as a place to research and compare, and take tax advice separately.

Every fund of funds has two cost layers. Business Standard states it in one sentence: "GIFT City funds involve two levels of expenses: the fee charged by the feeder fund and the cost of the underlying fund or ETF."

What the investor needs is the sum. A simple illustration, with invented numbers:

Reported ranges are in the same region. Business Standard's cost box in December 2025 put passive or feeder-style funds at 0.30–0.80% and active global equity funds at 1–2.5%.

Four things to know about cost:

• Disclosure is required; a cap is not. Regulation 128 says all fees and expenses must be identified separately for each scheme, the maximum disclosed, and each expense shown as a separate line item. The regulations as amended to 10 September 2026 contain no ceiling on the expense ratio that we could find. The discipline is disclosure, so the reading is your job.
• Check whether the quoted figure includes the master. A headline expense ratio may cover the wrapper alone. Find the cost of the underlying scheme and add it.
• Same-group feeders deserve a second look. When feeder and master belong to one fund house, ask whether the group earns a fee at both levels and which plan of the master the feeder buys.
• Costs outside the expense ratio. Residents pay a forex spread and bank charges on every LRS remittance. One adviser told Business Standard the spread is usually the biggest cost. Tax paid inside the fund is a further drag.

Tax is where the two directions differ most. The Income-tax Act, 2025 applies from 1 April 2026 and has renumbered the provisions, so old and new references are both given. Take advice before relying on this map.

The key term is "specified fund". Under Schedule VI of the 2025 Act it means a Category III AIF, retail scheme or ETF located in an IFSC of which all the units are held by non-residents, other than units held by the sponsor or manager. There is a small allowance, capped at 5% of units, for unit holders who later become resident.

• Master level. A SEBI-registered Indian mutual fund is itself exempt from income tax on its portfolio income under Schedule VII.
• Feeder level. A specified fund's gains on transfer of securities other than shares in a company resident in India are not included in its income, to the extent attributable to units held by non-residents (Schedule VI, Sl. No. 2). Units of a mutual fund are securities but are not shares. This is the reading on which fund houses describe feeders into Indian mutual funds as tax-efficient. Gains on Indian shares held directly are taxed in the fund under section 210 at 12.5% to 30%, and income from securities at 10%.
• Investor level. Income a unit holder receives from a specified fund, or on transfer of its units, is not included in total income (Schedule VI, Sl. No. 9).

Fund houses use careful words here: one recent launch said its fund was "expected to qualify" as a specified fund, subject to conditions. And your country of residence may still tax the gain.

An outbound fund sold to residents cannot be a specified fund, because its units are not all held by non-residents. The retail outbound schemes are typically trusts that pay tax themselves and declare a post-tax NAV.

DSP's FAQ for its Global Equity Fund, dated September 2025, states the position plainly. The fund pays tax "at the highest applicable tax rates": 14.95% on long-term gains on overseas listed shares held 24 months, 42.74% on short-term gains and 35.88% on dividends, including surcharge and cess. Nothing is withheld on redemption, investors show the income as exempt, and they cannot set the fund's losses against other income.

For a fund of funds the tax arises when the wrapper sells units of the underlying fund, for example to meet redemptions. A wrapper that churns within 24 months pays the higher rate, and the expense ratio does not show it.

Published views differ on two points: one adviser quoted in July 2026 said gains are taxed in the investor's hands, and reports disagree on whether residents must report these units in Schedule FA. Ask the fund and your tax adviser.

Old section 10(4E) concerns derivative contracts, not fund units. A feeder fund filed as a Category I or II AIF is a pass-through, so its investors are taxed as if they held the investments themselves. Budget 2026 proposed changes to the specified fund definition, so check the current text.

The structure has costs that no brochure leads with.

• Dollar units do not remove rupee risk. An inbound feeder fund holds rupee assets. If the rupee falls against the dollar, the dollar NAV falls with it. For a resident in an outbound fund the same move works in reverse.
• You must look through to know what you own. The feeder's factsheet may show one line. Your real holdings and sector weights are in the master's portfolio.
• Regulatory comfort is borrowed. Custody, valuation and concentration checks may be met at the underlying level, so a weakness there passes straight up.
• Eligibility can break. An inbound specified fund must keep resident Indians out. If you move back to India, ask how the fund treats your units. Some funds also exclude US and Canada residents.
• No rupee SIPs for residents. Each purchase needs a fresh LRS remittance, so small monthly investments are costly.
• Fees can compound quietly. With no expense cap, an active wrapper over active funds can cost more than the tax it saves.

Retail schemes issue an offer document and non-retail schemes a placement memorandum. Regulation 48 requires a retail offer document to cover the investment objective, targeted investors, strategy, NAV methodology, fees and expenses, conflicts of interest and risk management. For any GIFT City feeder fund or fund of funds, use it to answer these questions.

1. Which scheme category is it? Retail, restricted or venture capital, and which AIF category.
2. What are the underlying schemes? Names, regulators and the proportion in each.
3. Is the wrapper active or passive? Does the manager choose among funds or pass money to one master?
4. What is the total cost? The wrapper's maximum fees line by line, plus the underlying scheme's cost and any exit load at either level.
5. Is the master run by an associate? Read the conflict disclosure.
6. Who holds and values the assets, and how often is NAV published?
7. Who may invest and who may not? Residents, US or Canada residents, restricted jurisdictions.
8. What does the tax section claim? A specified fund, a pass-through, or a trust that pays tax itself? Look for conditions.
9. What is the redemption timeline and currency?
10. What happens if the master closes or changes strategy, or the fund stays below USD 3 million?

If the first four are not answered clearly, ask the fund house in writing.

A GIFT City fund of funds is an access product. It is worth using when the access has value to you: Indian mutual funds in dollars without Indian paperwork, or global funds without the quota that limits domestic schemes. It is poor value when the wrapper adds a fee and little else.

The 2025 regulations, as amended to 10 September 2026, make these vehicles cheap to run by letting them lean on the master for custody, valuation and diversification. Tax follows the investors and the assets: a non-resident-only fund holding Indian mutual fund units sits in one regime, and a resident outbound trust in another. Before investing, identify the master, add up both layers of cost, and read the tax section for its conditions. A comparison shelf such as PMS Sahi Hai, and a source-citing tool such as Nyra, can speed up the shortlisting, but the offer document remains the final word.

Before you wire money, write down three things about any feeder fund you are considering: the name of the master, the total annual cost across both layers, and the tax regime the offer document claims. If you cannot fill in all three from the documents, you are not ready to invest. Then compare the fund with a direct alternative and speak to a tax adviser who knows the rules of your country of residence.

If you want help with the comparison, browse GIFT City strategies on PMS Sahi Hai, ask Nyra to show its sources on fees and structure, or book a 15-minute conversation with the team. For the regulator behind these funds, read What Is IFSCA?, and for a fuller treatment of tax, see the guide to taxation of GIFT City funds.