Beyond borders: Why global investing makes sense for Indian portfolios

Don’t keep all your wealth within the four borders. As Indian equity markets continue to hit record highs, it’s tempting for investors to remain rooted at home. However, here’s a critical reality check: India comprises just 4.2 percent of the global equity market capitalisation as of December 2024. That means a staggering 95.8 percent of investment opportunities lie beyond our borders—in markets like the US, Europe, and emerging economies that house dominant players in artificial intelligence (AI), semiconductors, electric vehicles (EVs), and luxury brands. With the Liberalised Remittance Scheme (LRS) offering legal routes for outbound investment and dollar-linked instruments now more accessible, the key question is: Why should your portfolio remain geographically confined when global avenues are expanding? Also consider this—many of our future aspirations (like iPhones, foreign education, and gold purchases) are dollar-denominated. So, isn’t it prudent for our investments to match that currency exposure?

India’s Position in the Global Market

Despite being the 5th largest equity market, India’s single currency–single geography–single asset concentration limits global participation and increases risk. Global diversification is not mandatory—but it is smart.

The Case for Diversification: Returns & Risk (Rs vs. $)

Global portfolios may show lower dollar-denominated returns (~9–10%), but when converted back to INR, returns improve due to rupee depreciation (historically averaging 3–4% annually vs. USD). This acts as a natural hedge, enhancing long-term INR gains.

Example: If USD appreciates from Rs 60 (in 2014) to Rs 83 (in 2024), that’s a ~38% gain just from currency conversion—boosting your foreign investment returns even if global market CAGR is stable. Hence, diversifying globally in dollar-denominated assets not only reduces domestic risk but also benefits from currency tailwinds.

Also read | China funds give up to 53% returns in a year: Should you look to invest?

TCS Angle: A Hidden Hurdle in Foreign Investing 

Suppose you invest Rs 15 lakh abroad in a US ETF via LRS in FY 2025–26.

• Amount over threshold = Rs 15 lakh – Rs 10 lakh = Rs 5 lakh
• TCS payable upfront = 20% × Rs 5 lakh = Rs 1 lakhSo, your actual cash outflow = Rs 15 lakh (investment) + Rs 1 lakh (TCS) = Rs 16 lakh total, out of which only Rs 15 lakh is invested. This Rs 1 lakh is not an expense, but gets adjusted later in your income tax return (ITR) filing as a credit or refund. However, the delay in reclaiming that money (often 6–18 months) causes:- Liquidity crunch – Investment delays (especially for SIP-style global investing) – Administrative hassle for average investors This makes TCS a deterrent, particularly for investors trying to build foreign exposure in tranches or via monthly systematic plans. Also read | F&O taxation: What you need to know about turnover, losses, and ITR filing

How to invest globally: To invest globally, Indian investors can choose from four structured avenues—each with unique benefits and limitations:

– International Mutual Funds (Feeder Funds) allow INR-based access to global markets without foreign accounts. However, they depend on RBI’s overseas limits, and caps can lead to sudden fund suspensions, making them unreliable for long-term investing.

– Direct Equity via LRS Platforms lets investors buy global stocks but comes with forex fees (1–2%), brokerage charges, and tax complexities, especially with multiple small transactions.

– US-Listed Global ETFs offer low-cost diversification but require foreign brokerage accounts, LRS remittance, and estate/tax compliance abroad.

– India-listed Global ETFs provide simple INR-based access but remain exposed to RBI-imposed investment ceilings, affecting fund availability.

Global exposure offers Indian investors access to high-growth sectors where domestic markets are still evolving. Key areas like semiconductors, electric vehicles, artificial intelligence, cloud computing, and luxury goods remain underrepresented or in early stages in India, making global diversification vital for a balanced and future-ready investment portfolio. While global investing offers diversification, it brings key risks. Currency volatility can reduce returns if the rupee strengthens. Foreign stocks are taxed as unlisted assets in India—at slab rates without indexation—making gains costly for high-income investors. US estate tax applies if holdings exceed $60,000, potentially burdening heirs. LRS compliance involves documentation, foreign asset disclosure, and a 20 percent TCS on remittances above Rs 10 lakh, causing cash flow strain until refund. Despite these hurdles, global investing isn’t essential but adds strategic value. Despite these hurdles, global investing adds strategic value. It suits those with long-term goals who can manage the tax, regulatory, and currency complexities of building an internationally diversified portfolio. Rather than navigating this landscape alone, it’s strongly advisable to consult a qualified financial advisor who understands global investing, cross-border taxation, and your specific financial goals. With the right guidance, international diversification can become a strategic and rewarding part of your long-term wealth journey.

The writer is a certified financial planner and founder, True North Finance, a financial and investment planning firm based in Pune.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.