ETMarkets NRI Talk | GIFT City AIFs could be the next big NRI investment destination: LGT Wealth’s Nikhil Advani

India’s growing economic story continues to attract strong interest from Non-Resident Indians (NRIs), but investing directly in Indian markets can still involve hurdles around KYC, PINS routing, taxation and multiple bank and investment accounts.

Nikhil Advani, Managing Director and Head of International Business at LGT Wealth India, believes GIFT City AIFs could emerge as the next big investment destination for NRI capital, offering a more streamlined route to access India’s equities, private markets, real estate and infrastructure opportunities in foreign currency.

In an interaction with Kshitij Anand of ETMarkets, Advani also discusses why NRIs remain under-allocated to Indian equities, how they should choose between NRE and NRO accounts, the role of REITs and InvITs, and how a ₹1 crore NRI portfolio could be structured for a 5–7-year investment horizon. Edited Excerpts –


Q) India continues to attract significant interest from NRIs. What are the biggest hurdles NRIs still face when trying to invest in Indian equities and mutual funds, despite the process becoming increasingly digital?

A) India has made massive advancements in the digitalization of investments for resident retail and institutional investors.

However, Non-resident Indians (NRIs) need to be physically present in India for digital onboarding, which makes it cumbersome for them.

SEBI has proposed easing the process by potentially allowing eligible NRIs from FATF-compliant countries to submit KYC digitally from abroad.

Another hurdle for NRIs is the requirement for Portfolio Investment Scheme (PINS) routing via designated bank branches, and a segregation between NRE and NRO accounts owing to capital controls in the latter.

Resident Indians have it easier, as they use a single unified bank-demat-trading link for equity investments.

Q) With rupee hitting 96 per USD, has it impacted NRI investments into India? What is the general mood?

A) The Rupee has always had a depreciating bias. But this has not stopped investors from coming in. India's underlying structural growth story remains intact and deeply attractive over the long term.

Also, a depreciating Rupee lowers the foreign-currency cost of Indian assets. NRIs who have been investing regularly into the Indian equity markets have bought more units of the underlying investment.

Q) For an NRI looking to invest in Indian stocks, how should one decide between an NRE and NRO account? What are the key differences from an investment and repatriation perspective?

A) Both NRE and NRO accounts serve different purposes. The NRE route is designed for NRIs looking to channel global wealth into Indian markets.

An NRO account is designed to manage income generated within India. NRE has an advantage as 100% of the principal and capital gains can be repatriated overseas.

Any interest earned is completely exempt from Indian income tax. An NRO account, on the other hand, has an annual cap of USD 1 Million on capital that can be repatriated.

Interest earned is subjected to a 30% tax deducted at source, though NRIs can claim relief on this via the Double Tax Avoidance Agreements (DTAA) of their respective countries with India.

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Q) Are NRIs under-allocated to Indian equities compared with their overall exposure to India? Which asset classes do you think they should consider beyond direct stocks and mutual funds?

A) Yes, NRIs are under-invested in Indian equities, relative to their overall asset allocation. Most of their India exposure tends to be in real estate and fixed deposits.

India is the fastest-growing major economy in the world, and it would be prudent for NRIs to have a larger exposure to Indian equities.

Additionally, NRIs can balance their physical real estate holding with Real Estate Investment Trusts. REITs offer liquidity and diversification, and a hybrid real estate strategy often makes the most sense.

On the fixed deposit side, the recently launched FCNR deposit scheme has been a big hit with NRIs, with over $ 50 Billion inflows reported by authorised dealer banks so far.

Q) Tax is often one of the biggest concerns for NRIs. How should they think about the tax treatment of equity, mutual funds, bonds, FDs, and alternative investments in India?

A) Yes, tax is probably the biggest concern for NRIs looking to invest in India. There is capital gains tax on equities, and tax is deducted at source when an NRI redeems equity funds.

Listed bonds, NCDs and debt mutual funds attract tax. To mitigate this, NRIs can leverage DTAA provisions between India and their country of residence.

NRIs can also consider investing into GIFT City funds that feed into equity funds in India. These GIFT funds are not subject to domestic capital gains taxes, making this route very tax efficient for NRIs.

Q) Are you seeing greater interest from NRIs in newer products such as AIFs, PMS, private credit, REITs and InvITs? Which of these could see the biggest growth in NRI portfolios?

A) We are seeing interest from NRIs in asset classes other than equities. They are seeking participation in India's booming private markets, in sectors such as deep tech, supply chain infrastructure, clean energy and EVs, to name a few.

REITs and InvITs are also gaining in popularity as NRIs seek to rotate out of physical real estate and into "financialized" real estate.

InvITs allow NRIs to participate in the infrastructure build-out of the country. In my opinion, the biggest growth in NRI capital will be into GIFT City AIFs, as these offer a unified, transparent wrapper for every asset class, and in foreign currency.

Q) If an NRI has ₹1 crore of surplus money to invest in India with a 5–7-year horizon, how would you divide it across equities, fixed income, gold, real estate and alternatives?

A) Typically, a diversified portfolio for a growth investor would have upto 60% in equities, 20% fixed income, 15% in alternatives, and 5% gold. Half the equity exposure would be in large-cap, and the balance divided between mid and small cap.

Q) Could we see more India-focused global funds or India-domiciled products in GIFT City designed specifically for overseas Indians who want Indian exposure without navigating multiple investment accounts?

A) GIFT City has evolved into a critical bridge between global capital and the Indian economy. The vision of India focused funds being designed specifically for overseas Indians is already becoming a reality.

As per disclosures by the IFSC in March of this year, GIFT City fund management entities had raised a cumulative $ 19.5 Billion in global capital, with another $ 39 Billion in capital commitments.

GIFT feeder funds solve the multi-account issues that NRIs face while attempting to invest directly in the Indian markets. There is no PINS routing requirement, and NRIs can channel foreign currency directly.

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Q) What new financial product is currently missing from the Indian market that could significantly improve the investment experience for NRIs?

A) It is always a challenge for US based NRIs to invest in the Indian markets due to US compliance burdens such as the Foreign Account Tax Compliance Act (FATCA) and Passive Foreign Investment Company (PFIC) tax rules, and the PINS requirement in India.

GIFT City allows for the creation of feeder funds that are structured to align with international regulatory standards.

What is currently missing is a GIFT City multi-asset fund that can give NRIs access not only to Indian equities, but also to fixed income, private markets, REITs, and InvITs in a single investment, and can satisfy US tax reporting requirements at the fund level.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)