No Passport Needed: Your Guide to Global Investing

Summary

Capitalmind Podcast: "No Passport Needed: Your Guide to Global Investing" – Detailed Summary

Release Date: April 19, 2025

In this insightful episode of the Capitalmind Podcast, host Shreya engages in a comprehensive discussion with Deepak Shenoy about the intricacies of global investing for Indian investors. Titled "No Passport Needed: Your Guide to Global Investing," the episode delves into the motivations, challenges, strategies, and practical considerations of diversifying investment portfolios beyond Indian borders.

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1. The Rationale Behind International Investing

Timestamp: 00:37 – 08:06

Shreya opens the conversation by highlighting a shift in the narrative around international investing. Previously lauded for outperforming Indian markets, global investments now present a more complex picture, where the advantage lies in avoiding limited trading hours rather than consistent gains.

Deepak outlines four primary reasons why Indian investors might consider global diversification:

1. Diversification: Moving beyond a single currency, market, and geographic exposure reduces risk. For instance, the U.S. market is tech-heavy, contrasting with India's commodity and banking-centric markets.

   "Indian stock market is largely commodities, aluminium, steel... versus America is more tech."
   — Deepak Shenoy [03:15]

2. Access to Innovation: Many cutting-edge sectors like Artificial Intelligence (AI), electric vehicles, and cryptocurrencies are more prominently developed abroad. Companies like Microsoft, Google, and Tesla lead in these areas, offering unique growth opportunities unavailable in India.

   "Most of the great companies in this field are going to come up from abroad."
   — Deepak Shenoy [05:16]

3. Natural Affiliation: Future expenses, such as children's education abroad, necessitate holding assets in foreign currencies to hedge against rupee depreciation.

4. Employment-Related Equity: Holding Employee Stock Ownership Plans (ESOPs) from multinational companies inherently provides international exposure.

Deepak emphasizes that global diversification is most suitable for investors with substantial assets (typically above ₹25 lakhs), ensuring that transaction costs and minimum investment requirements are justifiable.

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2. Navigating the Challenges of Investing Abroad

Timestamp: 09:10 – 16:54

Shreya raises a critical concern: while Indian markets are transparent and accessible, investing abroad poses difficulties in knowledge acquisition and market navigation. Relying on random ETFs or individual stocks without deep understanding could lead to poor investment choices.

Deepak responds by distinguishing between economic growth and shareholder returns, using China and Japan as examples. Despite economic advancements, their stock markets have underperformed due to factors like regulatory constraints and lack of shareholder rights.

He outlines strategic approaches:

• ETFs and Mutual Funds: Investing in diversified funds can mitigate the risks associated with individual stocks.

  "Buy some US ETF and some developed country ETF... build a diversified portfolio."
  — Deepak Shenoy [12:30]

• Focused Investments in Innovation-Driven Companies: Targeting firms at the forefront of technology and innovation, such as Nvidia or Tesla, can capture significant growth. However, this requires a keen understanding of market dynamics and sector-specific trends.

• Dynamic Asset Allocation: Continuously adjusting portfolio weights based on market performance and emerging opportunities ensures alignment with growth sectors.

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3. Strategies for Effective Global Investing

Timestamp: 16:54 – 31:34

Shreya probes the practical aspects of global investing, questioning the feasibility for investors with limited time and expertise. She inquires about managed solutions and assisted investment options available in India.

Deepak elaborates on managed investment avenues:

1. ESOPs through Employment: Leveraging stock options from multinational employers is a straightforward way to gain international exposure.

2. Indian Mutual Funds: While traditionally limited by RBI restrictions (capped at $7 billion collectively), mutual funds remain a viable option for those within the investment caps.

3. Gift City and Foreign Jurisdictions: Utilizing financial hubs like Gujarat International Finance Tec-City (GIFT City) to manage offshore investments. This requires navigating remittance regulations and possibly working with international brokers or funds based in tax-friendly jurisdictions like the Cayman Islands.

   "You could go to Gift City and build a PMS... have a managed account abroad."
   — Deepak Shenoy [36:50]

4. Direct Platforms: Platforms like Vested, DOMO, and Interactive Brokers offer avenues for retail investors to access international markets, albeit with higher transaction costs and minimum investment requirements.

Shreya mentions specific services, such as Eravath Capital Fund and Ioniq Wealth, which facilitate managed global investments for Indian investors.

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4. Taxation and Legal Implications

Timestamp: 32:33 – 55:01

Taxation emerges as a significant barrier to global investing. Deepak explains the taxation landscape for Indian investors holding foreign assets:

• Capital Gains Tax: Short-term gains (held for less than two years) are taxed at up to 39%, while long-term gains benefit from a reduced rate of 12.5%.

