GIFT City Fund vs Domestic AIF: Which Structure to Choose
GIFT City fund or SEBI-registered AIF? Compare regulator, investors, currency, minimum corpus, tax, investment scope and cost before you pick a fund structure.
If you plan to pool investor money in India, two regulated homes stand out: an Alternative Investment Fund registered with SEBI, or a fund scheme in GIFT City under IFSCA. Both are credible. They serve different investors, run in different currencies and are taxed differently, so the choice should follow your investor base and your investment plan, not a trend.
This comparison sets the two side by side on the points that decide the matter in practice: regulator, investors and currency, minimums, tax, what the fund may invest in, and cost and substance. It ends with a short decision guide. Every figure below moves with circulars and budgets, so treat each one as a starting point to confirm.
Regulator and legal base
A domestic AIF is registered with SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012, in Category I, II or III depending on strategy. It is usually a trust, with a sponsor, a manager and a trustee, and SEBI supervises it through its circulars, reporting formats and valuation norms.
A GIFT City fund is a scheme launched by a Fund Management Entity registered with IFSCA under the IFSCA (Fund Management) Regulations, 2025. The manager registers once and then launches schemes by filing a placement memorandum, instead of registering each fund afresh. For investors used to Singapore or Cayman structures, this manager-first model is familiar.
Investors and currency
A domestic AIF raises and invests in rupees. It takes Indian residents easily and can take NRIs and foreign investors, but where the sponsor or manager is not Indian-owned and controlled, the AIF's investments count as indirect foreign investment under FEMA.
A GIFT City fund runs in foreign currency, usually US dollars. For FEMA the IFSC is treated as outside India, so foreign investors come in without the Indian inbound rules, while Indian residents invest through the Liberalised Remittance Scheme or the overseas investment route. That makes GIFT City a natural home for money from NRIs, family offices abroad or global institutions, and a harder fit for a pure rupee pool of Indian investors.
Minimum corpus, ticket size and manager commitment
The entry numbers differ sharply, and they drive who can realistically invest; the main ones are set out below.
The manager also puts in its own money. In a domestic AIF the continuing interest is the lower of 2.5 percent of the corpus or Rs 5 crore for Category I and II, and the lower of 5 percent or Rs 10 crore for Category III. GIFT City schemes carry their own skin-in-the-game rule, set by scheme type.
- Domestic AIF: minimum corpus of Rs 20 crore per scheme, minimum investment of Rs 1 crore per investor (lower for the manager's employees and directors) and a cap of 1,000 investors in most schemes.
- Domestic large value fund for accredited investors: a higher minimum ticket, reported at Rs 25 crore after the latest change, with some relaxations.
- GIFT City venture capital and restricted schemes: minimum corpus of USD 3 million under the 2025 regulations, down from USD 5 million.
- GIFT City minimum ticket: fixed by the regulations for each scheme type, with a lower threshold for the manager's own people.
How each is taxed
Category I and II AIFs are pass-through for income other than business income under section 115UB: the investor pays tax on that income, not the fund, and the fund deducts tax at source on distributions under section 194LBB. Category III AIFs are taxed at the fund level, which can mean the highest rate on business income.
GIFT City funds that qualify as specified funds get their own exemptions, and non-resident investors can be exempt on specified income from them. The FME can claim the IFSC deduction under section 80LA on its management income, subject to substance. For a foreign investor this can mean one layer of tax instead of two, which is the main commercial pull.
Section numbers follow the Income-tax Act, 1961; the Income-tax Act, 2025, in force from 1 April 2026, renumbers them.
What the fund may invest in
A domestic AIF invests mainly in Indian companies and securities, within its category rules and concentration limits. Overseas investment is allowed only within an industry-wide envelope that SEBI allocates, so it cannot be the core strategy.
A GIFT City scheme has far more room to invest in India, in the IFSC and abroad, across listed and unlisted securities, other funds and, for some schemes, other asset classes. When it invests into India it is treated as a foreign investor, so FPI or FDI conditions, sector caps and reporting apply to that leg.
Cost, people and substance
A domestic AIF can be run from any Indian city with the manager's existing team. The costs are SEBI fees, the trustee, legal drafting, audit, a custodian where required and SEBI reporting.
A GIFT City fund needs an office in GIFT City, a Principal Officer and a Compliance Officer on the ground, net worth at the FME level and IFSCA fees in US dollars. The tax benefits hold only if the substance is real. For a small first fund the fixed cost can outweigh the tax gain, so build the model before you choose.
A simple way to decide
Start with the investors, then the investments, then the numbers, in the order set out below.
Counsel drafts the fund documents and the manager files with SEBI or IFSCA. The CA work is the tax model, the FEMA route for each investor type and the accounts that follow.
- Mostly Indian residents investing rupees in Indian companies: a SEBI-registered AIF is usually the cleaner fit.
- Mostly NRIs or foreign investors, or a plan to invest abroad: a GIFT City scheme deserves a hard look.
- A real mix of both: some managers run a domestic AIF and a GIFT City parallel or feeder fund side by side, which doubles compliance, so test the demand first.
- Only one family's money: look at a family investment fund in GIFT City or a domestic family office structure instead.
Frequently asked questions
Is a GIFT City fund better than a SEBI AIF?
Neither is better in general. A GIFT City fund suits foreign or NRI money and overseas investing; a SEBI AIF suits Indian residents investing in India. Your investor base and the tax model should decide.
Can Indian residents invest in a GIFT City fund?
Yes. Resident individuals usually invest under the Liberalised Remittance Scheme, which allows up to USD 250,000 per financial year, and Indian companies through the overseas investment route, each with its own conditions and reporting.
What is the minimum investment in a domestic AIF?
Generally Rs 1 crore per investor, with lower amounts for the manager's employees and directors, and a minimum scheme corpus of Rs 20 crore.
Can a GIFT City fund invest in Indian startups?
Yes, but the Indian leg is treated as foreign investment, so FDI or FPI rules, sector caps and reporting apply to it. Model the tax on the Indian gains too, not only the IFSC exemptions.
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Chartered Accountant and Managing Partner at DRSPV & Associates (est. 2023), an ICAI-registered firm that has advised 500+ businesses across India, UAE, the US and UK. IBBI Registered Valuer and DISA (ICAI) certified. Writes on SME & mainboard IPO, fundraising and cross-border structuring.