International funds are blocked. Any other way abroad?

All international funds are blocked. Is there any other way to diversify internationally? - Prasanna Venkatesh

Ashutosh Gupta: Two ways are open to you. The first is GIFT City. It is a promising trend, but it is still building. Funds are still being launched and the logistics are still being framed. It holds the promise of becoming a good avenue for mutual fund investors. The second is the Liberalised Remittance Scheme, the LRS. Under it, you can open a broking account outside India and invest directly in ETFs or in individual stocks abroad.

Dhirendra Kumar: The international funds that Indian investors could buy with great convenience have all shut their doors, except one. The other vehicle is the international ETF. But because of the same door closure, they cannot take fresh money in, and they now trade at a premium to their underlying NAV. So the ETF is not a desirable vehicle. It has effectively become a speculative one. But it is a vehicle.

The GIFT City route is still evolving, and the mechanics are not routine yet. The convenience of investing, the tax treatment, and the process of moving your money are all still being settled. You are still working within your LRS limit, which is $250,000 a year.

This is an important way to diversify. One should invest abroad. The very reasons you invest in a mutual fund, and the very reason you diversify, are the same reasons you should invest abroad. And the mutual fund is the vehicle to use. For most Indian investors, who are able and now enabled to invest in equity with convenience, the fund remains the best way to reduce risk. It offers convenience, ease of investing, and ease of getting your money out when you need it. So mutual funds will be the way to go.

There are 15 fund companies in the pipeline. Once the banking side becomes routine, your ability to move rupees into dollars, invest there, and then reverse the cycle for redemption will settle. Over the next six months to a year, we are hoping it becomes routine, and we will cover it closely.

I was looking at some of these funds that already had the exposure. Kotak Pioneer has around 20 per cent. That exposure will keep getting reduced. Kotak Pioneer is a promising fund. It is grossly underrated. It has done exceedingly well. It has the character that the Parag Parikh fund is liked for, and it is relatively less known. Consider it.

One important thing: do not get into international stocks directly without knowing what it involves. You will be liable for estate taxes when you invest in international stocks directly. Many apps and tools now make these transactions easy. It has become simple to buy a stock like Alphabet. But investors often do not realise the tax treatment, the structure, and what they are taking on.

The domestic mutual fund vehicles are excellent. Even the GIFT City vehicles will be impressive, because of the guardrails and the security. I care a great deal about the regulatory framework that protects us in the first place. The first thing to make sure of is that you do not invest in a place, or in a way, where your money can disappear and you have no recourse.

Subscribe to Fund Advisor