Investing Abroad: US Stocks, International Funds, LRS and TCS

Investing in India

Why Bother

The case for owning more than one economy

Consider how concentrated a typical Indian investor’s life already is: salary from an Indian employer, home in an Indian city, EPF in Indian government bonds, equity in Indian companies, all denominated in rupees. If India has a difficult decade — and every economy eventually has one — everything moves down together. Japan’s investors learnt this between 1990 and 2010, when their home market went sideways-to-down for twenty years while world markets compounded.

Three specific arguments for international exposure. Diversification of economic risk: the US, Europe, and India don’t boom and bust on the same schedule; owning several smooths the ride. Access to businesses India doesn’t have: the global technology platforms — Apple, Microsoft, Google, Nvidia — plus pharmaceutical giants, luxury houses, and semiconductor leaders simply aren’t listed in Mumbai. An Indian portfolio, however good, cannot own the companies whose products you use every hour. Currency diversification: the rupee has depreciated against the dollar by roughly 3–4% a year over long periods. Dollar assets convert that depreciation from a cost of living increase into a portfolio tailwind — your US holdings gain in rupee terms even when the underlying stock is flat.

The honest counterweight: India has been one of the world’s best-performing markets over the past two decades, and home bias has cost Indian investors little historically. International exposure isn’t about predicting India will underperform — it’s insurance against concentration, sized modestly. A common allocation among thoughtful planners is 5–20% of equity money, not a wholesale shift abroad.

Route One

Indian international mutual funds — the simple door

Indian AMCs run funds that invest abroad — S&P 500 index funds, Nasdaq 100 funds, global and regional funds, and fund-of-funds feeding into offshore ETFs. You invest in rupees through any MF platform, no foreign account, no currency conversion on your side, SIP-able like any domestic fund.

The complication unique to this category: SEBI’s industry-wide overseas investment limits ($7 billion for stocks, $1 billion for offshore ETFs) filled up in 2022, and AMCs have periodically suspended fresh subscriptions in international schemes since — reopening in windows when redemptions create headroom. As of mid-2026, several schemes accept fresh money in limited windows while others remain closed. Practical consequences: your preferred fund may not be open when you want to invest; SIPs into these funds can be paused by the AMC mid-stream; and when demand exceeds a reopened window, units have occasionally traded at premiums to NAV in the ETF versions. Check the specific scheme’s current subscription status before planning around it.

Taxation (post-April 2025 purchases): international equity funds held over 24 months are taxed at 12.5% LTCG; under 24 months, at slab. This restored reasonable treatment after a two-year window (2023–25) when these funds were slab-taxed regardless of holding — old articles mentioning that harsher rule are describing the outdated regime. No TCS applies to investing through Indian funds — the AMC handles everything within its own limits, which is a genuine convenience advantage over the direct route.

Route Two

Direct investing via LRS — the full-control door

Under the RBI’s Liberalised Remittance Scheme (LRS), every resident Indian can remit up to $250,000 per financial year abroad — for investment among other purposes. The practical flow: open an account with an international investing platform (several Indian brokers offer integrated US investing; global platforms accept Indian clients), remit funds via your bank under LRS, buy US stocks or ETFs — fractional shares mean even ₹1,000 buys a slice of any company.

The TCS rules — updated April 2026: banks collect Tax Collected at Source on LRS remittances above a threshold. The current structure:

LRS remittance purpose	Threshold	TCS rate
Investment (stocks, property abroad, etc.)	Above ₹10 lakh per FY	20% on the excess
Education funded by a loan	—	Nil (exempt from April 2025)
Education (self-funded) / medical	Above ₹10 lakh per FY	5% on the excess

The essential framing: TCS is not a tax cost — it’s a cash-flow cost. The collected amount appears in your Form 26AS and offsets your tax liability at ITR time (or is refunded). But remit ₹30 lakh for investing and ₹4 lakh gets collected upfront, coming back to you only after filing. For large remittances, plan the cash-flow timing accordingly — and remember the ₹10 lakh threshold is cumulative across all your LRS remittances in the year, tracked via PAN across banks.

