The Rise of Mutual Fund Businesses in GIFT City

Last Updated on: 3rd September 2024, 05:01 pm

A New Hub Emerges for Indian Mutual Funds

The Indian financial landscape is witnessing a significant shift. Mutual funds, which pool investor money to invest in a variety of assets like stocks and bonds, are increasingly choosing a new home: Gujarat International Finance Tec-City, or GIFT City. Traditionally, Indian asset managers operated their offshore fund businesses from established financial centers like Dubai and Singapore. However, the tide is turning towards GIFT City, driven by a combination of strategic advantages offered by the Indian government and a desire for better access to the domestic capital market.

This trend highlights the growing importance of mutual funds. These investment vehicles play a crucial role in financial markets by offering individuals a diversified and professionally managed way to participate in the growth of the economy. By pooling resources, mutual funds allow investors to spread their risk across various assets, potentially leading to better returns compared to investing directly in individual stocks or bonds.

Furthermore, the migration of Indian asset managers to GIFT City signifies a strategic shift in the industry. In the following sections, we will delve deeper into the reasons behind this movement, exploring the benefits GIFT City offers and the potential impact it may have on the future of Indian mutual funds.

 

Why GIFT City for Mutual Fund Businesses?

GIFT City, or the Gujarat International Finance Tec-City, is envisioned as a game-changer for India’s financial landscape. It’s a greenfield project built from the ground up to rival established financial hubs like Singapore and Dubai. This makes it an attractive location for both domestic and international asset managers looking to establish a presence in India, particularly for GIFT city mutual funds.

Government Initiatives

The Indian government is actively promoting GIFT City as a gateway for global capital and financial services. To attract businesses, they’ve rolled out a bouquet of incentives:

• Tax Breaks: Companies setting up shop in GIFT City enjoy a 10-year tax holiday on profits. This significantly reduces operational costs and boosts profitability.
• Favorable Tax Regime: GIFT City offers a tax-friendly environment that rivals established financial centers. There are no taxes on transfer of funds from overseas jurisdictions, and capital gains tax exemptions exist for investments in units set up within GIFT City.

 

Regulatory Advantages

Beyond tax benefits, GIFT City provides a robust and efficient regulatory framework for mutual funds:

• Stable Regulatory Regime: The International Financial Services Regulatory Authority (IFSCA) governs financial services in GIFT City. This independent regulator ensures a stable and predictable regulatory environment, crucial for long-term business planning.
• Proximity to Indian Markets: Unlike traditional offshore hubs, GIFT City offers unmatched physical and regulatory proximity to the Indian capital market. This proximity allows for better understanding of the Indian market dynamics, faster decision-making, and efficient management of India-focused funds.

 

Benefits for Mutual Funds in GIFT City

GIFT City offers a compelling package of benefits that is attracting Indian asset managers to relocate their mutual fund businesses. Here’s a breakdown of the key advantages:

Lower Operational Costs: Compared to established financial centers like Singapore and Dubai, GIFT City provides a significantly more cost-effective environment.

• The cost of living in Gujarat is generally lower than Singapore and Dubai.
• Renting office space in GIFT City is significantly cheaper compared to prime locations in those cities.
• Competitive Manpower Costs: Salaries for qualified professionals in GIFT City tend to be lower than those in Singapore or Dubai. This can lead to significant cost savings on staff expenses for asset management companies.

Tax Advantages: The Indian government has made GIFT City attractive through a series of tax breaks specifically targeted at financial institutions:

• 10-Year Consecutive Tax Holiday: Companies operating in GIFT City enjoy a complete tax exemption on profits for 10 consecutive years in a 15 year period. This significantly boosts profitability and frees up capital for growth.
• No Transfer Taxes: Funds can be transferred from overseas jurisdictions into GIFT City without any tax implications. This simplifies the process and reduces overall costs associated with fund movement. 
• Capital Gains Tax Exemption: There are exemptions on capital gains tax accrued on transfer of specified securities listed on IFSC exchanges by a non-resident or Category III AIF located in IFSC.