  "If you hold stocks for two years... you get a much better return."
  — Deepak Shenoy [47:32]

• Withholding Taxes: Dividends from U.S. stocks are subject to a 25% withholding tax. However, certain funds like UCITS ETFs based in Ireland eliminate this hurdle by not distributing dividends, thereby avoiding withholding taxes.

• Inheritance (Estate) Tax: Direct ownership of U.S. securities triggers estate taxes for non-resident investors, starting at portfolios exceeding $60,000 (approximately ₹48 lakhs), with rates up to 40%.

  "If you hold direct U.S. stocks, upon your demise, 40% could be taxed from your estate."
  — Deepak Shenoy [55:01]

  To circumvent this, Deepak suggests investing through Indian mutual funds or using UCITS-compliant funds, which do not subject estates to U.S. estate taxes.

Shreya underscores the complexities of these tax implications, noting that compliance can erode investment returns significantly.

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5. Current Regulatory Environment and Limitations

Timestamp: 31:34 – 59:50

Deepak outlines the restrictions imposed by the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) on mutual funds investing abroad:

• Investment Caps: The existing cap of $7 billion for mutual funds investing directly in foreign stocks and an additional $1 billion for funds partly investing in foreign ETFs has been largely exhausted, hindering new investments without regulatory changes.

• Premium Pricing on ETFs: Due to investment limits, ETFs like the NASDAQ 100 are trading at significant premiums (e.g., 24% above underlying values), making them unattractive for investors.

Shreya and Deepak express hope that regulatory bodies will ease these restrictions to unlock broader opportunities for Indian investors to access global markets seamlessly.

Additionally, they discuss the high transaction costs associated with remittances, including Tax Collected at Source (TCS) on large transfers, which can significantly impact investment amounts. Recent regulatory adjustments allow taxpayers to offset TCS against their income tax, offering some relief but introducing procedural complexities.

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6. Practical Steps and Future Outlook

Timestamp: 59:43 – End

As the episode concludes, Deepak shares optimistic prospects for mutual funds and asset management services in India expanding their global investment capabilities pending regulatory approvals. He hints at Capitalmind’s potential entry into this space, aiming to offer curated global investment products aligned with Indian investors' needs.

Shreya encourages listeners to explore these managed solutions and anticipates broader market participation once regulatory barriers are lowered. Both speakers emphasize the long-term benefits of global diversification, despite short-term market correlations and economic downturns.

"On a long enough timeline... diversify globally to seize growth opportunities wherever they emerge."
— Deepak Shenoy [41:15]

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Key Takeaways

• Global Diversification: Essential for mitigating risks associated with single-market exposure, accessing innovation-driven sectors, and preparing for future foreign-denominated expenses.

• Investment Vehicles: Options range from mutual funds and ETFs to managed accounts via financial hubs like GIFT City, each with varying degrees of accessibility and cost implications.

• Taxation: Significant barriers include high capital gains taxes, withholding taxes on dividends, and stringent inheritance taxes for direct foreign holdings. Utilizing tax-efficient investment vehicles can mitigate these issues.

• Regulatory Hurdles: Current RBI and SEBI regulations limit the scope of mutual funds investing abroad, necessitating advocacy for policy changes to enhance global investment access for Indian investors.

• Strategic Approach: Adopting a dynamic investment strategy that leverages market trends and focuses on growth sectors can optimize returns, albeit with higher associated risks and complexities.

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Conclusion

The episode "No Passport Needed: Your Guide to Global Investing" provides Indian investors with a thorough understanding of the benefits and challenges of international investing. While global diversification offers substantial growth opportunities and risk mitigation, navigating taxation, regulatory restrictions, and investment platforms requires careful consideration and strategic planning. Capitalmind positions itself as a potential facilitator for these endeavors, anticipating regulatory improvements to better serve the Indian investment community.

For more insights and investment opportunities, visit Capitalmind.in or Capitalmindwealth.com.

Transcript

[Deepak Shenoy]

Foreign.

[Shreya]

Hello and welcome everyone to the Capital Mind podcast. If you'd like to know more about us, visit capitalmind.in and if you'd like to invest with us, do visit capitalmindwealth.com.

[Deepak Shenoy]

This podcast is for informational purposes only.

[Shreya]

And should not be relied upon as.

[Deepak Shenoy]

The basis for investment decisions.

[Shreya]

Clients of Capital Mine may maintain positions.

[Deepak Shenoy]

In the securities discussed in this podcast.

