BackHow do you invest in GIFT City ETFs?
Individuals have a more efficient taxation if they invest via GIFT City
PremiumHow do you invest in GIFT City’s exchange-traded funds (ETFs) which is exempted from capital gains tax? Which company or index would be issuing the ETF? What is the ideal duration and amount in case of a one-time investment?
—Parthiv Thakkar
Indian citizens have many options for investing abroad. For one, they can put their money in mutual funds that invest outside of India. The advantage is ease of transaction but taxation is at slab rate for those in high tax slabs.
They can open a broking account with a foreign broker. This will help large investors seeking flexibility of spreading their investments across various asset classes, but be wary of the hassles of paperwork, taxation and liquidity.
Individuals have a more efficient taxation if they invest via GIFT City. If the ETF that you are investing is in global stocks then the taxation would be at 20% with indexation if the holding period is more than 24 months and at Indian capital gains if the investment is in Indian stocks. etc., making it more efficient than the other tax modes above. Do note that investment opportunities are limited as very few companies such as Marcellus and Phillip Ventures have currently set up shop.
The minimum investment in this is $150,000 and should be within the annual LRS limits. In terms of retail resident individuals, considering the minimum entry points, mutual funds might still be best. However, individuals who can deploy $150,000 have a great opportunity to invest in a vehicle that has a much better taxation than if the money is invested through brokers registered outside of the Gift City. In terms of investment options, ETFs might be a better option as the fund manager would deploy the money into various ETF’s globally basis their conviction, while PMSes (porfolio management services) would most likely handle the end investments themselves.
The investment methodology has to be similar to how we play longer-term investments. A staggered investment in case of regular inflows works best as these help average out investments, especially in the context of major geopolitical events currently and forthcoming.
Vivek Banka is co-founder, GoalTeller.
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