For the last few years, Indian investors have not had an easy way to build global portfolios through domestic mutual funds.
The SEBI overseas investment limits were hit, and most international feeder funds stopped accepting fresh inflows. But the need for global exposure did not go away. If anything, it became more important.
In that gap, two routes have emerged.
- GIFT City outbound funds offer a familiar structure through Indian asset managers
- UCITS ETFs, accessed through global platforms, offer a different way to invest directly in international markets.
Both solve for global access. But they are not the same.
Two investors can own the same S&P 500 exposure and still end up with different tax, estate, and transparency outcomes. The difference is the structure.
So before comparing UCITS ETFs and GIFT City mutual funds on cost or tax, it is worth being precise about what each one actually is.
Table of contents
- Difference between UCITS ETFs and GIFT City outbound funds
- How to invest in each?
- How taxation works?
- Understanding US Estate tax exposure
- Understanding Costs
- How big is the instrument universe?
- Conclusion
Difference between UCITS ETFs and GIFT City outbound funds
UCITS ETF
UCITS is a European regulatory framework based in Ireland and Luxembourg.
A UCITS ETF is a fund authorised under this framework and listed on a stock exchange. It trades like a stock. You can buy and sell it during market hours at real-time prices on exchanges such as the London Stock Exchange, Euronext Amsterdam, or the SIX Swiss Exchange.
When you buy a UCITS ETF through a broker like Paasa or Interactive Brokers, you hold the instrument directly. The broker holds it in custody for you. You can see what you own, including the index, holdings, and weights, all disclosed daily. The fund tracks a rules-based index, and the rules are public.
GIFT City Outbound funds
GIFT City outbound funds are structured as trusts regulated by IFSCA. They are not SEBI mutual funds.
It is a trust set up under the Indian Trusts Act, 1882, and regulated by IFSCA under the Fund Management Regulations, 2022, updated in 2025.
GIFT City is located in Gandhinagar, Gujarat. But under FEMA, entities in GIFT IFSC are treated as “persons resident outside India.” It is onshore in location but offshore in regulation, by design.
What the investor owns is units of a pooled fund, not the underlying securities. The fund manager decides allocation, rebalancing, and execution. The investor does not have instrument-level control or visibility.
Pricing is NAV-based and updated once a day. There is no intraday trading. Redemptions are processed at the next NAV. Some funds also have exit loads. For example, DSP Global Equity Fund charges 1% if redeemed within one year.
Not all GIFT City funds are the same
The term “GIFT City mutual fund” covers different structures:
- DSP Global Equity Fund (launched June 2, 2025): An actively managed fund that directly holds 30 to 50 large-cap global stocks across the US, Europe, Japan, and Asia. Investment decisions are made by the fund manager. Expense ratios range from 1.25% to 2.5%.
- Parag Parikh IFSC S&P 500 FoF and Nasdaq 100 FoF (NFO opened February 2026): Passive funds of funds that allocate 90 to 100% of their corpus to S&P 500 and Nasdaq 100 ETFs, including UCITS structures. They do not hold individual stocks directly.
These are structurally different products under the same regulatory umbrella. One is an active stock-picking fund. The other is a passive layer built on top of ETFs.
| GIFT City Outbound Fund | UCITS ETF | |
|---|---|---|
| Legal form | Trust under Indian Trusts Act, 1882 | Exchange-traded fund under EU UCITS Directive |
| Regulator | IFSCA (not SEBI) | Central Bank of Ireland or Luxembourg CSSF |
| What the investor owns | Units of a pooled fund (claim on NAV) | The instrument directly, held in custody |
| Underlying visibility | Partial, monthly or quarterly disclosure | Full, daily holdings disclosure |
| Pricing | NAV-based, once daily | Real-time, intraday on exchange |
| Liquidity | Redemption at next NAV; exit loads may apply | Intraday, buy or sell during market hours |
| Management style | Active (DSP) or passive FoF using UCITS (PPFAS) | Passive (index tracking) or active |
| Investor protection rules | IFSCA framework, newer and still evolving | Legally enforced, strict diversification, leverage, and liquidity rules |
| Track record | Launched 2025 to 2026 | 20+ years for major UCITS ETFs |
| Platform availability | Direct with AMC; limited distributor access | Requires a global broker (for example Interactive Brokers or Paasa) |
How to invest in each?
