Mint Explainer: How easing NRI caps in Gift City funds will boost fund launches
Asset management companies (AMCs) in Gift City, Ahmedabad, are set for a major boost following a crucial regulatory change by the Securities and Exchange Board of India (Sebi). By eliminating the restrictive 50% cap on investments from Indians abroad in India-focused funds, Sebi has removed a significant hurdle that has long impeded the growth potential of these funds. For years, AMCs faced a stringent requirement: for every dollar accepted from non-resident Indians (NRIs) and overseas citizens of India (OCIs), an equivalent dollar had to be sourced from foreign investors.
This rule, embedded in Sebi's foreign portfolio investor (FPI) regulations, was designed to maintain a balanced investment pool but often proved a stumbling block. Consequently, if foreign investors reduced their contribution, AMCs were compelled to offload NRI investments to preserve the mandated 50:50 ratio. Gujarat International Finance Tec-City, or Gift City, treated as a foreign jurisdiction under the Foreign Exchange Management Act (FEMA), required its funds to operate with an FPI licence, thus subjecting them to these regulations.
This placed Gift City funds on par with other offshore entities from Singapore, Mauritius, and the Cayman Islands, all struggling under the same restrictive regime. However, in a notification on 26 June, Sebi revised its stance. The regulator announced a relaxation of the 50% foreign investment requirement for entities regulated by the International Financial Services Centres Authority (IFSCA) and based in Gift City.
NRI/OCI investments can now go up to 100%. While the cap on individual NRI contributions remains at 25%, the overall easing of restrictions is a game-changer. “Foreign institutions look at fund size in
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