[Shreya]

Deepak, I think this is a great time to do a podcast about international investing, because a couple of months ago the message was very simple. Do it look how much better everything is doing than India. Now the picture is a bit more muddied. In fact, now it looks like if you're investing abroad, the only privilege you get is instead of losing money from 9 to 3, you can lose money for 24 hours and in different currencies. So I think this is the perfect time to actually have a conversation about this rather than just like beating on some dead horse. And so I wanted to ask you, tell me, what do you feel is the reason or the justification that it makes sense for people in India who have great financial markets to invest abroad? Recently, thanks to you, I got a copy of Damina Mehra's book that markets Myths, mantras, and I think they're quite initially itself she mentions that, look, however great India may be, the fact of the matter is that there have been many great economies in the world and stock markets in the world, but if you're a single currency, single asset and single geography investor, this is at some level a recipe for, I won't say disaster, but it's certainly very risky. And I think that was her argument and she gave many examples on this. So I thought I'd turn this over to you as a question. India is a pretty solid economy. Our stock markets do really well. When we meet, say, NRI customers or people from abroad, if we say, look, I guess money could double in five years, they think that's brilliant. Whereas here in India, if you tell an Indian investor money could double in five years, they say, you're wasting my time, and they go somewhere else. But I think the question I want to ask is, does international investing actually make sense? Or when you look at the data which we'll share in this podcast, it seems like the only market that has actually done better than India over a sustained period of time is the US and when we looked at those Japanese indices, that European index, even the UK one, none of them were particularly exciting over the last 30 years. So just wanted to move this over to you. Is international investing Worth it or is it just investing in the US is worth it?

[Deepak Shenoy]

Well, you know Shreya, I think the interesting point about investing in non India is about the fact that you maybe I can classify this into four different ways. There's four different good reasons why you can. And before I start, I want to caveat it out saying we are a PMS and a PMS can't really directly invest in stocks abroad. Though we'd love to. We feel that, I mean the restrictions placed by Sebi saying you can't do these things, which is fine, but however, I still would advise our customers, some of them are HNIs and DHNIs, to have a part of their portfolio abroad. And one of the. There are four solid reasons why people will or should have an exposure abroad. The first one is clearly about diversification. Like Devina said, you have a single currency exposure, single market exposure. You should go beyond the Indian markets. You should go beyond their different markets at different times. They may be more valuable or less valuable to us. Of course it's true that China hasn't been all that great from the stock market perspective. It's been a great economy for the last 15 years. Japan, not great for the last 30 years, but probably good for the last 10 years, maybe 15 years, but not as good as India. But if you get an international, if you need an international kind of footprint and you say well, I don't know what's going to do well in the next 10 years. You just simply say I will take a little bit of the us, I'll take a little bit of developed countries. So I will have a combination of some diversification in terms of currency because Indian currency tends to weaken against the dollar for the most part and perhaps against the euro as well, and perhaps against the Japanese yen as well. But also to get a diversified market because the US stock market is very different from the Indian stock market. Indian stock market is largely, if you look at the Nifty50, it's a lot of commodities, aluminium, steel, maybe traditional companies, lots of banks which are very, you know, you know, banking is a big thing versus America is more tech. And you know, so it's a different market from that perspective. So you get that. That's number one. The second one is I will go one step beyond and say, well, you know what, what's exciting about these companies is some of these exciting things don't happen in India at all. AI we are not even in the A of the AI and perhaps little bit of the eye of dei but, but we are not really doing anything in that front. So most of the great companies in this field are going to come up from abroad. There's Microsoft, which is backed OpenAI. There's Google, which has its own thing. Facebook, which has its own thing. Tesla, which has Grok. Well, it doesn't have Grok, but the guy who owns Tesla has Grok. So I don't know whether somehow that's going to eventually come back.

[Shreya]

The stock will go up if GROK does.

[Deepak Shenoy]

Somehow it has. So if you look at this, the innovations happening there, there's innovations happening in Deep Sea and in Alibaba in China. So those are markets where you don't get access to AI in India, but you do get markets abroad that you can get access to. So some of these things and then you have electric vehicles. Electric vehicle research is happening mostly abroad. We're using some of those vehicles, but not really making them or thinking about them. There is crypto markets. So these are innovative markets. Interested in these markets. You want to get exposed to these markets. No way to get it from India. You go abroad and buy these stocks, we'll talk about how we'll buy them. But I think this is the interesting part of, you know, doing things. And I think the third thing is a natural affiliation. So you know, you may have, if you have a child, you're going to buy gold from the time the child is born because you want to give that child the gold when they, when he or she is married. You're buying and preparing for this for all their life. Why do you think about the fact that they may want to do their higher education or their graduation in a country which is going to charge you in dollars or in, you know, pounds, and that's going to be a huge bill. 50,000 to $70,000 is what you pay for a college in the US and that's per year. That's about 50, 50 odd lakhs per year. So instead of waiting and saving this 2 crore rupees, then hoping that rupee depreciates so much and doing the calculations, save in dollars from year one and eventually when the time comes to pay, you can you have the money in dollars and somehow that can be used to pay the, for the education right there. So that is another reason why you want, you have the natural exposure to the fourth reason. And I think this is the reason where a lot of the readers of this podcast might or reviewers of this podcast may see. This is if you have ESOPs of a company that's listed abroad. You work for Microsoft, Microsoft Abroad, they've given you ESOPs, they've given you RSUs, they've given you discounted purchase prices, whatever it is. When the company gives you that, your ownership of the stock is mostly residing abroad and over a period of time, you naturally have that much exposure to non India stocks and therefore you end up owning it. So if you meet any of these criteria or multiple of these criteria, you might want to diversify away from India. In any case, I would not also advise it to the person who has only say 50,000 rupees or 1 lakh rupees because diversification at this level requires a minimum of a few lakh rupees. And if I'm telling you that you should put maybe 10 to 15% of your portfolio in there, you don't want to talk about international investing until you reach about 25 lakh rupees in asset value, not counting your house. So once you reach the 25 lakhs, then yes, do invest.