Whether you are investing in a GIFT City outbound fund or buying a UCITS ETF through a global broker, you are using the Liberalised Remittance Scheme, the RBI's framework that allows resident Indians to remit up to $250,000 per individual per financial year for investment purposes.
| GIFT City Outbound Fund | UCITS ETF | |
|---|---|---|
| Regulatory channel | LRS | LRS |
| Account opened with | AMC’s GIFT City entity or IFSCA distributor | Global broker (for example Interactive Brokers or Paasa) |
| Minimum investment | $5,000 (DSP, PPFAS) | No minimum, buy by the unit |
| Pricing | End-of-day NAV | Real-time, intraday on exchange |
| SIP / automation | Not available, manual LRS per investment | Available |
| Exit charges | 0.5% to 1.5% depending on the fund | None, only brokerage applies |
| Platform availability | Directly with AMC | Paasa or IBKR |
One important note relevant to larger allocations: with UCITS ETFs, the timing of your LRS remittance and the timing of your investment can be separated.
You can remit funds and let them sit in the brokerage account as cash before deploying, giving you flexibility on entry timing.
GIFT City funds link subscription to the remittance; the money goes to the fund, not to a holding account you control.
How taxation works?
Taxation is where the differences between these two structures become most visible.
| GIFT City Outbound Fund | UCITS ETF | |
|---|---|---|
| Who pays the tax | Fund, embedded in NAV | Investor, at ITR filing |
| STCG rate | ~42% at fund level | 34% to 42% depending on income bracket |
| LTCG rate | 12.5% at fund level | 12.5% (declared by investor) |
| Holding period for LTCG | 24 months | 24 months |
| Dividend tax during holding | Handled at fund level | nil for accumulating UCITS class |
| Internal churn tax | Fund pays ~42% on sub-2-year trades | None, investor controls exit |
| Tax on exit | currently unsettled (See notes) | Capital gains declared in ITR |
| Schedule FA | currently unsettled (See notes) | Mandatory |
STCG
With GIFT City funds, short-term gains are taxed at ~42% at the fund level for all investors. It does not matter whether you invest $5,000 or $500,000. The rate is the same.
With UCITS ETFs, the rate depends on your income. For many investors in the ₹50 lakh to ₹1 crore range, the effective rate is closer to ~34%.
At the highest income levels, it moves toward ~42%. For most investors, this means GIFT City funds apply a higher short-term tax rate than they would personally pay on UCITS ETFs. The difference reduces as income increases.
Tax on exit
The tax treatment at redemption for GIFT City funds is still evolving.
There is no clear statutory position on whether investors have any additional tax obligation beyond what is already applied at the fund level. Fund houses, distributors, and tax professionals are not fully aligned on this.
Until there is clarity, it is best to confirm the treatment with your CA before assuming the tax position is settled.
Schedule FA
Disclosure under Schedule FA for GIFT City investments is also unsettled.
Some advisors treat it as a foreign asset because of its offshore regulatory status. Others treat it as domestic since it is physically located in India.
There is no clear CBDT guidance resolving this. Given the penalties for non-disclosure can be significant, a conservative approach is to seek advice and disclose if required.
Understanding US Estate tax exposure
If you hold more than $60,000 in US-listed assets as an Indian resident, you have created a US estate tax exposure.
That threshold is not high for anyone building a global portfolio.
Non-resident investors are subject to US estate tax at rates up to 40% on US situs assets above this limit. India does not have an estate tax treaty with the US. Most platforms that enable these investments do not highlight this risk.
Let’s compare the three instruments to understand this
| US-Domiciled ETF | UCITS ETF | GIFT City Outbound Fund | |
|---|---|---|---|
| Instrument domicile | United States | Ireland or Luxembourg | India (GIFT IFSC) |
| Is the instrument a US situs asset? | Yes | No | Depends on the fund |
| US estate tax exposure | Yes, above $60,000 threshold | No | Depends on the fund |
| What the fund holds | US stocks directly | US and global stocks or indices | Depends on the fund |
| Does underlying holding affect situs? | Not applicable, instrument itself is US situs | No, Irish domicile shields the underlying | Depends on the fund |
Note: Not all GIFT City funds create the same estate exposure.
