International Investing from India: How to Buy US Stocks and Global ETFs

Why international diversification matters

The case for international exposure rests on three observations:

• Market-cap concentration: India represents approximately 3-4% of global equity market capitalisation. The United States alone represents around 60%. An investor entirely allocated to Indian equities is exposed to a small slice of the global opportunity set.
• Sector concentration: Indian indices skew heavily toward financials, IT services, energy, and consumer staples. Several large global sectors — including big-tech platforms, biotechnology, semiconductor manufacturing, electric-vehicle ecosystems, and aerospace — have limited representation in Indian indices.
• Currency hedge: historical INR depreciation against the USD (roughly 3-4% per annum on average over multi-decade periods) has meant that pure rupee-denominated portfolios have faced gradual purchasing-power erosion. International exposure denominated in USD has historically partially offset this depreciation.

Empirically, the rolling 10-year correlation between Indian and US equities has often been in the 0.4-0.6 range — meaningful, but far from perfect. This imperfect correlation is what produces the diversification benefit. Most asset allocation frameworks suggest allocating 10-20% of equity to international exposure, though the right level depends on individual circumstances.

Route 1: Indian-domiciled feeder funds and FoFs

A Fund of Fund (FoF) is an Indian-domiciled mutual fund that invests in an offshore mutual fund or ETF. The investor purchases units of the FoF in INR through the Indian AMC; the FoF itself converts a portion of its assets to foreign currency (subject to RBI/SEBI limits) and invests in the underlying offshore fund. No LRS is required, since the rupee stays within the Indian regulated ecosystem.

Illustrative historical examples (categories rather than current product recommendations):

• US large-cap themes:ICICI Prudential US Bluechip Equity Fund (S&P 500 / large-cap US equities focus), Franklin India Feeder Franklin US Opportunities Fund.
• Nasdaq 100 themes:Motilal Oswal Nasdaq 100 FoF (feeds into Motilal Oswal's Nasdaq 100 ETF), Mirae Asset NYSE FANG+ FoF.
• Global diversified themes: Edelweiss Greater China Equity Off-shore Fund, Nippon India US Equity Opportunities Fund, HDFC Developed World Indexes Fund of Funds.
• Emerging market themes: Kotak Global Emerging Market Fund, ICICI Prudential Global Stable Equity Fund.

FoF advantages include rupee accessibility, no LRS paperwork, and familiar AMC platforms (folio management, SIP, statements). The main disadvantages include slightly higher TER due to the layered structure (FoF TER + underlying fund TER, typically combining to 1.0-2.5% per annum), the post-April 2023 debt-like tax treatment for new units, and periodic subscription stops when SEBI's industry-wide overseas investment cap is hit.

Route 2: Indian-listed international ETFs

Several ETFs listed on Indian exchanges (NSE/BSE) themselves invest in foreign equity indices. The investor purchases units via a regular Indian demat account and brokerage relationship, paying in INR. No LRS is required.

Illustrative historical examples:

• Motilal Oswal Nasdaq 100 ETF: tracks the Nasdaq 100 index of large US technology and growth stocks.
• Mirae Asset NYSE FANG+ ETF: tracks the NYSE FANG+ index of 10 large US tech and consumer technology names.
• Nippon India ETF Hang Seng BeES: tracks the Hang Seng index of Hong Kong-listed companies.
• Mirae Asset S&P 500 Top 50 ETF: tracks the top 50 US large-cap stocks.

Advantages include intraday tradability, low expense ratios (often 0.30-0.60% per annum), and demat-based holding consolidation. Disadvantages include the same post-April 2023 tax change (debt-like treatment for new units), occasional subscription stops or premium/discount distortions when the SEBI overseas investment cap is hit and APs cannot create new units, and bid-ask spreads that can widen during stress periods. For background on ETF structure, see our guide on ETF vs index fund vs mutual fund.

Route 3: RBI Liberalised Remittance Scheme (LRS)

The LRS allows resident Indian individuals to remit up to USD 250,000 per financial year (April-March) for permitted purposes including investment in foreign equities, ETFs, and mutual funds. The remittance is made from an Indian bank account through an authorised dealer (typically the same bank), and the foreign currency is credited to a foreign brokerage account in the investor's name.