[Shreya]

Okay, well look, that's very solidly argued. I think the logic from the diversification, the fact that many of your expenses, both today, actually secretly and in the future perhaps, probably are going to be in a non Indian currency, all this stuff very much matters. But then this brings me to the next question. Look, Indian stock markets are pretty efficient. It's very easy to get on board. They're becoming more efficient every year. It's very easy to buy stuff. But when it comes to buying abroad, what do we possibly know about that? I mean like if I were to tell you that, hey, I took an Indigo flight recently and it was on time, it was good, I'm going to go buy Indigo stock. I don't think you'd be particularly happy with my thesis. But at some level, when it comes to buying stuff abroad, won't we have to just rely on, let me just buy some random ETF which focuses on this or I've heard of this company, BYD can now charge a car in five minutes. Let me buy BYD stock. So are we doomed to invest very poorly when it comes to investing abroad or how would you go about it? Would you buy ETFs, funds, individual stocks? How do you think about that?

[Deepak Shenoy]

You know, that's a great point because I feel sometimes that we don't appreciate often enough how economic returns does not mean share, economic growth does not really mean shareholder returns. China has done brilliantly in the last 15. This. I mean the country has evolved from toxic sewage emanating, low regard for pollution and low regard for human life kind of an impact country to one of the most sophisticated manufacturers of electric vehicles and roads and infrastructure that the world has ever seen, even beyond the US. And that quality of life has reflected in the quality of life of all Chinese people to the extent that they probably think of other countries as undeveloped in comparison. And yet the stock market returns have been horrible in the last 15 years. So we might be right in terms of that this company did really well. But we might be wrong in that the shareholder returns can be horrible because you overpaid for it in the beginning or that country itself, like China does, does not respect shareholders. So for instance, Alibaba is a great company. Horrible returns because when Alibaba CEO said something, they put him in jail or something like that. So the minute you reach a country where you know there is a very different non rules based order, you're you, then you know. So TikTok is one example. Great, fantastic company, except officially wants Chinese propaganda to be used as a moving force. I, facing a challenge of moving, moving anything in the US has been banned from India. This was still one of the widest known things in the world. But would you touch its stock even with a barge pool? I wouldn't because the Chinese authorities will guarantee that I don't make any money because everybody else will. So maybe that's the problem that you have to kind of deal with over here. But here's the interesting part because now you say, what to buy? What do I buy? Should I buy BYD stock? The answer is more like will the Chinese government allow me to make money? Because this company is a great company, but they may not allow me to make returns. There's a good decision for me to be able to take because in comparison with should I buy, I don't know, Indian, an aluminium company in India? Well, Indian government is probably going to let you make some money. I don't know, maybe it does, but the company itself is not so great. And how much more aluminum can the world take? And to produce more aluminum, this guy needs to buy more debt and you know, get more debt and a bunch of things. So you end up with a situation where you're actually looking at a company to buy and then just making a call on whether this will be a great shareholder return or not. And then the answer to what becomes, I don't want to make all these decisions, I just want to invest abroad. I want this diversification. Then your simple idea is buy some US ETF and some development country ETF in the US. You can go to the US and then buy all these ETFs in the US market, which is you can even buy an Argentinian ETF in the US market. So we have a combination of US etf, developed countries, emerging markets, frontier markets, you know, interesting, different things. And then you could build yourself a diversified portfolio. But on the other hand, if you go to the second level. So my reason to buy stocks because I like the innovation. I'm choosing some byd, but I'm also choosing some Tesla and I'm also choosing some, I don't know, Mercedes. One of the European companies that may be doing, I don't know which may be Ferrari. Whatever they are, they must be doing something on that front. And you, you end up with a choice of companies based on the way you see those markets grow. One of the biggest things that had happened in the last 10 years is that Nvidia grew from nothing to where it is 20 billion to a trillion dollars. So getting this massive jump. And you might want to say, I want to participate in it. I want to participate in. So Tesla would be, you know, electric vehicles, you would have artificial intelligence. You could add crypto, you could add even in, you know, esoteric areas which may have legality issues in India. For instance, cannabis legal in the us, not legal in India. You couldn't make a cannabis startup in India at all, but you could make one in the US and maybe that's the opportunity over there to buy those startups when they're young and which they grow to a reasonable size. The same thing in crypto. Crypto is quasi legal in India, but legal abroad. Therefore you could buy a crypto startup or a Coinbase or one of these companies in the US and benefit from that growth. So you're betting on innovation. You find the innovative companies, a weight loss company in Europe which makes a weight loss drug called Ozempic, which I should have been taking, but I have not.

