Two Regulators, Two Very Different Fund Ecosystems Within India
A fund manager choosing where to set up an AIF in India today effectively has two paths within the same country: register domestically with SEBI, or set up in India's International Financial Services Centre (IFSC) — currently GIFT City — under the International Financial Services Centres Authority (IFSCA).
Regulatory Framework
- Domestic AIF — SEBI (Alternative Investment Funds) Regulations, 2012
- GIFT City AIF — IFSCA (Fund Management) Regulations, 2022 These are structurally similar frameworks — both use the Category I/II/III construct — but with materially different operating rules, particularly around foreign investor access and currency.
Currency and Investor Base
GIFT City funds typically operate in foreign currency (USD or other convertible currencies), and are specifically designed to attract global investors and fund managers who want an India-linked fund vehicle without routing entirely through traditional onshore Indian rupee structures. Domestic AIFs operate in Indian rupees and, while open to foreign investment through FVCI/FPI routes, are primarily built around India-based capital and India-focused strategies.
Tax Treatment
GIFT City-based funds benefit from specific tax incentives designed to make the IFSC globally competitive — including provisions relevant to fund management fees, and treatment under India's income tax law that recognises IFSC-registered Category I/II AIFs (regulated under the IFSCA Fund Management Regulations, 2022) as eligible for the same pass-through taxation treatment available to domestic Category I/II AIFs. The broader IFSC tax regime includes additional incentives specific to the zone.
Regulatory Ease and Set-Up Considerations
GIFT City was specifically designed with a "light-touch," globally benchmarked regulatory approach to attract international fund managers who might otherwise set up in Singapore, Mauritius, or other offshore fund hubs. Domestic SEBI registration remains the more established, familiar route for India-focused managers primarily raising from resident Indian investors.
When Domestic AIF Registration Makes More Sense
- The fund's investor base is predominantly resident Indian investors
- The investment strategy is entirely India-focused with rupee-denominated flows
- The manager values the deeper track record and precedent available under the SEBI AIF framework
When GIFT City Registration Makes More Sense
- The fund intends to raise substantially from global investors
- The manager wants foreign-currency denominated fund operations
- The fund's strategy includes cross-border or global allocation alongside India exposure
Helping Managers Choose the Right Jurisdiction
Choosing between domestic and GIFT City registration is a structuring decision with long-term tax and operational consequences — we advise fund sponsors on this choice before entity formation begins.
This article is for general informational purposes and does not constitute tax or regulatory advice specific to any fund's circumstances.