GIFT City Funds vs US & UCITS ETFs: Which Is Better for Indian Investors?

Buying global exposure through an India-facing fund, PMS or AIF can feel reassuringly familiar. A known manager handles the portfolio, the transactions and, in some structures, much of the tax administration. But that comfort can add manager risk, idle cash, layered expenses and fund-level tax before the return reaches the investor. The first meaningful scorecards suggest that the detour has often cost more than it delivered.

Let's break down how GIFT funds, FoFs, PMS and AIF products have performed, what investors paid for the convenience, and why directly owning a low-cost US-listed or UCITS ETF may often be the cleaner route.

What's Covered?

• How GIFT funds, PMS and AIF products have performed
• Why every indirect global route should face the same economic test
• Fund returns versus their stated benchmarks
• The two-layer cost inside a fund of funds
• Why a weaker rupee does not rescue relative underperformance
• Managed India-routed products versus US and UCITS ETFs
• A practical framework for choosing the right route

How to Compare GIFT Funds, PMS and AIFs With Direct ETFs

Retail funds, FoFs, PMS mandates and AIFs are legally different products. Their minimum investments, liquidity, fees and tax treatment can be very different too. But from an investor's point of view, they deserve one common economic test: after every cost and portfolio decision, did the managed route deliver enough value to justify not owning the underlying global exposure directly?

That is the lens used in this article. We are not pretending that a $5,000 retail fund and a $150,000 AIF are interchangeable. We are comparing the outcome of the decision they have in common: handing portfolio control to a manager or wrapper instead of directly selecting a US-listed or UCITS ETF.

In a PMS such as the PPFAS strategy, the underlying stocks may be held in the client's own name. Here, “indirect” describes the decision-making route, not necessarily the legal ownership. The manager still decides which securities to own, how much cash to keep and when to trade, and the investor pays for that discretion.

The same test applies to conventional Indian international mutual funds when they simply place another fee-charging wrapper around an overseas fund or ETF. The performance tables below focus on GIFT City products because that is where the newest outbound launches and comparable disclosures are available. We have used direct plans wherever the factsheet provides them. Returns are in US dollars through the latest disclosure available by September 21, 2026.

GIFT City Global Funds Performance vs Their Benchmarks

Note: “pp” means percentage points. Periods differ because these products launched on different dates. This is a scorecard of disclosed periods, not a common-period ranking. The Edelweiss estimate adds its 0.50% direct management fee, up to 0.30% operating expenses and the underlying fund's 0.62% expense ratio. Actual charged expenses may be lower. Sources: official fund factsheets and product disclosures for August 2026, or the latest available month.

Three conclusions jump out:

1. First, DSP's gap is too wide to blame on fees. A 1% annual expense ratio cannot explain a 22.11 percentage-point shortfall in less than a year. Portfolio choices did most of the damage.

2. Second, the passive PPFAS FoFs tell a more interesting story than “none beat the benchmark”. Before fund-level tax, the S&P 500 FoF returned 19.54%, versus 18.92% for its benchmark, and the Nasdaq 100 FoF returned 24.41%, versus 23.40%. They were ahead by 0.62 and 1.01 percentage points respectively. After tax provisions in the NAV, however, investors saw 16.62% and 20.76%. That changed the result from modest outperformance to underperformance.

3. Third, most products are simply too young for a verdict on manager skill. Two months of Marcellus retail performance or five months of a new index FoF is not a full market cycle. The data can reveal present structure and present outcomes. It cannot prove permanent failure.

For background on the launches, read INDmoney's explainers on the DSP Global Equity Fund and Parag Parikh's GIFT City S&P 500 and Nasdaq 100 FoFs.

GIFT City PMS and AIF Performance vs Benchmarks

The higher-ticket strategies strengthen the concern around active management. Their fees, liquidity and minimums differ from retail funds, so they are shown separately, but the investor-level question remains the same: did the manager add value over a directly investable benchmark after costs?