[Shreya]

But the stock is overpriced, don't worry about it.

[Deepak Shenoy]

So I guess the. That's the. I'll live with that. But interestingly, if you look at these things, these are spaces where India does not have an equivalent. So I couldn't tell you that. Hey, listen, instead of buying Tesla, buy what in India? There's nothing, there's nobody who's doing pure electric cars at the scale and the innovative level. Because when Tesla builds a cyber truck, it has so many cameras inbuilt that they have a Twitter meme of people who have scratched Tesla cybertrucks because they have been recorded by the cybertruck. When the cybertruck was off. I mean, for a guy to have thought in advance that listen, somebody would want camera footage of this car when the car was actually off and you had parked it somewhere is an innovative thinking of a different level altogether. Right, so in India of course you wouldn't do this because technically everybody would stretch your car just walking past it. But I mean in the US you have a whole meme of that. But the point is this, you know, this level of innovation is not found in India yet. So you, you don't have an equivalent. But the third and the last bits, of course I think they're more compulsive. So you're saving for your kids education and you want money, so you want to choose which country your kids are likely to go to. So maybe it's Australia. So then which case you might have an Australian exchange invested in or you buy UK or you buy the. But I mean it's not necessary that you buy the same thing as long as they're interchangeable in currencies. But if, for instance they're going to, I don't know if you think that they'll probably want to go to a country which does not have a meaningful exchange situation like they want to go to Russia, then I'm sorry, but you don't have that many alternatives today be able to invest. So other than that you have this and then the ESOPs are natural, they come as part of. But I would only say over there, invest in the ESOPs of your company, but as they mature, make sure you get rid of them not because they're a bad investment, but because now you're economically dependent on the company for your salary. So when, if the company goes bust, not only do you lose your income, then you also lose your money, your savings. So you want your savings to be diversified across other country companies. So you might want to take that money out over time and kind of diversify it abroad. So that's the only thing I would say, the what to buy can be kind of handled this way. But then I mean I might be one layer, I'm talking from the outside and you've actually done it. And then I want to ask you in this the same question. And you've taken some phenomenal cash calls in the, in the recent past and Both times in 2022, I remember before the Ukraine war, we were somehow magically in cash and even the foreign investments and in the, even in 2025, before January, before Warren Buffett could say cash, you had cash. I mean it's not like you did you, I mean you were fully invested at some point, but what do you buy or what, how do you buy what you buy?

[Shreya]

So first to address the cash call issue, yes, you're with much happy bafflement. I have watched as these cash calls have been proven right and I'm very happy about it, of course. But the fact is that I think I've had to always take them for some personal reasons, having to reset some costs before a tax year or before some change in some status of someone. And so because of that, I would say to a very large extent, I've got extremely lucky on the markets topping out or bottoming out as the case may be. And I wouldn't like to claim too much credit there. In fact, the most recent cash call was planned many months in advance. I had been talking about it for many months in advance and it just so happened that Trump decided to get on tariffs at the same time. So I will just point out there that I think that might be non reproducible going forward. As for the stocks, I think this is something I discussed with you. I mean very loosely and perhaps this is a misattribution, but that Peter lynch buy what you know or use or whatever. That's something I ended up doing to a large extent and felt that I am a reasonably discerning customer. So if I like this service versus that, mostly online tech services or this product versus that, there may be something there. But it wasn't much deeper than that. And I think the bigger point behind the good returns has been the US has just been in this astounding bull market. And so if you bought anything there, you would have done reasonably well. And if you got a couple of these market tops and bottoms right, then you did spectacularly well. So I'm not judging the returns. I'm delighted about it, but I don't think the insights went very deep. It was more of hey, we're using this, let's just buy this. And then it just kind of went up along with most other things and then the risk management was just good fortune. I would like to say I'd like to push back on one of the points you raised, which is just now being practical about this. In my mind, long term is 10 years. That is very long term. In 10 years my son will actually be going to college, for instance. So in 10 years is it realistic? We have customers who come and two years later if the returns aren't good, they leave. So are you saying that someone will be able to invest Maybe once a year. Because LRS is, I mean investing abroad is a bit more expensive and cumbersome. But every year for 10 years they will continue to put money in an ETF that has been underperforming all the other ETFs and all their investments in India. Is this a realistic thing? Because will they basically just starve themselves of that one ETF which will after seven, eight years actually finally do well and come to its own? That's one. And the second is how do you think of topping up? Like it's probably not a one time thing of I've had a liquidity event, my kid will go to college in 10 years. So let me move this much money into US markets and hope things work out right. It's probably for most people it's some money coming in every year and you send some tranches abroad say once a year or whatever to do. So when you add money each year, do you just do it equally? Do you add to the winners and let the losers starve and wither away? Or do you, like, as I think Peter lynch again says, do you snip the flowers and then water the weeds? What do you do?

