India’s wealthy elite, especially those managing their fortunes through Single-Family Offices (SFOs) based in the Gujarat International Finance Tec-City (GIFT City), are adopting unconventional, workaround methods to invest abroad. The primary reason? A regulatory deadlock over the classification of outbound investments — whether they fall under Overseas Portfolio Investment (OPI) or Overseas Direct Investment (ODI) — is hindering international deployment of funds.

Despite receiving formal approvals from the International Financial Services Centres Authority (IFSCA) to operate within GIFT City, more than a dozen SFOs remain unable to initiate foreign investments due to this ambiguity.

ODI vs OPI Confusion: The Root of the Problem

The crux of the issue lies in the regulatory interpretation of fund flows. When Indian families remit money to GIFT City, such transfers are considered ODI transactions. However, the global investments that SFOs wish to make typically qualify as OPI.

The Reserve Bank of India (RBI) has categorically stated that an entity cannot undertake both ODI and OPI transactions simultaneously, creating a compliance paradox for GIFT City family offices. As a result, none of the licensed SFOs have been able to operationalise their global strategies.

The AIF-Style Workaround

In response to the deadlock, several SFOs have turned to a workaround inspired by the structure of Alternative Investment Funds (AIFs). This informal structure allows multiple family offices to pool their funds into a single unified entity, effectively mimicking a multi-family investment fund, while retaining control over their respective allocations through unofficial internal agreements.

In practice, this setup allows:

• Each family to maintain control over its capital

• Separate tracking of investments and returns

• Greater flexibility in executing overseas deals under the guise of a fund structure

These “AIF-like” vehicles provide the operational room to deploy money globally—a liberty not currently available to traditional SFOs due to regulatory restrictions.

Informality and Internal Agreements

Though legally a single entity, the fund functions as a mosaic of distinct family portfolios. According to sources, informal agreements ensure that each family’s investments are handled separately, with internal record-keeping segregating contributions and returns.

Such an approach does not officially violate any existing laws, but rather exploits the regulatory vacuum around single-family office activity in India’s IFSC ecosystem. As one source explained, “These arrangements work because there is no formal clarity yet on what a single-family office can and cannot do.”

Regulatory Inaction and Frustration

Despite several rounds of discussions between the IFSCA and the RBI, no formal resolution has emerged. This has led to increasing frustration among prominent Indian families who are eager to leverage GIFT City for international diversification.

A source involved in structuring one such fund said, “The lack of response from regulators has forced families to look for compliant alternatives, even if those structures are less than ideal.”

RBI’s Concerns: Misuse and LRS Circumvention

The RBI is wary of the family office model being used to circumvent the Liberalised Remittance Scheme (LRS), which limits individual overseas remittances to $250,000 per year. The central bank fears that wealthy individuals may pool funds under a family office umbrella to bypass LRS restrictions, potentially allowing large-scale capital flight.

This regulatory hesitance is a major reason behind the deadlock, as the central bank attempts to prevent systemic misuse of capital control frameworks while allowing legitimate global diversification by wealthy Indians.

The Exception: A Pilot Permission

So far, only one SFO has been granted permission to deploy funds internationally. This family office, linked to a leading Indian industrialist, is being treated as a pilot case by regulators.

Notably, the family already possessed legacy approvals for outbound investments and has made written commitments that all foreign capital will be repatriated and used solely for philanthropic purposes in India. This unique arrangement has allowed it to break free from the regulatory impasse, at least temporarily.

Implications of the Workaround

The workaround through AIF-style entities is seen as a temporary fix, not a permanent solution. These arrangements:

• Provide a pathway for cross-border diversification

• Help families maintain investment momentum

• Avoid direct regulatory conflict

However, these setups are fragile, relying on informal understanding, legal grey zones, and the absence of explicit regulatory restrictions.

A Stopgap Until Policy Clarity Emerges

Industry experts believe that more formal guidelines around SFOs at GIFT City are urgently needed. The lack of clarity threatens to undermine GIFT City’s attractiveness as a financial gateway for India’s wealthiest families.

Unless the RBI and IFSCA resolve the OPI vs ODI classification dilemma, Indian family offices will continue to function in a makeshift regulatory limbo, unable to fully unlock the global potential of GIFT City.

Until then, multi-family AIF-style structures serve as a stopgap — a compromise born out of necessity, offering a limited but crucial channel for global capital deployment.

Conclusion: A Call for Regulatory Foresight

As India seeks to position GIFT City as a world-class financial centre, enabling clarity and ease of operations for SFOs is essential. The current workaround, while innovative, exposes the gaps in regulatory thinking and underscores the need for a coherent policy framework.

Without it, GIFT City risks losing its appeal to ultra-high-net-worth individuals and family offices who seek seamless access to global markets.

The Upcoming IPOs in this week and coming weeks are Eppeltone Engineers, Aten Papers & Foam, Patil Automation, Oswal Pumps, Samay Projects Services, Monolithisch India.

The Current active IPO are Jainik Power Cables, Sacheerome Limited.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.