Last Updated on February 14, 2026 at 6:52 am
PPFAS AMC has begun onboarding clients to its Gift City retail funds: Parag Parikh IFSC S&P 500 FOF and Parag Parikh IFSC Nasdaq 100 FOF. We discuss what investors should consider before investing.
From the investor’s perspective: As usual, investors should first consider their needs and avoid focusing on product features or succumbing to FOMO. That would only result in portfolio clutter. This product is only for those who truly understand what diversification means – not all components of a diversified portfolio will do well all the time. For example, US equities may outperform Indian equities when Indian equities are weak, and vice versa.
Investors must also understand that the Rupee depreciation discussed on social media differs significantly from the actual numbers. As shown earlier, the Rupee’s long-term depreciation has declined over the last decade. See, for example: What you need to know about gold before investing in it.
Also, please note that the USD-INR exchange rate is driven by supply and demand (actual and speculative). Do not expect the Rupee to always weaken. See: Basics: Why does the Rupee fluctuate in value against the US Dollar?
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Next, it is important to appreciate that the US market (however big it may be) is also subject to bear markets and crashes. These would be larger in magnitude in a sectoral index such as the Nasdaq 100. So do not expect the investing journey to be rosy.
If you are ‘okay’ with all of the above, you will need to ask what constitutes good exposure – 10%? 20%? There is no magic number here. You will have to choose something that makes sense to you.
That said, once you add a component to the portfolio, it comes with responsibilities. You will need to rebalance periodically between equity and fixed income, or between Indian and US equities.
Rebalancing from a gift city investment into an Indian instrument is operationally expensive, as forex spreads can incur losses. It should only be done occasionally.
Many investors are unwilling to do this. If you do not wish to manage the risk in your portfolio via rebalancing, a low exposure is recommended.
From a product perspective, the best way to hold foreign equity is through an Indian equity-oriented mutual fund such as Parag Parikh Flexicap. Unfortunately, due to RBI restrictions, fresh allocations are restricted.
The next best option is to use Indian international equity funds (avoiding FOFs that invest in ETFs), but these close for subscription from time to time, and the future is uncertain. Also, most of them (if not all) are actively managed funds, and the gains are taxed at the slab rate (gift city investments are taxed lower after 2 years – see below).
That leaves one desiring “international exposure” (read: US tech stocks) when choosing brokers. While many retail investors can afford to invest in these, the tax compliance can be complex with Schedule FA requirements, etc. Plus, there is an inheritance tax if the holder dies. The first 60,000 USD is tax-free, but the remainder may be subject to a steep (~40%) inheritance tax rate.
Taxation for Parag Parikh IFSC S&P 500 FOF and Parag Parikh IFSC Nasdaq 100 FOF is at the fund level (both capital gains and dividends).
The fund acts as a ‘Representative Assessee’ and discharges the tax liability internally before the Net Asset Value (NAV) is declared. You do not pay this tax separately when you redeem; the NAV you receive is already post-tax. Short- and long-term post-tax NAVs will be declared.
Short-Term (<= 24 Months) Slab Rate. For the highest slab, this is 30% (Base) + 37% (Surcharge) + 4% (Cess) = 42.75%
Long-Term (> 24 Months) Special Rate 12.5% (Base) + 15% (Surcharge Cap) + 4% (Cess) = 14.95%
Note that for domestic equity, long-term capital gains apply to investments held for more than 12 months.
Dividends received by the fund from the ETF are also taxed at source: 15% for Irish-domiciled ETFs and 30% for US-domiciled ETFs.
Important: 20% TCS (tax collected at source) applies on investments exceeding ₹10 Lakhs in a financial year (effective since 1st April 2025). This will be collected by the bank that transfers funds to the instrument. This applies to all LRS (liberalised remittance scheme) investments, including brokers.
Unlike holding US stocks directly, there is no inheritance tax on gift city funds. Also, many experts believe that resident Indians do not need to file Schedule FA if they invest in a gift city domiciled in India. However, since Gift City is treated as ‘offshore’, there is still no absolute clarity on this.
Given the penalties under the Black Money Act for non-disclosure, it would probably be best to file Schedule FA.
Related read: Should we report domestic mutual funds holding foreign shares in Schedule FA/FSI?
Our recommendation: If you understand what “international diversification” entails and can afford a minimum investment of 5000 USD and a 500 USD top-up without disrupting your existing portfolio or cash flow, the FOF route may be easier than the broker route. That said, we do not recommend using the Nasdaq 100 product, as it is a sectoral fund and significantly riskier than the S&P 500.
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