Investing in a profitable International Exchange-Traded Fund (ETF) can yield significant returns. Explore various options for a suitable international ETF today.
Investing in US Markets: Two Main Options for Indian Investors
Indian investors seeking exposure to the US stock market have two primary options due to restrictions on mutual funds directly investing in foreign equities. These options are International Mutual Funds as Fund-of-Funds (FoFs) and Direct Investment in US-based ETFs via the Liberalised Remittance Scheme (LRS).
International Mutual Funds as Fund-of-Funds (FoFs)
Due to SEBI's restrictions, Indian fund houses offer international mutual fund schemes structured as FoFs. These funds invest in offshore ETFs or international equity funds. Some top Indian international FoFs include Mirae Asset NYSE FANG+ETF FoF, Edelweiss US Technology Equity FoF, Kotak NASDAQ 100 FoF, Motilal Oswal Nasdaq 100 FoF, and Navi US Nasdaq 100 FoF. These provide convenient access to US markets through Indian mutual funds while complying with regulations.
Direct Investment in US-based ETFs via Liberalised Remittance Scheme (LRS)
Indian investors can also invest directly in US ETFs by utilizing the RBI’s LRS, which permits individuals to remit up to $250,000 annually. Direct US ETF investment offers advantages such as better cost efficiency and potentially higher long-term returns compared to FoFs, but involves additional paperwork, higher complexity, and tax considerations.
It's important to note that SEBI has not banned Indian investors from investing abroad per se, but it restricts Indian mutual funds from directly investing in foreign equities. The international mutual funds available in India are thereby structured as FoFs investing in international ETFs. Meanwhile, the LRS route enables individual investors to buy US ETFs directly.
Considerations for Investors
When considering these options, it's crucial to remember that investing in thematic or region-specific funds may have higher risks. It is also not recommended to invest in these ETFs at a premium.
Indian mutual funds offer a variety of options under the international ETFs umbrella, including region-focused funds, country-specific funds, and thematic funds. For instance, funds like Parag Parikh Flexi Cap, DSP Value Fund, or Axis Growth Opportunities Fund invest a part of their portfolio in international stocks but maintain at least 65% equity exposure to Indian stocks.
In addition to the FoFs mentioned earlier, other available international ETFs FoFs include Aditya Birla Sun Life NASDAQ 100 FOF, Invesco India - Invesco EQQQ NASDAQ-100 ETF FoF, Kotak Nasdaq 100 FOF, Navi US Total Stock Market Fund of Fund, and Navi Nasdaq 100 Fund of Fund.
Investors can also buy units of international ETFs run by Indian fund houses, such as Motilal Oswal S&P 500 Index Fund and Mirae Asset NYSE FANG+ ETF. However, these funds may trade at a premium due to increased demand.
Investors should carefully consider their investment preferences, risk tolerance, and financial goals before choosing between these two options. It's always advisable to consult with a financial advisor for personalised investment advice.
Mutual funds are structured as Fund-of-Funds (FoFs) by Indian fund houses, allowing investment in offshore ETFs or international equity funds due to SEBI's restrictions on direct investment in foreign equities. On the other hand, investors can invest directly in US-based ETFs via the Liberalised Remittance Scheme (LRS), offering advantages such as better cost efficiency and potentially higher long-term returns.
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