Several Indian fintech platforms (INDmoney, Vested, Stockal, Groww, and partnerships with US brokers) have made the operational side of LRS investing meaningfully easier in recent years. The investor can:

• Open a US brokerage account from India digitally (Drivewealth, Interactive Brokers, Charles Schwab, and others have Indian-friendly partnerships).
• Remit funds via LRS through a partner bank with TCS handled at source.
• Buy US stocks (full shares or fractional shares depending on the broker) and ETFs (Vanguard S&P 500 ETF, Vanguard Total World Stock ETF, iShares Core MSCI Emerging Markets ETF, and many others).
• Hold positions in USD; sell back to USD; remit USD back to INR (subject to RBI rules).

The LRS route gives access to the deepest equity universe and the lowest expense ratios available globally (Vanguard ETFs charge as low as 0.03% per annum). The complexity sits in TCS, tax reporting, and currency operations — covered in detail below.

Route 4: International mutual funds and feeders

A subset of mutual funds with overseas mandates have historically structured themselves as direct international equity funds rather than FoFs — investing directly in a basket of foreign stocks. The tax treatment depends on the Indian-equity proportion:

• Funds with at least 65% Indian equity: taxed as equity-oriented schemes (12.5% LTCG above Rs 1.25 lakh, 20% STCG).
• Funds with 35-65% Indian equity: taxed as hybrid schemes — taxed at slab rate as STCG if held under 24 months, at 12.5% LTCG without indexation if held 24 months or more.
• Funds with less than 35% Indian equity (most pure international funds):for units purchased after 1 April 2023, gains are added to the investor's income and taxed at slab rate regardless of holding period.

Tax treatment in detail

The Finance Act 2023 materially changed the tax landscape for international investing through Indian mutual fund structures:

• Pre-April 2023 international fund/ETF units: taxed as long-term capital assets if held for 36 months or more, at 20% with indexation. Most investors who held units from before this date enjoyed favourable tax treatment.
• Post-April 2023 international fund/ETF units: (with under 35% Indian equity) — gains added to income and taxed at slab rate, no LTCG benefit, no indexation. This made Indian- domiciled international funds materially less tax-efficient than before.
• Direct LRS holdings (foreign stocks/ETFs): these are foreign assets, not Indian mutual funds, so they follow different rules. Listed foreign equity sold after 24 months qualifies as long-term and is taxed at 12.5% (post-July 2024) — without indexation — on the rupee-equivalent gain at the time of sale. Sold within 24 months, gains are taxed at slab rate as short-term.
• Foreign dividends: taxed at slab rate in India (added to income), with credit for foreign tax already withheld (typically 25% on US dividends; 15% under the India-US tax treaty with Form W-8BEN filing).

For Indian-residents holding foreign assets via LRS, Schedule FA (Foreign Assets) in the income tax return must be filled annually, disclosing foreign accounts, foreign equity holdings, and foreign income. Failure to disclose foreign assets is treated severely under Indian tax law (Black Money Act, 2015), so accurate reporting is essential.

TCS on LRS: what to expect at remittance

Tax Collected at Source (TCS) on LRS remittances was revised effective 1 October 2023:

• For aggregate LRS remittances within a financial year:
• Up to Rs 7 lakh: 0% TCS for non-education, non-medical purposes.
• Above Rs 7 lakh (non-education, non-medical): 20% TCS on the amount exceeding Rs 7 lakh.
• Education and medical remittances: have lower TCS slabs (0.5% / 5% depending on source).

Example: an Indian investor remitting Rs 10 lakh in a financial year for US stock investment would face TCS of 20% on Rs 3 lakh (Rs 10L - Rs 7L) = Rs 60,000. The bank collects this at source and the investor sees Rs 9.40 lakh credited to the foreign brokerage account.

Critically, TCS is fully refundable. It is reflected in Form 26AS and can be claimed as a tax credit against the investor's total income tax liability when filing the ITR. If total tax liability for the year is lower than the TCS, the difference is refunded. So TCS is best understood as a cash-flow timing constraint rather than a permanent additional cost. For more on the tax-filing side, see our guide on ITR filing for stock investments.

Currency risk and hedging

International investments introduce currency risk. The investor's rupee return depends on both the foreign-currency return of the underlying assets and the INR/USD (or INR/local-currency) movement over the holding period.

• If INR depreciates against USD:the Indian investor's rupee return is enhanced — they get more rupees per USD when converting back. Historical INR depreciation has historically added 2-4% per annum to USD-denominated returns from an Indian investor's perspective.
• If INR appreciates against USD: rupee return is reduced. While historically rare on long horizons, INR has gone through periods of appreciation (e.g., 2003-2008).
• Hedging: some institutional vehicles offer currency-hedged versions, removing FX exposure but adding hedging cost. For long-term retail investors, currency exposure has often been treated as a feature (purchasing-power hedge) rather than a bug — left unhedged.

