Indians can invest in foreign stocks via multi-asset funds

Indians can invest in foreign stocks through multi-asset funds and fund-of-funds (FoFs). Multi-asset funds have become popular in India over the past few years. These funds invest in various assets including equity, debt, gold, and international stocks. Multi-asset funds are regulated to allocate at least 10% of their funds in equity, debt, and gold. The fund manager decides how much to invest in each. Some of these funds also include international stocks. FoFs are similar, as they include a mix of domestic and international investments, but they may have higher fees. One major benefit of multi-asset funds is their tax efficiency. Rebalancing within the fund does not trigger capital gains tax, making them easier to hold long-term. Changes in the 2024 budget also improved the tax situation for these funds, reducing the tax rate after two years of holding. While multi-asset funds help investors access foreign stocks, some limitations exist. The Reserve Bank of India hasn’t increased the overseas investment limit for mutual funds, which means multi-asset funds are among the few options available. However, if these funds attract many investors, the percentage allocated to overseas stocks could decrease, leading to dilution. For those willing to explore other options, experts suggest the liberalized remittance scheme (LRS) for direct investment in global stocks. However, this comes with its own challenges, including high taxes for large investments and complex processes. Some financial advisors believe multi-asset funds offer operational advantages over LRS. They provide easier investment and redemption options compared to the more complicated LRS. Among multi-asset funds in India, the ICICI Prudential Multi Asset Fund has a long history, though it does not invest in international stocks. Other funds, like the ICICI Prudential Passive Multi-Asset FoF and the DSP Multi Asset Allocation Fund, do have overseas allocations, investing in companies like Microsoft and Alibaba. Overall, multi-asset funds present a viable path for Indian investors seeking exposure to international markets despite current regulatory limits.