Can an investment fund allow investors to walk away with physical gold bars? In GIFT City, that idea has moved from concept to structure.
A new gold fund set up within the IFSC ecosystem is built around Bullion Depository Receipts (BDRs), which represent actual gold stored in regulated vaults.
Unlike a traditional gold ETF that only tracks prices and settles in cash, this structure keeps gold fully backed in allocated form and adds a unique feature — investors can choose to redeem their holdings in physical gold or cash.
The fund is restricted to non-resident investors, including institutions, family offices, and high-net-worth individuals, and is designed as a long-term allocation product with optional physical delivery.
Sachin Sawrikar, Managing Partner, Artha Bharat Investment Managers IFSC LLP, tells the bussinessline about the mechanics of the fund:
How does the Artha Bharat FinMet Physical Gold Fund actually work?
The biggest distinction is that the fund is built around the IFSC bullion ecosystem rather than direct physical bullion holdings. The fund invests almost entirely in Bullion Depository Receipts (BDRs), which represent underlying gold held within the GIFT City framework. We have then built a redemption-in-kind mechanism over this structure, allowing investors to receive physical gold by extinguishing the underlying BDRs. To our knowledge, this combination of BDR-based exposure with investor-level physical redemption is among the first of its kind.
The fund is exclusively for non-resident investors. It caters to institutional investors, family offices, and high-net-worth individuals. Since Indian tax residents are not eligible, it operates entirely within the non-resident investment universe, under IFSC regulations.
What is the minimum investment and typical ticket size?
The minimum investment is $150,000, which comes down to $50,000 for accredited investors. Our target investors are those looking for meaningful allocations to physically backed gold, not small speculative exposure — but structured, long-term holdings with the option of physical redemption.
How is physical delivery operationalised within GIFT City? Can investors take delivery only within IFSC vaults or outside India as well?
Operationally the investor first opeans an account with IIDI. The fund then transfers the relevant BDRs into the investors’ account. The investor extinguishes those BDRs to take physical gold within the GIFT City vault network or through the global delivery route. We facilitate and coordinate the process through the relevant depositary vault, exchange, and logistics arrangements. This remains subject to operational feasibility, documentation applicable law and the redeeming investor bears the associated costs.
Can investors actually take delivery of small quantities of gold?
Physical redemption is available in 100-gram units, which is the minimum delivery denomination. If an investor’s holding does not match full 100-gram multiples, the remaining portion is settled in cash. So investors receive physical gold where possible, and cash for residual balances.
Who bears custody, insurance and purity risk at the point of redemption?
Purity risk is substantially mitigated by the structure. The underlying bars are serially numbered, sourced through approved channels, supported by supplier quality documentation, and matched to relevant BDR. At the point of physical redemption, delivery, insurance, transport and custody costs are borne by the redeeming investor. That is standard for physical delivery structures globally.
What happens if many investors request physical gold at the same time?
The fund is designed so that around 95 per cent of its exposure is in gold through BDRs. So the backing already exists. Redemptions are primarily about transferring and extinguishing BDRs. The process depends on depository systems, vault operations and logistics, rather than availability of gold in the market. There is no need to source gold after redemption requests.
What makes this different from a normal gold ETF?
A traditional gold ETF provides price exposure and settles in cash. Investors do not interact with physical gold. In this case, the fund is built around BDRs, which represent actual allocated gold. The important distinction is the redemption mechanism — investors can either take cash or convert their holdings into physical gold. That optionality is what sets the structure apart.
How does the cost compare with global gold investment products?
The total expense ratio is 0.65 per cent per year, with no performance fee. This is higher than many global gold ETFs, which typically charge 0.2 per cent to 0.4 per cent, but those products only provide cash settlement. Here, investors also get the ability to redeem into physical gold, which is the key differentiator.
Since the fund is denominated in US dollars and allows physical gold delivery, does it create an arbitrage opportunity with India’s domestic gold market, and how should investors think about currency risk?
No. The fund is designed for non-resident investors and operates entirely outside India’s domestic gold market. Any gold delivered through the fund remains outside India unless it is imported through the regular legal route, where it would be subject to the same customs duty, GST and import regulations as any other gold. So, the fund does not create an arbitrage opportunity between GIFT City and the domestic market.
On currency, the fund provides straightforward US dollar-denominated exposure to gold and does not hedge foreign exchange risk. Returns will therefore depend on both the movement in global gold prices and the investor’s home currency against the US dollar. Investors who wish to hedge currency exposure would need to do so separately.
Why would investors use GIFT City instead of established gold hubs like Singapore or Dubai?
Singapore, Dubai and London are established centres for allocated gold. The difference here is the structure — a regulated fund within GIFT City combined with a direct path to physical redemption. In addition, eligible investors may benefit from tax efficiencies under the IFSC framework, subject to conditions under Section 10(4D). The broader ecosystem, including infrastructure like IIBX and IIDI, also supports this model.