For more on what drives the INR/USD relationship, see our guide on INR-USD exchange rate factors.

Diversification benefits historically observed

Empirical evidence over the past two decades has shown:

• Adding 10-20% US equity exposure to a 100% Indian equity portfolio historically reduced overall portfolio volatility, primarily because US drawdowns and Indian drawdowns have not always coincided.
• During specific Indian-market stress events (2013 taper tantrum, 2018 IL&FS crisis, 2022 mid-year correction), US equity exposure historically held up better and provided rebalancing ammunition.
• Conversely, during global stress events that affected both markets simultaneously (March 2020 Covid crash, 2008 GFC), correlations spiked and the diversification benefit was reduced — though Indian markets recovered more quickly in the 2020 episode.

The diversification benefit is genuine but cyclical. Investors who extend the horizon to 10-20+ years have historically captured both the equity premium and the diversification benefit. For broader allocation principles, see our guide on asset allocation.

Practical considerations

Beyond regulations and tax, several practical points matter:

• W-8BEN filing: Indian residents investing in US equities through LRS should file Form W-8BEN with the US broker. This claims India-US tax treaty benefit and reduces US dividend withholding from the default 30% to 25%, then to 15% under applicable treaty provisions.
• Estate considerations: US-domiciled brokerage holdings exceeding USD 60,000 may be subject to US estate tax for non-resident aliens (NRA estate tax up to 40% above the threshold). This is a less-discussed risk for large LRS holdings. Some investors mitigate via Ireland-domiciled ETFs or through structures their advisers recommend.
• Form 67: for claiming foreign tax credit on withheld dividend tax, Form 67 must be filed before the ITR deadline.
• Schedule FA: resident Indian investors with foreign assets must disclose them in Schedule FA of the ITR annually. Failure to disclose attracts severe penalties under the Black Money Act, 2015.
• Operational ease: for first-time international investors, Indian-domiciled FoFs and Indian-listed international ETFs are operationally simpler than the LRS route, even if slightly less tax-efficient.

The bottom line

International investing from India is more accessible than ever before, with four distinct routes — FoFs, Indian-listed international ETFs, the LRS direct route, and international mutual funds — each serving different investor preferences. The post-April 2023 tax changes made Indian-domiciled international funds less tax-efficient for new units, while the direct LRS route retained more favourable long-term capital gains treatment but introduced operational and disclosure complexity.

For most retail investors entering international exposure for the first time, a blend of Indian-domiciled FoFs and Indian-listed international ETFs offered the smoothest entry. As exposure grew and the investor became comfortable with the operational requirements, the direct LRS route became attractive for both tax efficiency and access to the full global ETF universe at the lowest expense ratios in the world. The right route — and the right level of international allocation — depends on individual circumstances. A SEBI-registered investment adviser can help structure the allocation appropriately.

Frequently asked questions

What is the maximum amount an Indian resident can invest abroad each year?

Under the LRS, a resident individual can remit up to USD 250,000 per financial year for permitted purposes including investments. The limit applies cumulatively across all LRS purposes (education, travel, gifts, investments). Investments via Indian-domiciled FoFs and ETFs do not count against the LRS limit but are subject to industry-wide SEBI overseas investment caps.

How are international mutual funds taxed in India after April 2023?

Mutual funds with less than 35% Indian equity (most international funds and FoFs) are now taxed as debt funds for units purchased after 1 April 2023 — gains added to income at slab rate, no LTCG benefit, no indexation. Direct foreign equities held via LRS follow different rules — 12.5% LTCG (after 24 months) without indexation, slab rate STCG.

What is TCS on LRS and how does it work?

TCS on LRS is 20% on aggregate remittances above Rs 7 lakh per FY for non-education and non-medical purposes (effective October 2023). The TCS is collected by the bank at the time of remittance, reflects in Form 26AS, and is fully refundable as a tax credit when filing the ITR.

What is the difference between an international FoF and an Indian- listed international ETF?

A FoF is an Indian-domiciled mutual fund that invests in an offshore fund — purchased via the Indian AMC in INR. An Indian-listed international ETF is an ETF on the NSE/BSE that itself invests in foreign equities — purchased through a regular Indian demat account. Both keep the rupee in India. They differ in mechanics (NAV-based vs intraday), expense ratios, and structure.

Should every Indian investor have international exposure?

Most asset allocation frameworks suggest 10-20% of equity in international exposure based on global market-cap representation, sector diversification, and INR depreciation hedging. The right level depends on individual circumstances. A SEBI-registered investment adviser can help calibrate the right allocation.