Context:
The SEBI $7 billion overseas investment limit for mutual funds has been reached, limiting direct mutual fund-based global diversification for Indian investors. An alternative option is investing abroad via Portfolio Management Services (PMS), allowing professionally managed global investments through the Liberalised Remittance Scheme (LRS).
PMS Investment Route: Key Features
- Minimum Investment: $75,000 (approximately ₹66 lakh).
- LRS Limit: Up to $250,000 can be remitted in a financial year.
- Popular PMS Example: Marcellus Global Compounders Portfolio.
Geographic & Sector Allocation (Marcellus Global Compounders Portfolio)
- Geographic Split:
- 75% in the United States
- 20% in Europe
- 5% in Canada
- Sectoral Allocation (US Portfolio):
- Industrials: 39% (seen as undervalued with strong long-term stability)
- Technology: 26%
- Financials: 11.6%
- Consumer Discretionary: 9.5%
- Healthcare: 7.8%
Why Emerging Markets Are Avoided
- Inconsistent gains over the past two decades (excluding India).
- Regulatory unpredictability (e.g., China’s crackdowns).
- Indian investors already have exposure to EMs via domestic investments.
- Top-quality, stable companies predominantly exist in developed markets.
Investment Process in Marcellus PMS
- Upload verification documents (ID proof, PAN, canceled cheque/bank statement).
- Marcellus sets up an account with Interactive Brokers (US-based) in around two days.
- Transfer of minimum $75,000 via LRS to Marcellus’ overseas pool account.
- Entire process typically takes 3–4 working days.
Tax Considerations for Indian Investors
- Tax Pass-Through Structure: The tax liability falls on the investor.
- Dividend Taxation:
- US companies withhold 25% tax on dividends.
- Dividends are added to taxable income in India, but investors can claim foreign tax credit via DTAA (Double Taxation Avoidance Agreement).
- Capital Gains Taxation (on US stocks/ETFs):
- Holding >24 months: 12.5% LTCG tax + surcharge & cess (no indexation benefits).
- Tax Collection at Source (TCS):
- Proposed increase in threshold from ₹7 lakh to ₹10 lakh.
- 20% TCS on remittance above this threshold.
- TCS is adjustable against final tax liability or refundable if excess.
- Tax Reporting Requirements:
- Schedule FA (Foreign Assets)
- Schedule TR (Tax Relief)
- Form 67 (for claiming foreign tax credits)
Despite the SEBI overseas mutual fund cap, PMS investments via LRS offer a viable global diversification route. Investors must consider taxation, reporting obligations, and the higher entry barrier of $75,000. Developed markets like the US and Europe remain the top choices for consistent returns, regulatory stability, and industry leadership.
