Why invest outside? Is India not enough?

I’ll keep this brief. Sure, India has a bright future, but to be a good investor, you need solid risk management skills. You can learn more about this concept in Margin of Safety and through these enlightening videos:

To summarize the key benefits:

• Diversification across economies
• Protection against the weakening rupee
• Opportunity to find investments with low-price-correlation

For a deeper dive into this question, check out Why Should I Invest in US Markets.

How to invest?

Since you’re reading this, I’m assuming you’ve already decided to invest outside India and are looking for the best way forward. It’s relatively straightforward, though unfortunately not as cheap as we’d like if you want to make substantial returns.

Many recommend platforms like Vested and INDmoney for direct US market access (and other markets via international ETFs). However, I’d suggest caution here. Neither are actual brokers – they’re middlemen partnering with true US-domiciled brokers like Drivewealth. I’ve used Vested myself and found the selection limited and the remittance costs prohibitive.

So what should you use instead?

• Currently, the best approach seems to be opening an account with Charles Schwab or Interactive Brokers. Neither requires minimum balances for individual resident Indians.
• Negotiate favorable exchange rates with your bank or consider opening an account with IOB. You can check their rates at IOB Forex Rates. Pro tip: contact their SWIFT centers directly – this can save you thousands: IOB SWIFT Centers.
• SBI also offers competitive forex services.
• Consider ETFs like VUAA, which are domiciled in Ireland. These funds pay tax at 15% (and don’t distribute dividends), eliminating the hassle of claiming DTAA credit for the 25% tax withheld in the US.
• Be aware that direct US investments expose you to estate tax laws if you cross the $60,000 USD threshold.
• International FoFs (Fund of Funds) are another option, though they may face restrictions due to RBI limits on overseas investments:
  • Axis Greater China Equity FoF Growth Direct Plan
  • Navi Nasdaq 100 FoF Growth Direct Plan
  • HDFC Developed World Indexes FoF Growth Direct Plan
  • Nippon India Japan Equity Growth Direct Plan
  • Kotak Global Innovation FoF Growth Direct Plan

A few caveats

I wouldn’t recommend using NSE-traded ETFs for international exposure. Take MONF100 as an example – it typically trades at a 5-6% premium over its iNAV. That said, I’ve previously used HNGSNGBEES to trade Hong Kong’s index when it was significantly undervalued. Just be mindful of these premiums if you choose this route.

When investing internationally, stay alert to additional risks like currency fluctuations and increased tax compliance requirements. Also, execute forex transactions in meaningful amounts – fees can consume ₹3,000-5,000 on a ₹100,000 transaction, potentially eating into your capital. Consider saving for several months and making lump-sum transfers rather than frequent smaller ones.