Mirae and Unifi figures follow The FYPrint's September 2026 GIFT City Out-bound Funds Report because their latest public factsheets do not present the same matched benchmark comparison. PPFAS and Marcellus figures are from official disclosures. Returns are reported under each manager's stated methodology, and tax treatment can differ across structures.

The minimum ticket also changes the conversation. PPFAS and Marcellus PMS products start around $75,000. Mirae's standard AIF class and Unifi G20 generally target much larger commitments. These are not convenience products for a first-time global investor. They are concentrated manager mandates where the investor knowingly accepts meaningful active risk.

The fee hurdle is equally serious. PPFAS lists a 2% annual management fee plus GST and actual operating expenses. Marcellus offers different combinations of fixed and performance fees, but even the fixed-only option is 1.5% a year before GST. If a public factsheet does not display the applicable AIF fee, the investor should obtain the private placement memorandum and share-class schedule before comparing returns. “Fees are already adjusted in the NAV” is not a reason to ignore them. It is precisely why the net return must beat a low-cost alternative.

Why Did Active Global Funds Underperformed Their Benchmarks?

1. They did not own the benchmark

An active fund is not a more intelligent version of an index. It is a different portfolio.

MSCI ACWI and the S&P 500 are market-cap weighted. When a small group of mega-cap US businesses drives returns, an active fund that holds less of those winners, avoids them on valuation grounds or owns more non-US stocks can lag quickly. That is not necessarily a mistake in process. It is the direct cost of making a different call.

The correct question is not, “Did the manager own good companies?” It is, “Did the portfolio's different weights add value after every cost?” During the disclosed periods, the answer for several active strategies was no.

2. Cash became an expensive safety blanket

At August-end, DSP Global Equity held 19.89% in cash and equivalents. Marcellus Global Equities held 16.52%. The PPFAS PMS factsheet showed 33.34% cash at June-end.

Cash can protect capital in a falling market and let a manager buy later. But in a sharp rally, it behaves like a passenger who bought a ticket and stayed at the station. If equities rise 20% and 20% of a portfolio earns roughly nothing, the arithmetic alone can create about four percentage points of gross drag before stock selection and fees.

3. New money was deployed into a fast market

Several of these products began collecting and deploying capital while global equities were already moving quickly. Staggered deployment, operational cash and cautious entry prices can all leave a new fund behind a fully invested index. This is understandable, but investors experience the NAV, not the explanation.

4. Fees and tax provisions then widened the gap

Fees were not the main reason for a 15 or 22 percentage-point miss, but they are the one source of drag that arrives every year, whether the manager is right or wrong.

For the passive PPFAS funds, the pre-tax and post-tax return lines isolate another drag. GIFT fund NAVs provide for tax inside the fund. DSP's August 2026 tax guide lists fund-level rates of 42.74% on short-term gains, 14.95% on long-term gains and 35.88% on dividend income, including applicable surcharge and cess. The precise impact depends on portfolio activity and the character of income, so investors should not subtract one headline rate mechanically. The visible point is simpler: tax provisioning can turn benchmark-like gross performance into a lower investor NAV return.

5. One-day pricing mismatches can create noise

A FoF that values a Europe-listed UCITS ETF before the US market closes can temporarily look ahead or behind its US benchmark. PPFAS explicitly notes this non-overlapping-market effect and says it normally reverses on the next business day. That is tracking noise, not durable alpha or durable underperformance. Long holding-period comparisons matter more than a single NAV date.

Fund of Funds vs ETFs: How Two-Layer Fees Affect Returns

A fund of funds, or FoF, owns another fund instead of buying the underlying shares itself. The investor pays for the outer fund's administration and management, while the inner ETF or fund also charges expenses.

Think of booking a hotel through an agent who uses another agent. Each fee may look small, but both are taken from the same holiday budget.

The PPFAS S&P 500 FoF is among the leaner examples: 0.30% for the direct plan and 0.05% for its underlying ETF, for a published total expense ratio of 0.35%. Its Nasdaq 100 FoF is 0.30% plus 0.20%, or 0.50%. Edelweiss Greater China has more expensive layers. At the stated maxima, its direct route can reach roughly 1.42% before any exit load.

