GIFT City Launches Gold Fund With Physical Bar Redemption

A New Redemption Model

India's International Financial Services Centre in Gujarat has introduced a gold investment vehicle that blurs the line between paper and metal. The Artha Bharat FinMet Physical Gold Fund operates through Bullion Depository Receipts, instruments representing actual gold stored in approved vaults within the GIFT City framework. Investors can exit positions in cash or request delivery of physical bars, a feature that distinguishes the product from conventional gold ETFs.

The fund targets non-resident institutions, family offices, and high-net-worth individuals. Indian tax residents are excluded under IFSC regulations. Minimum investment stands at $150,000, dropping to $50,000 for accredited investors, according to Artha Bharat Investment Managers IFSC.

Mechanics of Physical Delivery

Redemption in physical form requires investors to first open an account with the India International Depository IFSC. The fund transfers the relevant BDRs into that account, and the investor extinguishes them to claim gold within the GIFT City vault network or through global delivery channels. Physical gold comes in 100-gram units; any fractional balance settles in cash.

At redemption, the investor bears delivery, insurance, transport, and custody costs. Purity risk is reduced through serial numbering, approved sourcing channels, and supplier documentation matched to each BDR. The fund maintains approximately 95 per cent of its exposure in gold-backed BDRs, so redemptions center on transferring and extinguishing receipts rather than sourcing metal from the spot market.

Cost and Competitive Context

The total expense ratio sits at 0.65 per cent annually, with no performance fee. That is higher than many global gold ETFs, which typically charge between 0.2 per cent and 0.4 per cent, but those products settle only in cash. The additional cost reflects the infrastructure required to support physical redemption.

The fund is denominated in US dollars and does not hedge currency exposure. Returns depend on both global gold price movements and the investor's home currency against the dollar. Any currency hedging must be arranged separately.

No Arbitrage With Domestic Market

The structure does not create a loophole between GIFT City and India's domestic gold market. Gold delivered through the fund remains outside India unless imported through standard legal channels, where customs duty, goods and services tax, and import rules apply. The fund operates entirely within the non-resident investment universe.

Eligible investors may benefit from tax efficiencies under Section 10(4D) of India's Income Tax Act, subject to conditions. The broader IFSC ecosystem, including the India International Bullion Exchange and the India International Depository, supports the model.

Positioning Against Established Hubs

Singapore, Dubai, and London have long served as centers for allocated gold holdings. GIFT City's offering combines a regulated fund structure with a direct path to physical redemption, aiming to carve space within Asia's offshore wealth management landscape. The ability to convert fund units into tangible metal appeals to investors seeking optionality beyond price tracking, particularly those with long-term allocation mandates or concerns about counterparty risk in paper instruments.

Whether the structure gains traction will depend on demand for physical gold among non-resident portfolios and the operational efficiency of the vault and logistics network. The fund represents a test case for whether India's offshore financial hub can compete with entrenched competitors by adding layers of flexibility to traditional commodity exposure.