[Deepak Shenoy]

Oh yeah, this is actually firstly, I think the first part of things is why should I invest in Japan when it has horrible returns for the last 30 years? You're telling me, Deepak, you should invest in Asia. China has done horribly for 15 years. Japan has done nothing. So can you justify that? So the answer to this lies in two things. I did not know 10 years ago that NASDAQ would be the best performer. And Nasdaq was not the best performer. Maybe the 10 years before that, it is 2000 to 2006. The NASDAQ actually underperformed everything else in 2010 or 2011 is when its performance really started to change. China was one of the best even stock on a stock market basis, pretty good performer in 2007. It's since 2007 that things have been bad. Japan was one of the best performers in 2000, 1992. So you look back in 1992, Japan would have been looking like, you know, the best thing ever. And yet even though Japanese per capita income, the capita has fallen, but the per capita income's gone up. So their per capita income has gone up there. They've reached a point where, I don't know, if you think you can, somebody will come and shave you. And it's at that level of automation and all that stuff. Yet your Japanese stock market investments have done nothing. Today we think that The US Is the best place for innovation and all that. It might be that the shareholder returns over the next 10 years may not be all that great. It could be that the next return comes from how, I don't know, German, you know, defense companies, because they are so angry with Trump for saying, please pay for your own defense. They say, we'll pay for our own defense, but we won't buy your defense equipment. We'll make it ourselves. They will create this engineering. They use their engineering prowess to build massive factories making turbines and, you know, underwater submarines and whatever and whatnot. And suddenly they make so much Money that this 100 or $200 billion are Germany is going to kind of have to spend per year on their defense will end up enriching these companies to a level that even Europe could not have imagined, that being sleepy and boring to this suddenly massive giant Nvidia style returns. So it's possible that I think you have that phase shift which is why you diversify. So you say, okay, I don't know, therefore my best return. So for instance, in 2007, in 2008 the market fell like crazy. So you would say 2009, India did pretty well, 75% or something. The US also played pretty well because it also came out from the bottom. You would have said well in rupee. And the India and US must have been the best place to invest. But guess what best place was Pakistan. So because Pakistan had done so badly in 2008 that its return in 2009 was some ridiculous three digit tied three digit figure or something. Argentina as a stock market has done very well in the last year. One year. There was a time when Brazil did really well. I think in. So the way we recognize that Brazil did really well in some years is because there were Indian mutual funds that were released that year which invested in Brazil. So 2007 was in a Brazilian Indian mutual fund came which is a Brazilian manufacturing. It. It has done horribly for 15 years because that was a top. Brazil has 7% inflation. India. India has the rupee has appreciated versus the Brazilian real. And it hasn't grown quite as much. It has very high interest rates, 1112%. So the companies there don't do quite as well. So there was a period when they did well and then. Then they didn't do well. Since. Since you don't know which stocks work well in which period, you might as well say, listen, I don't know. So therefore I'm going to diversify between a lot of countries. And it's possible that the next 10 years could be the year of the US years of the US and could be the next 10 years, the years of some other country, which probably form the none of the above in all the categories we've discussed. That's why you want to spray and pray in that sense. But you do want a strategy for doing the second thing that you mentioned, which is fine, I've invested everywhere, but you can't expect me to keep staying invested because these companies are just giving you horror. Somebody has said Japan is a bug looking for a windshield because basically it's so big, so extremely leveraged and so dependent on a certain set of sectors that at some point an impact to any of these things could massively destabilize their economy, which is their bug hitting the windshield thing. So it's possible that if you buy Japan today, you might get horrible returns in the next few years. And then you'll ask yourself, what am I doing? Why am I investing in bugs and windshields? I mean, I want something better, non disruptive of that magnitude. And you'd be right. So the way to do this would be invest across the world, choose your countries according to whatever and put some weights, maybe 20% X and 10% Y and things like that. And then as markets go and as things become more evident of who the winners are, I would just say focus. Like you said, you know, don't pluck the flowers. What are the flowers take out? Don't even take out the weeds, let them be. Because the plants grow so strong, they go beyond the weeds. So your fresh money every year because it needs to be a chunk, maybe a few lakhs every year because the transaction costs are high, you end up with putting more money into the ones that have won and then sticking with them. So if I said German defense stocks are going to do well and you said I'll put 20% of my money in German defense stocks and they do really well. Instead of being 20% in those in that portfolio, in your international portfolio that might become 35% because those stocks have grown so well. Now you want to put more money in there and make it 40%, you know, even higher as a percentage because it's done well and over a period of time you'll find that the smaller ones just vanish and the ones that succeed now have a very large partner portfolio. It may be a better way to deal with things. And I would say this is true for India as well. You're not going to know. You don't know if Reliance is going to succeed in the next. You don't know if Bharti adults want to succeed in the next 10 years. You don't know if Vodafone is. I probably do know.