Taxation of direct US holdings: three layers to understand. Capital gains: US stocks held over 24 months are long-term, taxed at 12.5% in India (unlisted-asset schedule); shorter, at slab. Dividends: the US withholds 25% under the India-US tax treaty; India taxes the gross dividend at your slab, and you claim Foreign Tax Credit for the US withholding via Form 67, filed before your ITR. Currency: gains are computed in rupees, so the rupee’s depreciation typically adds to your taxable gain — the tailwind is itself taxed.

The disclosure obligation that catches people: every foreign asset — brokerage account, US stocks, foreign bank account holding your idle cash — must be disclosed in Schedule FA of your ITR, every year, regardless of size or whether you sold anything. Non-disclosure penalties under the Black Money Act start at ₹10 lakh per year of default. This is the single most common compliance failure among new international investors, and the tax department now receives US account data automatically under FATCA information exchange. If you invest directly, Schedule FA is a permanent annual commitment — treat it as part of the cost of the route.

One more practical note: US estate tax can apply to US-situated assets (including stocks) above $60,000 for non-resident aliens — a real consideration for large direct holdings. Indian international funds sidestep this entirely, since you own Indian fund units, not US assets. For seven-figure-dollar portfolios, this deserves professional structuring advice.

Choosing Your Route

Fund route vs direct route — the decision table

	Indian international fund	Direct via LRS
Effort	Identical to any MF — SIP and forget	Platform account, remittances, Form 67, Schedule FA annually
Minimums	₹100–500 SIP	Any amount (fractional shares), but TCS above ₹10L/FY
Choice	Limited to available schemes; subscription windows uncertain	Any US-listed stock or ETF
TCS	None	20% above ₹10 lakh/FY (adjustable at ITR)
Dividends	Handled inside the fund	25% US withholding; FTC via Form 67
Schedule FA	Not required — you own Indian units	Mandatory every year
US estate tax	Not applicable	Applies above $60,000
Costs	TER ~0.5–1.5% (FoF layers add up)	Brokerage + FX conversion (0.5–2% per remittance)
Best for	Most investors wanting broad index exposure	Larger portfolios, specific stock selection, full control

Our general steer: start with the fund route if broad exposure (S&P 500, Nasdaq 100, world index) is the goal and a scheme is open — the compliance simplicity is worth more than most people expect. The direct route earns its overhead when you want specific stocks, larger allocations than fund windows allow, or full control of the holdings. Many mature portfolios use both: funds for the core index exposure, direct for deliberate stock positions.

Key Takeaways

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Frequently Asked Questions

Your questions answered

How much of my portfolio should be international?

There’s no universal number. Common frameworks range from 5% (a light diversifier) to 20% of equity money (a meaningful hedge against home-country risk). What matters more than the exact figure: it should be a deliberate allocation you rebalance, not a reaction to last year’s US returns. The Asset Allocation capstone covers how to set and hold this number.

Is the 20% TCS a reason to avoid direct investing?

Not by itself — it’s recoverable against your tax liability or as a refund. It’s a cash-flow planning item: remitting ₹30 lakh means ₹4 lakh locked up until your ITR processes. For remittances under ₹10 lakh a year, no TCS applies at all — which conveniently covers the annual investing pattern of most retail investors.

What happens if I forget Schedule FA?

The Black Money (Undisclosed Foreign Income and Assets) Act provides penalties starting at ₹10 lakh per year for non-disclosure of foreign assets, independent of whether any tax was evaded — and FATCA data exchange means the department typically already knows about US accounts. If you’ve missed past years, consult a CA about corrective disclosure promptly; the situation compounds badly with time.

Are US index ETFs bought directly better than Indian S&P 500 funds?

Direct US ETFs have lower expense ratios (0.03–0.10% vs 0.5–1.5% for Indian FoFs) and no subscription-window risk — but add FX conversion costs, Schedule FA, Form 67 for dividends, and potential estate-tax exposure. For small-to-moderate allocations, the Indian fund’s simplicity usually wins despite the higher TER; at larger scale, the direct ETF’s cost advantage compounds enough to justify the overhead. Run your own numbers at your intended size.

Can I invest in markets beyond the US?

Yes — LRS remittances can go to any permitted jurisdiction, and platforms offer European, UK, and Asian market access. Practically, US listings cover most global companies (including foreign firms via ADRs), so most Indian international investors stay US-centric for simplicity. Indian AMCs also run Japan, Europe, and China-focused funds subject to the same subscription-limit caveats. Details of the LRS framework are on the RBI’s website.

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