GIFT City Funds Compared: Costs and Investment Performance

GIFT City’s Dollar Funds Put Costs, Tax and Track Records Under Scrutiny

Early returns are mixed, but taxes, underlying fund charges and redemption rules can matter as much as the headline performance.

A young market with sharply different results

Seven GIFT City funds have performance data available for comparison. Five that disclose their assets together manage about $157 million, while HDFC has received combined inflows of about $20 million into its two funds since late August. The products span passive index funds from PPFAS and HDFC, an Edelweiss feeder fund, and actively managed portfolios from DSP and Marcellus.

The two PPFAS funds were the only schemes above their launch values in returns calculated through November 9: the Nasdaq 100 fund gained 13.3 per cent and the S&P 500 fund 13.6 per cent. Both trailed their underlying indices by 2.5 to 3 percentage points after fund-level tax, although PPFAS factsheets show close index tracking before tax.

The other five funds were below launch value. DSP Global Equity was down 5.9 per cent; its benchmark, the MSCI All Country World Index, gained 15.6 per cent between the fund’s launch and the end of October. HDFC’s Developed Markets and Emerging Markets funds were down 2.9 per cent and 9.6 per cent, respectively, while Marcellus Global Equities fell 1.9 per cent. Edelweiss Greater China Equity, which invests in a JPMorgan fund focused mainly on Taiwanese and Chinese equities, reversed from a 7.9 per cent gain at September-end to a 4.6 per cent loss.

Costs differ beyond the advertised expense ratio

On a comparable direct-plan basis that includes underlying fund charges where applicable, PPFAS’s S&P 500 fund costs 0.35 per cent and its Nasdaq 100 fund 0.50 per cent. HDFC’s funds cost 0.56 per cent and 0.65 per cent, while Edelweiss Greater China costs 1.42 per cent. DSP charges up to 1 per cent and Marcellus 1.25 per cent; both invest directly in stocks, so there is no additional underlying-fund expense.

The way costs are presented matters: PPFAS includes underlying fund expenses in its total expense ratio, while HDFC and Edelweiss exclude them from their reported ratios. Regular plans cost more than the direct plans compared here. Exit rules also vary: PPFAS has no exit load, while the other funds charge 1 to 2 per cent for withdrawals within the first two years. Minimum investments range from $500 at PPFAS to $5,000 at several other funds.

Fund-level tax can shape what investors receive

The funds described in the comparison pay tax at the fund level, so tax is reflected in the NAV. The cited rates are 14.95 per cent on gains from holdings exceeding 24 months and 42.74 per cent on shorter holdings. How the two-year period applies depends on the scheme: for actively managed funds such as DSP, it relates to how long the fund holds each stock; for PPFAS index funds, it relates to the investor’s holding period in the units.

PPFAS publishes a lower short-term NAV for investors redeeming within two years. Its S&P 500 fund’s short-term NAV was $113.72 on November 11, versus $114.75 for longer-term holdings. Investors should check each scheme’s tax note and exit-load terms rather than assume that every fund applies the rules identically.

Short histories call for a focus on structure

Most of the funds have limited operating histories, making their early performance an unreliable basis for judging long-term results. Returns are reported in dollars; rupee outcomes will also be influenced by exchange-rate movements. Investors comparing funds therefore need to look beyond recent gains or losses to the benchmark, portfolio approach, total cost and tax treatment.

The market is also adding choices. Aditya Birla Sun Life’s Emerging Market Equity Fund reopened for investment on November 13 with a $500 minimum. Edelweiss, JioBlackRock and Franklin Templeton have products in the pipeline, including feeder strategies. A wider menu may make comparison more important, not less: similar overseas exposure can carry different fees, redemption conditions and investment approaches.

Key Highlights

• Only the PPFAS Nasdaq 100 and S&P 500 funds were above launch value in the comparison.
• Returns are in dollars and reflect fund-level taxation; rupee returns may also move with exchange rates.
• Comparable direct-plan expenses range from 0.35 per cent to 1.42 per cent among the listed funds.
• Minimum investments, exit loads and how the two-year tax period applies vary by scheme.
• Most funds have short track records, limiting what early performance can establish about long-term results.

Investor Note: Treat GIFT City funds as distinct products rather than interchangeable routes to overseas markets. Compare the benchmark, total costs, tax and redemption terms, and consider the currency exposure before investing; short-term returns alone are not a reliable guide to future performance.