The advent of family offices in Gift City symbolizes a bespoke solution for wealth & succession
In an era where wealth management is undergoing a revolutionary transformation, India emerges as a pivotal player. The meteoric rise in the number of High-Net-Worth Individuals (HNIs) in the nation underscores the urgency for advanced investment and wealth management strategies. The International Financial Services Centre Authority (IFSCA) has insightfully responded to this burgeoning need by introducing the Family Investment Fund (FIF) in Gift IFSC—a pioneering structure designed for family offices, both within India and globally.
By 2031, India’s HNI population is anticipated to surge by a staggering 80%, solidifying its position as one of the globe’s most rapidly expanding wealth epicenters. This wealth accumulation has not only bolstered the domestic financial landscape but also increased the propensity of Indian HNIs to explore international relocation opportunities. As per reports, about 6,500 Indian HNIs are projected to relocate overseas in 2023. Despite this outward movement, while India’s robust wealth generation capacity continues to thrive, the recent trend of Indian HNIs relocating to countries like Australia, the Philippines, Portugal, Cyprus, and Malta over the past five years indicates a nuanced shift in the landscape of wealth management.
GIFT City’s family offices, through the IFSCA’s FIF, cater to the distinct needs of HNIs. These entities are uniquely positioned to manage diverse assets like real estate, bullion, and art. The FIF framework also facilitates direct investment in foreign debt securities and financial services entities, without any additional profitability or control requirements.
Recognizing the intricacies of Indian business structures, the FIF’s definition of a ‘single family’ is thoughtfully broadened to encompass various entities such as sole proprietorship firm, partnership firm, company, limited liability partnership, trust, or corporate body where an individual or a group of individuals of a single-family exercise substantial control and economic interest. This inclusive approach empowers family offices to manage and grow their wealth seamlessly. It also provides the flexibility to consolidate their assets. By streamlining wealth management processes, this approach offers enhanced succession planning and robust asset protection.
The Indian Exchange Control Regulations further bolster FIFs in Gift City by permitting investment in overseas financial entities without the prerequisite of a three-year profit trajectory. This opens a wealth of international investment possibilities, allowing HNIs to diversify their portfolios by tapping the overseas portfolio investment route and pursuing lucrative opportunities beyond Indian shores.
Despite these advantages, the IFSCA in consultation with Reserve Bank of India (RBI) is reassessing permissible investments through FIFs. This review is intended to ensure compliance with the Indian Overseas Direct Investment regulatory framework along with safeguarding the integrity of India’s financial ecosystem.
Even with these regulatory deliberations, FIFs present a suite of compelling benefits for family offices seeking to invest a minimum of USD 10 Million over a span of three years. These benefits, encompassing a decade-long tax exemption, GST exemption for services within the IFSC, no minimum net worth requirements, freedom from leverage conditions, unrestricted investment concentration, streamlined fund management, and access to global stock exchanges, collectively foster an environment conducive to long-term wealth creation.
The charter document governing the Family Investment Fund (FIF) structure in Gift City, offers families the flexibility to define beneficial interests and ensures effective fund management throughout its tenure. It also lays down a clear framework for investment decision-making through committees, governance roles, and exit strategies, adapting to the evolving dynamics of family structures and individual financial objectives.
Family trusts have long been recognized as an effective tool for succession planning, allowing families to safeguard and pass on their wealth to future generations. However, the emergence of Family Investment Funds (FIFs) has brought forth a new set of advantages that make them a compelling choice for modern succession planning and international investment. These funds are particularly appealing to families seeking to align their investments with global market trends and real estate opportunities, as well as accommodating the relocation of next-gen family members overseas.
In conclusion, the advent of family offices in Gift City symbolizes a bespoke solution for wealth & succession, catering to the needs of India’s burgeoning HNI community. The IFSCA’s vision of establishing India as a global financial hub can be effectively realized through the FIF framework. This initiative not only promises to reshape India’s financial landscape but also fosters sustainable wealth generation. It is imperative, however, for HNIs to cautiously navigate these structures within the RBI’s regulatory purview, ensuring their wealth is managed and augmented for future generations.
(This article is authored by Saurabh Sharma, Partner Legacy Growth & Ankur Pahuja, Partner Legacy Growth)