 

Examples of Migration: A Rush to GIFT City

The trend of Indian asset managers migrating their operations to GIFT City is gaining significant momentum. Here are some notable examples that showcase the appeal of this financial hub:

• Mirae Asset Investment Managers: This Indian unit of South Korea’s Mirae Asset Financial Group has shifted a $200 million Hong Kong-based fund to GIFT City. They are actively considering moving a second fund, citing the “stable regulatory regime and proximity to the Indian markets” as key drivers. Mirae expects to manage a total of $435 million out of GIFT City in the near future.
  

   

  
  
• DSP Mutual Fund: This fund manager, with $20 billion in assets under management (AUM) across India and offshore, plans to relocate its Mauritius-based operation managing $450-500 million to GIFT City by March 2024. This move highlights the cost benefits of GIFT City, as DSP Mutual Fund seeks a more economical operational environment.
  

   

  
  
• Aditya Birla Sun Life AMC: India’s sixth-largest asset manager, with ₹3.08 trillion ($37.2 billion) AUM, is also moving its operations from Dubai and Singapore to GIFT City. This decision goes beyond just cost savings. A. Balasubramanian, CEO of Aditya Birla Sun Life AMC, emphasizes the ability to establish an ESG-focused fund with seed investment already secured, demonstrating GIFT City’s support for innovative financial products.
  

   

  
  

According to the International Financial Services Regulatory Authority (IFSCA), over 80 fund managers with commitments of $30 billion and investments exceeding $2.93 billion have established themselves in GIFT City in the last three years. This rapid growth signifies the growing confidence of the Indian mutual fund industry in GIFT City’s potential.

 

The Future of GIFT City: A Gateway for Mutual Funds

GIFT City’s potential as a hub for mutual funds is brimming with promise. The recent influx of major Indian asset managers is a strong indicator of this future growth. Here’s a glimpse into what lies ahead:

• Surge in Commitments and Investments: Data from the IFSCA paints an optimistic picture. Over the past three years, more than 80 fund managers have established a presence in GIFT City, with combined commitments exceeding $30 billion and investments surpassing $2.93 billion. This rapid growth signifies the growing confidence in GIFT City’s ability to cater to the needs of the mutual fund industry.
  

   

  
  
• Proximity and Efficiency: GIFT City’s geographical advantage, situated close to India’s major financial centers, provides unparalleled access to the Indian capital market. This physical proximity allows for faster decision-making, better understanding of market dynamics, and efficient management of India-focused funds.
  

   

  
  
• Regulatory Stability: The IFSCA plays a critical role in ensuring a stable and predictable regulatory environment for mutual funds operating within GIFT City. The IFSCA’s robust framework fosters investor confidence and facilitates the smooth functioning of the financial ecosystem.
  

   

  
  

 

GIFT City – A Catalyst for Growth in Gift City Mutual Funds

The emergence of GIFT City as a hub specifically for Indian mutual funds, or “gift city mutual funds” as they’re becoming known, presents a significant development for the financial sector. Here’s a recap of the key points discussed:

• Government Support: The Indian government’s proactive approach in promoting GIFT City, with a combination of tax breaks and a favorable regulatory framework, is creating a fertile ground for asset managers looking to establish or expand their gift city mutual funds business.
  

   

  
  
• Competitive Advantage: Lower operational costs compared to established financial centers like Singapore and Dubai make GIFT City an attractive proposition. This translates into higher potential returns for investors and a more competitive Indian mutual fund industry.
  

   

  
  
• Strategic Location: GIFT City’s proximity to the Indian capital market fosters better understanding of market dynamics, facilitates faster decision-making, and allows for efficient management of India-focused gift city mutual funds.
  

   

  
  
• Regulatory Stability: The presence of a robust and independent regulator, the IFSCA, ensures a stable and predictable regulatory environment, crucial for long-term business planning of gift city mutual funds.
  

   

  
  

The recent influx of major Indian asset managers and the billions of dollars in committed investments specifically for gift city mutual funds are strong indicators of the growing confidence in GIFT City’s potential. Looking ahead, GIFT City’s focus on innovation and its plans for expansion further solidify its position as a catalyst for growth in the gift city mutual funds industry. By attracting global capital, fostering a culture of innovation, and offering a world-class infrastructure, GIFT City is well on its way to becoming a leading international financial hub, propelling the Indian mutual fund industry forward, with gift city mutual funds at the forefront.