[Shreya]

I think we can bet down that.

[Deepak Shenoy]

Yeah, I mean, that I'm, I'm like, I'm, I'm. I'm biased against Vodafone as a shareholder, but not. But if you say that I would choose over 10, 15 companies that would do that, I think will do well. Since you don't know which of those will do well, your only bet is let the market tell you. And when the market's going up in some of these companies, you just say, I'll add more to that. There's no other way to know, because as I said, economic growth has no correlation with shareholder returns. You could find a paint company that is fantastic, except everybody and his uncle is getting into paints. And therefore this company, which has occupied a quasi monopoly space, monopoly in this space for like 10 years, finds itself beaten up by somebody else who chooses the IPL to advertise their version of paints. And suddenly your great paint company is a good paint company and its stock price has fallen 30%. So since you don't know where your economic returns, I mean, your shareholder returns are going to come from, and they may not necessarily come from growth, you have to bet on the market to tell you that. So use the market feedback to say, I will add more to stocks that have gone up.

[Shreya]

I am permanently biased against paint companies for the rest of my life. So anyway, we'll move on from that one. I wanted to ask you something at a more practical level. Look, we're going to get to the nuts and bolts in the second or the latter half of this episode about how you actually make these investments abroad, but maybe closer to home. Why haven't we advocated or suggested that rather than invest abroad in all these places where you have to figure out their currencies or what the right etf. Right. Sitting here on your Grow zero Dhar Dhan account, you can happily invest in any commodities and I'm guessing, like almost for free. So why haven't we suggested things like commodity diversification first? Because that probably gives you the foreign exchange. Many of them probably give you the foreign exchange exposure that you want. Wouldn't that be an easier and more sensible first step? After equity debt or equity and fixed income, first do commodities and then focus on international stuff. You won't even need to worry about accounts abroad in that case.

[Deepak Shenoy]

You know, you're right, because I think there's Some issue with commodities give you the rupee depreciation that happens every year, typically 3% a year. So yes, you could buy a commodity and if the commodity price remained the same worldwide, it would give you the rupee returns at least. So you could do that. You could also say that commodities have different demand and you know, characteristics where you might say that, you know, gold is a very useful commodity to look at. And gold is done really well in rupee terms, really well to the extent of 12% or returns in the last decade or something. So why has that happened now? 3% has come from rupee depreciation alone. That means 3% a year has come from there. Gold in dollar terms has given you about a 6 to 7% return over the last 11 to 12 years. So it's right now at $3,000 of troy ounce and it used to be, $400, $1,500 of troy ounce about 10 years back it was 2,000 troy ounce 14 years back, which is 2011. So it did fall from that time and from the time that it has fallen it's gone up. But its return is about 7% here now, 7% here, nothing to write home about. But you add another 3% or re depreciation, it's 10% now you're talking. And then you add another 1 or 2% because the government introduced some duty, some GST, something else, something else. So you get this 12% return. I think this is all great. This is fantastic. 12% per year, you're doubling your money every six years. Tesla has gone up 16x in 10 years. So I could do 3x or 4x 3 1/2 times my money at 12% a year. Or I could do 16 times my money in a Tesla. Right. So you end up with. There's a different cycle for commodities are cyclical. So they will go up and they will go down. They will go up and they will go down. So you could play those cycles and if you understand those cycles, for instance, if you're in the iron and steel industry, you will know the price of iron and you could maybe use the commodity iron to say, oh well, you know what? Worldwide iron and steel are going to do really well now and it will reduce over a period of time when everything. So I can play the cycles, use the commodities, play cycle. I can use it on copper, I could use it on iron and road. You can't trade uranium in India, but if you were, you know, you could. Uranium is probably a high demand, low supply product that is also toxic to kind of transport and hold. But that's another tradable commodity. In the US you could, you can't buy it from India, but if it was traded in India, you'd probably be able to get that as an exposure. But stocks and innovation are quantum jumps. So they don't go up in a cycle and down in a cycle. They, they go up and then a little bit down and then a little bit up. So you can't say Nvidia is a cyclical stock. Yes, it has a little cycle, but look, it's done some 50x or something like that in the last one year. So the last 10 years. So it's like that ridiculous return is what you want. And I would say in general, if there's ridiculous return what you want, you want to focus on the stock market. Not even the bond market, not even the commodities market because you could technically go and buy US bonds bonds and that would give you a 5% short term return for owning, for the, for the privilege of owning US government debt with all the rupee depreciation built in and make yourself 5 plus the 3% which is 8% almost risk free in Indian.