By comparison, investors can access broad, named building blocks directly: Vanguard S&P 500 ETF, VOO at 0.03%, Invesco Nasdaq 100 ETF, QQQM at 0.15%, and Vanguard Total World Stock ETF, VT at 0.06%. Irish UCITS alternatives include iShares Core S&P 500 UCITS ETF, CSPX at 0.07%, iShares Nasdaq 100 UCITS ETF, CNDX at 0.30%, and Vanguard FTSE All-World UCITS ETF, VWRA at 0.14%.

These are examples for comparing structures, not recommendations. An ETF's bid-ask spread, brokerage, foreign-exchange conversion and remittance costs also matter. For small, frequent investments, those transaction costs can outweigh a seemingly tiny TER advantage. Batching investments may improve the calculation.

How ETF and Fund Fees Affect ₹10 Lakh Over 20 Years

Let us isolate the fee effect. Assume ₹10 lakh earns a hypothetical 10% gross return each year. Ignore tax, currency, tracking difference and transaction costs. Only the annual expense ratio changes.

This is not a return forecast. It is a cost demonstration. A 0.28 percentage-point annual gap between 0.35% and 0.07% looks harmless on a factsheet, yet it removes about ₹3.3 lakh from this hypothetical 20-year outcome. At a 1.25% cost, the gap grows to nearly ₹12.9 lakh.

Fees work like a tiny leak in an overhead tank. You may not notice it on day one. Twenty summers later, the missing water is obvious.

There is a second asymmetry. A manager can underperform for a year and recover later. An expense deducted from the NAV is gone permanently. It loses not only today's money, but every future return that money could have earned.

Does Rupee Depreciation Offset Global Fund Underperformance?

Not in a fair comparison.

The comparison reports both the products and their benchmarks in US dollars. Rupee depreciation is therefore not included in either number. If both are later translated into rupees, the same currency move applies to both:

INR return = (1 + USD investment return) × (1 + USD/INR change) - 1

Suppose a fund gains 2.1% in dollars, its benchmark gains 16.8%, and the dollar appreciates 5% against the rupee. The fund's rupee return becomes roughly 7.2%. The benchmark's becomes roughly 22.6%. Currency lifted both, but the benchmark lead remained about 15.4 percentage points.

The dollar is an elevator carrying both portfolios to a higher floor. It is not a bridge that closes the distance between them.

Currency is still important for an Indian investor's realised return and risk. It simply should not be presented as active performance. The correct benchmark comparison uses the same currency, the same dates and the same dividend treatment.

GIFT Funds vs US ETFs vs UCITS ETFs: Key Differences

The direct routes are not free of friction. Direct foreign ETFs and most GIFT outbound structures use the Liberalised Remittance Scheme, where resident individuals currently have an annual limit of $250,000. An ordinary onshore Indian international mutual fund generally does not consume the investor's personal LRS limit. TCS may apply to eligible outward remittances above the prevailing annual threshold. It is normally a tax credit or refundable cash-flow item, not an investment expense, but the money can remain blocked until it is adjusted through the tax process.

Direct foreign ETFs also require careful Indian tax reporting. Under current rules, gains on foreign shares or ETFs held for more than 24 months are generally taxed as long-term capital gains at 12.5%, plus applicable surcharge and cess; shorter holdings are generally taxed at the investor's slab rate. Foreign assets may need Schedule FA disclosure, and foreign income or tax credits can require Schedules FSI/TR and Form 67. Tax facts depend on residency, holding structure and future law, so a chartered accountant should verify the investor-specific position.

Why UCITS Deserves A Closer Look

For long-term Indian investors, an Ireland-domiciled UCITS ETF can sit in a useful middle ground.

