Introduction

DSP mutual fund has launched India’s First Retail Mutual Fund from GIFT City. Indian investors seeking efficient global diversification have often faced regulatory hurdles, complex tax reporting, and SEBI’s investment caps. DSP Mutual Fund’s latest GIFT City offering addresses these challenges effectively. Here’s a comprehensive guide on DSP’s pioneering investment product.

What is DSP Global Equity Fund (IFSC)?

DSP Global Equity Fund (IFSC) is India’s first retail mutual fund based in GIFT City’s International Financial Services Centre (IFSC). This USD-denominated fund primarily invests in 30-50 large-cap global stocks from markets like the US, Europe, Japan, South Korea, China, and Canada. As per the details shared by the fund house, the fund has following investment criteria for selecting stocks:

• Market capitalization over USD 30 billion
• Annual earnings growth of 6-7%
• Shareholder yield between 2-4%
• Stocks bought at 30-40% discount to fair value

This meticulous selection offers quality global exposure at attractive valuations.

Taxation and Compliance:

DSP’s GIFT City fund streamlines the tax process for investors.

Capital Gains Taxation:

DSP Global Equity Fund (IFSC) operates under the IFSC regulatory framework and is structured as an offshore fund. This means:

• Tax is paid by the fund on behalf of investors. Investors do not have to pay capital gains tax separately or declare it in their own returns.
• Short-Term Capital Gains (STCG): If the securities sold within the fund are held for less than 2 years, the fund pays 42% tax on the gains internally before distributing proceeds.
• Long-Term Capital Gains (LTCG): For securities held for 2 years or more, the fund pays 12.5% tax internally before distributing proceeds.

As a result, investors receive the net post-tax amount directly, with no further capital gains tax liability on redemption.

Investor Reporting Obligations:

While capital gains tax is handled at the fund level, Indian investors must still disclose their offshore holdings as required by Indian tax law:

• Schedule FA (Foreign Assets): Investors must report their investment in the DSP Global Equity Fund (IFSC) under Schedule FA of the Indian Income Tax Return. This includes the fund name, jurisdiction (India – IFSC), folio number, and year-end value.
• No need to report capital gains: Since all capital gains tax is paid by the fund itself, investors do not report gains or losses separately in their ITR.
• Categorized as exempt income: The fund is typically classified under foreign assets generating exempt income, easing compliance for individual taxpayers.

This setup simplifies tax filing compared to direct overseas investments through platforms like US brokerages.

Regulatory Considerations: LRS and TCS Explained

Investments are routed through the Liberalized Remittance Scheme (LRS), limited to USD 250,000 per person per year. Important regulatory notes:

• Remittances above ₹10 lakh per year attract 20% Tax Collected at Source (TCS), refundable upon tax filing.
• Current onboarding involves physical documents via CAMS IFSC, with plans for a fully digital process underway.

Portfolio Benefits: Does It Add Value?

This product offers distinct advantages:

• Uninterrupted Global Access: Not limited by SEBI’s USD 7 billion cap that restricts traditional feeder funds.
• Currency Diversification: USD-denominated investments hedge against INR depreciation, ideal for overseas financial objectives like education and retirement.
• Ease of Investing: Simplified compared to overseas brokerage accounts, with reduced documentation and tax complexity.

Fees and Expense Structure

DSP provides several share classes:

Expense ratio is on the higher side but in line with international funds. Opting for direct plans offers significant cost savings, particularly beneficial for larger investments.

Conclusion

DSP’s Global Equity Fund from GIFT City marks a significant milestone for Indian retail investors, enabling simpler, tax-efficient global investing without SEBI limitations. Investors should carefully consider inherent equity and currency risks and begin with prudent allocations. Since the scheme is new, there is no track record of performance. However, conceptually, the fund merits attention, especially if you seek global exposure.

Note that other fund houses, such as Mirae, have also received approval to launch similar funds, and you can expect their NFOs soon.

Investors are advised not to rush into the NFO immediately but rather wait for at least one year to evaluate the fund’s performance before starting allocations.