GIFT City Category III AIFs vs FIFs for Family Offices
Why in the news
Family offices are leaning toward Category III Alternative Investment Funds in GIFT City rather than Family Investment Funds (FIFs), thanks to clearer and kinder tax rules.
Key facts
- Of seven Indian family offices seeking FIFs last year, just two won in-principle clearance from the IFSCA.
- The FIF route is not approved for domestic family offices wanting to invest abroad; offshore entities are allowed but with little take-up.
- Earlier, FIFs investing in public markets faced the FPI tax regime, with higher tax on capital gains, debt and derivatives.
- Recent IFSCA amendments clarified the tax position and favoured AIFs.
Category III AIF advantages
- Possible access to the Specified Fund regime.
- No capital gains tax on debt and derivatives.
- 10% tax on dividends and interest.
- Attracts non-resident Indian family offices wanting Indian public markets.
Growth in GIFT City
| Measure | Earlier | December 2024 |
|---|---|---|
| Category III AIF schemes | 50 (Dec 2023) | 116 |
| Investments | $800 million | $2 billion |
| Total commitments | $1.67 billion (previous year) | $4.7 billion |
About FIFs
- A purpose-built vehicle through which one family office, or a family-controlled group, manages its money and invests worldwide.
Why interest is rising
- Middle East family offices want to diversify into India and other emerging markets given high U.S. valuations.
- GIFT City exempts derivatives income from tax.
- Domestic family offices increasingly use broad-based AIFs in GIFT City for overseas investing, helped by liberalised norms.
Exam angle
- Regulator for GIFT City: IFSCA.
- Fund types: Category III AIF versus FIF.
- Tax rate on dividends and interest: 10%.