Ireland's treaty framework generally reduces US dividend withholding inside an Irish ETF holding US equities to 15%, versus the 30% statutory rate. A resident Indian holding a US-listed ETF directly will commonly see treaty withholding on dividends, generally 25% after valid documentation, and then deal with Indian tax and foreign-tax credit rules.

Accumulating UCITS classes such as CSPX or VWRA reinvest distributions inside the fund rather than paying cash each quarter. That can simplify reinvestment, although it does not make the income economically tax-free. Irish ETF shares also generally avoid the direct US-situs holding issue that can expose a non-US person to US estate-tax filing above $60,000 of US-situs assets. That conclusion follows from US situs rules and the ETF's Irish domicile; estate planning still deserves specialist advice.

UCITS is not automatically the best. Some funds are smaller, spreads can be wider, market hours differ, and the lowest-cost US ETF may still be cheaper. The advantage is structural, not magical.

Author’s View: Are GIFT Funds Worth the Extra Cost vs Direct ETFs?

GIFT City and India's wider global-investing ecosystem are important pieces of financial infrastructure. They offer regulated access, professional management and routes around the overseas-investment capacity problem that periodically shuts Indian international mutual funds. The innovation is real.

But a useful gateway should not be confused with a superior vehicle.

If a fund, PMS or AIF offers genuinely differentiated active exposure, a skilled process, useful reporting simplicity and an acceptable all-in cost, paying more can be rational. Investors are buying a service, not merely an index. The hurdle should be explicit: the manager must add enough value after fees, cash drag, tax provisions and trading costs.

For plain S&P 500, Nasdaq 100 or global market exposure, that hurdle becomes much harder to clear. When the outer FoF owns a readily available UCITS ETF, the investor is paying an additional wrapper for access and administration. Sometimes that convenience is worth 20 or 40 basis points. It is harder to justify when the all-in charge approaches 1% or more, a long exit load applies, or the investor already has direct global investing access.

Our objection is not that every global fund, PMS or AIF will always lose to an ETF. The evidence is too young and too mixed for that claim. The objection is paying an active price for benchmark-like exposure, or paying two layers to reach an ETF that can be owned directly, without first calculating what the convenience is worth.

5 Things to Check Before Choosing a Global Investment Route

1. What is the real benchmark? Match geography, currency, dividends and dates. MSCI ACWI is not interchangeable with the S&P 500.
2. What is the all-in annual cost? Add the wrapper TER, underlying fund expense, operating charges, performance fee if any, spreads and recurring platform costs.
3. Is the published return pre-tax or post-tax? A GIFT NAV may already include tax provisions, while the benchmark does not.
4. How different is the portfolio? Check cash, country weights, concentration and the stocks omitted from the index. Active risk should be deliberate.
5. What convenience are you buying? Simpler reporting, professional allocation and behavioural discipline have value. Put a number on that value before accepting a permanent annual fee.

Also compare exit loads and minimums. DSP and Marcellus retail funds have meaningful exit loads for redemptions within 24 months. Several GIFT funds start at $5,000 or $10,000, while direct ETFs can often be bought fractionally. Accessibility is no longer a one-way advantage.

The Bottom Line

The first scorecards across GIFT funds, PMS mandates and AIFs do not prove that active global investing is broken. They prove something more practical: a familiar wrapper cannot repeal arithmetic.

DSP's early 22.11 percentage-point gap and the double-digit misses in the PPFAS and Marcellus PMS products came mainly from portfolio choices and cash, not only fees. Yet fees and fund-level tax provisions added certain drag to uncertain manager outcomes. The passive PPFAS FoFs made the point especially well: they modestly beat their indices before tax, but their investor-facing post-tax returns fell behind.

For an Indian investor seeking differentiated active management and willing to evaluate the extra cost, a carefully chosen fund, PMS or AIF may still earn its place. For someone who simply wants the S&P 500, Nasdaq 100 or the global market, direct US-listed and UCITS ETFs set a demanding benchmark on cost, transparency and control.

Comfort is useful. Compounding is unforgiving. Before paying for the first, measure what it takes from the second.