Your avenues for investments abroad

India accounts for 3- to 4% of global market capitalisation. A portfolio invested entirely in domestic assets is therefore structurally under-diversified, ignoring the other 96-97%. Global investing is about diversification across geographies, currencies, and economic cycles. Exposure to dollar-denominated assets also provides the benefit of long-term rupee depreciation when you redeem and bring the money back home. When currency depreciates and you redeem (sell) investments abroad, it gets converted back to INR at a higher rate.

Over the past few years, multiple avenues have opened up for resident Indians to invest overseas. However, each avenue comes with its own regulatory framework, limits, and practical considerations. Understanding these routes is essential before allocating your investible capital abroad.

MFs investing abroad

The simplest route is Indian mutual funds (MFs) investing internationally – either directly in foreign equities or via feeder structure. The MFs are regulated by Securities and Exchange Board of India (SEBI) and available in rupees. Investors need not deal with foreign exchange, remittances or overseas accounts.

However, there is a limitation. SEBI (in coordination with RBI) has fixed an industry-wide cap on MFs’ overseas investments — $7 billion plus a separate $1 billion for ETFs. This limit is overall for the MF industry. This has led to a stop-start pattern – periods when funds accept inflows, followed by sudden closures. For investors, this creates uncertainty.

Despite this constraint, the route is attractive for first-time global investors, those preferring systematic investment plan (SIP) abroad in rupees or not preferring Liberalised Remittance Scheme (LRS) and converting INR to any other foreign currency.

GIFT City products

Funds set up in GIFT IFSC (international financial services centre) invest directly in global securities and are not subject to SEBI’s overseas MF caps. This removes the “window opening and closing” problem. Outbound products are subject to the LRS limit of $2,50,000/financial year.

Products available are equity-focused funds and fixed income funds.

Historically, GIFT City products required large ticket size. Earlier, the minimum was $1,50,000. Now it is cut to $75,000 for accredited investors (AIs) who satisfy some conditions of net worth and income. Recently, retail-oriented products have emerged with entry level at $5,000. For investments via LRS, there is tax collected at source (TCS) of 20% on remittances above ₹10 lakh/year. TCS is adjustable against final tax liability. This route is emerging as a structurally cleaner option for fund-based global investing.

Direct investing via LRS

The most flexible route under LRS is direct investment in foreign securities. However, you need the bandwidth for doing it. You can invest in global equities (e.g. U.S. stocks), ETFs (equity and bond) abroad, foreign MFs, government and corporate bonds (via platforms), etc. You have to open an overseas brokerage account, transfer funds under LRS, and invest in securities of your choice. There are Indian fintech platforms who simplify account opening, KYC and compliance. Retail investors can begin with as low as $100.

For LRS investments, the forex cost (spread kept by the bank/money changer) is often the biggest expense. No leverage, derivatives or speculative instruments are allowed in direct investments abroad. Portfolio management responsibility lies with the investor. This route is suitable for experienced investors, those wanting specific global exposures and investors building customised portfolios.

Global access platform

Another channel is via platforms operating in GIFT IFSC. These offer access to multiple global markets, stocks, ETFs, derivatives, currencies and bonds. A notable feature is the ability to invest via instruments representing foreign securities such as receipts linked to U.S. stocks. It combines global exposure with Indian regulatory familiarity. However, it is evolving in terms of retail adoption and awareness.

Conclusion

The choice of the route for global investments depends on investment size, comfort with foreign exchange and compliance, desire for control vs. delegation, time horizon and sophistication. The real challenge is not access, but selection of the right route, managing costs, compliance and aligning exposure with portfolio goals.

(Joydeep Sen is a corporate trainer (financial markets) and author)