- PPFAS IFSC S&P 500 and Nasdaq 100 FoFs: Invest via UCITS ETFs. These are not US situs assets, so there is no estate tax exposure at the instrument level.
- Edelweiss Greater China Equity Fund (GIFT IFSC): Invests in non-US markets, so there is no US estate exposure.
- Funds that directly hold US-listed securities: May create indirect exposure depending on how the structure is interpreted.
UCITS ETFs structurally remove estate tax risk. GIFT City funds may or may not, depending on how they are built.
Understanding Costs
Costs are not always visible, but they compound every year. Small differences here can meaningfully change long-term returns.
Instrument cost (TER)
This is the annual management fee built into the fund’s NAV. You do not pay it separately, but it reduces your returns every year.
| TER | |
|---|---|
| CSPX.L (iShares Core S&P 500 UCITS ETF) | 0.07% |
| PPFAS IFSC S&P 500 FoF | ~0.40% |
| DSP Global Equity Fund (Direct Plan, < $100k) | 1.50% |
Even a 0.30 to 1.40 percentage point difference compounds significantly over time.
Transaction and forex costs
Both routes require an LRS remittance from an Indian bank. Banks charge a forex markup, usually 0.60% to 0.90% of the remittance amount, depending on the bank and negotiated rates. This applies equally to both routes. It is a one-time entry cost, not an annual drag.
For UCITS ETFs via a global broker like Paasa or Interactive Brokers, there is also a minor brokerage commission on each trade.
GIFT City funds do not have a separate brokerage commission as the subscription is direct with the AMC. However, the TER differential above already captures the ongoing cost of that infrastructure.
TCS
Both routes fall under LRS and are subject to 20% TCS on annual remittances above ₹10 lakh. This is not an additional cost. It is advance tax that can be claimed back when you file your ITR.
How big is the instrument universe?
For resident Indian retail investors, the current GIFT City outbound fund shelf is still narrow.
UCITS ETFs, by contrast, offer a much wider universe.
| GIFT City outbound funds | UCITS ETFs | |
|---|---|---|
| Core US equity | ✅ | ✅ |
| Active global equity | ✅ | ✅ |
| Global bonds / fixed income | ❌ | ✅ |
| Commodities / gold | ❌ | ✅ |
| Emerging markets | ❌ | ✅ |
| Strategies | ❌ | ✅ |
| REITs / real assets / infrastructure | ❌ | ✅ |
| Small-cap / mid-cap international exposure | ❌ | ✅ |
| Multi-asset building blocks | ❌ | ✅ |
| Breadth of universe | Very limited, current shelf centered on a few equity products | Thousands of UCITS ETFs across asset classes and strategies |
For an investor building a genuinely diversified global portfolio across geographies and asset classes, that difference matters. It determines whether you are choosing between a few pre-packaged routes, or assembling the allocation you actually want.
Conclusion
Both GIFT City outbound funds and UCITS ETFs are valid ways for Indian investors to access global markets. They exist for a reason, and they serve different needs.
GIFT City solves a real problem. It provides a compliant, familiar route for investors who want global exposure without changing how they invest. For many, that simplicity is valuable.
A growing segment of Indian HNIs are moving toward UCITS-based portfolios. Not because of one single factor, but because of how the structure behaves across multiple dimensions.
- Taxation is more transparent and legally settled
- Estate tax exposure can be structurally avoided
- The range of available instruments allows for true diversification
- Costs are lower at the instrument level
- Most importantly, the investor retains control over what they own and when tax is triggered
If your priority is ease of access within a familiar framework, GIFT City outbound funds are a practical solution.
If your priority is control, flexibility, and long-term portfolio design, UCITS ETFs offer a more complete toolkit.
About Paasa
Paasa helps Indian residents invest in global markets through a single platform.
You can access equities and UCITS ETFs across regions such as the US, UK, Europe, China, and Japan, with investments held directly in your brokerage account. Paasa also provides advisory support on portfolio construction, taxation, and compliance, helping investors build global portfolios in a structured way.
This content is for educational purposes only and does not constitute investment advice. Investors should evaluate their own financial situation or consult a qualified adviser before making decisions.
