PPFAS Gift City announced yesterday that they have slashed the minimum investment required to invest in its outbound funds – Parag Parikh IFSC S&P 500 FOF and Parag Parikh IFSC Nasdaq 100 FOF – from 5000 USD to 500 USD. This 500 USD minimum also applies to subsequent investments.
Given how hard it is to invest in international stocks through Indian MFs, this move makes the two index funds accessible to many “retail”* investors. Here is what they should consider before taking the plunge.
* I am acutely aware that 500 USD is still out of reach for many Indians – hence the quotes. That said, a tenfold drop will bring it within reach of a significant chunk of investors. If you are not there yet, tell yourself that you will be. Cribbing will not help.
There are two primary considerations we have already discussed at length before – Parag Parikh IFSC S&P 500 and Nasdaq 100 FoFs – should you invest? Here is the gist.
1. You should invest in international stocks only if you understand what diversification means and how to manage the portfolio with a new asset type. All markets go through ups and downs, and not all elements in a portfolio will perform well all the time (the essence of diversification). Investors should know how and when to rebalance their portfolios. So it’s not about chasing after returns.
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2. Should you opt for this GIFT City FOF-based passive route or go through brokers and use ETFs?
The broker route has lower management fees and more options. The lower management fees will make a significant dent over time. You need to avoid domiciles with inheritance tax, and ITR compliance needs a little work.
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 Gift City fund acts as a ‘Representative Assessee’ and discharges the tax liability internally before it declares the Net Asset Value (NAV). You do not pay this tax separately when you redeem; the NAV you receive is already post-tax. The fund will declare short- and long-term post-tax NAVs
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’, clarity is still lacking. 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?
So, from the tax compliance point of view, the GIFT City route is a bit easier, but the broker route is not insurmountable.
Short-Term (<= 24 Months) Slab Rate for ETFs. For GIFT City, it’s always at the highest slab: 30% (Base) + 37% (Surcharge) + 4% (Cess) = 42.75%.
If you are in lower slabs and prone to selling quickly, GIFT City is not the route for you!
Long-Term (> 24 Months) Special Rate 12.5% (Base) + 15% (Surcharge Cap) + 4% (Cess) = 14.95%
For domestic equity, long-term capital gains apply to investments held for more than 12 months.
Dividends the fund receives from the ETF are also taxed at source: 15% for Irish-domiciled ETFs (like the PPFAS Gift City FOFs) and 30% for US-domiciled ETFs.
Important: 20% TCS (tax collected at source) applies to investments exceeding ₹10 Lakhs in a financial year (effective since 1st April 2025). The bank that transfers funds to the instrument will collect this. This applies to all LRS (liberalised remittance scheme) investments, including those made through brokers.
The LRS limit per FY is USD 250,000 per person. The government may revise this limit lower to protect the currency. A monthly SIP of USD 500 in one of these PPFAS outbound funds is likley to be well within any future lower limit.
Costs: Moving money from INR to USD and then back (rebalancing or redemption) will incur ~2% charges and forex spreads each time. This is not something to lose sleep over. If you want convenience, it comes at a cost. But if you fret about such things, then this is not the route for you.
Bottom line (assuming you understand how to manage the portfolio): If you want more choice in terms of geography and products, or if you would lose sleep over higher management fees, the broker route is better. If you value administrative convenience, are willing to pay a recurring fee for it, and don’t mind the limited options (to many, “international” = US), the PPFAS GIFT City route is better.
The account opening process is super-smooth if you are KYC-compliant. However, if you don’t hold funds in HDFC, Axis, ICICI, or IDFC banks, you cannot complete transactions via a link.
You will have to download a transaction slip from GIFT City and then transfer the money from your bank to their bank account. You can do this online via net banking only if your bank recognises the SWIFT no. of PPFAS’s GIFT City Bank account. Otherwise, you may need to approach the branch in person.
Our recommendation: If you understand what “international diversification” entails and can afford the new minimum investment of 500 USD and a minimum 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 don’t recommend the Nasdaq 100 product, as it is a sectoral fund and significantly riskier than the S&P 500.
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