[Shreya]

Pretty good FD rate.

[Deepak Shenoy]

It's a pretty good FD rate. And you're, I mean then if your children go abroad, you can give them that money as well. I could argue that's a fairly good use of the money. But you're looking at the Tesla at 16x and saying I want at least a chance to hit 16x in the US government. I'm not going to get that.

[Shreya]

So you're increasing your surface area for luck in a world where if you get it right, you can make absurdly high outcomes. That's really what we're kind of trying to.

[Deepak Shenoy]

Yes. And I think you're saying that the absurdly outcomes are not limited to India alone. So might buy a Bajaj Finance in India which gives you the 100x return, but you might also buy a Tesla which gives you a 50x return plus 3% year depreciation.

[Shreya]

Last two questions on this part of the podcast, then we'll move on to the nuts and bolts. But let's say that you're someone who's completely convinced by this but says, look Deepak, I barely have the time to invest in India or in India. I know some good mutual funds, I'll go buy them and all is well when it comes to doing stuff abroad. I have no idea what to do. What are the managed solutions or assisted solutions that people can get sitting in India?

[Deepak Shenoy]

So I think great. One simplest way to do this, and this is like a no brainer, but you'll see why it's not important is just get yourself hired in a company that is doing well abroad and get ESOPs right. So you don't have to worry about.

[Shreya]

We have a lot of customers, a.

[Deepak Shenoy]

Lot of customers who do that. So you know, from a Cisco to an intel to a Microsoft to Google and such, you actually have a lot of companies whose employees are in India.

[Shreya]

And therefore have the intel stock options may not be worth too much.

[Deepak Shenoy]

Yeah, I was good in the 2000s, but not somehow, you know, they've lost the plot since, but they did make a lot of money. So that's one. But obviously I can't. My advice can't be go get yourself a job in like Qualcomm or something. But the next best step would be then therefore to start exploring internationally through some vehicle that does your management, somebody else knows what to invest in and you're going to give them that money. Who can that be? It could be mutual funds in India. Very easy to buy, minimum of only 5000 rupees or something like that. Just buy it and they will take care of everything. Fine. Except RBI in 2009, in its infinite wisdom and not using that sarcastically to say that they put a rule that said $7 billion collectively across all mutual funds is the maximum you can ever have in non India investments.

[Shreya]

Sounded like a big number at the time, I have to say.

[Deepak Shenoy]

Yes. And the GDP has gone up 4x since then and the purchasing power of Indians has gone up tremendously. But the seven billion. Seven billion. And we just tabulated a bunch of things. There were a bunch of international ETFs that came and a bunch of international mutual funds that came. There's also another sub limit of $1 billion which is 7 plus 1 now. So 7 billion is for investing in stocks abroad and 1 billion is for Indian funds that invest only in US ETFs or non India ETFs. So just stabilated how it was and we were about $11 billion in the first category, which is something that invested in stocks.

[Shreya]

You mean 11,000 crores.

[Deepak Shenoy]

11,000 crores. 11 thousand crores. Which has now become nearly 49,000 crores in total, which is only. So there are mutual funds in India that invest only in foreign stocks. Investments in mutual funds in India that invest both in US stocks and in Indian stocks. So it's like a combination of the two and they're Indian mutual funds that invest only in US ETFs. So of the first two, which invest in stocks or which invest partly in US stocks, that's already reached the limit of $7 billion. So you can't buy any more mutual funds. Then of the second limit, which is the $1 billion in ETF, that also limit has been hit. It's about 9,000 crores right now. And given that you can't use a mutual fund vehicle easily and there's a small caveat over here, you might look at me and say, Deepak, I can buy the, you know, the Fang ETF by Miray or I can buy the NASDAQ 100 ETF by Motilal Oswald. Just today, as of now, this is the 7th of 8th of April, 2025. The price of the ETF, the NASDAQ 100 ETF is 170 rupees. But the underlying value of all the stock it sold translates to 146 rupees. So paying a 24% premium for the privilege of owning it because that ETF cannot create more units, it cannot buy more stock in the us it's hit the limits. So the guys who are owning the ETF are providing it at such a slow supply that it's being traded 24 rupees above the underlying value, nearly a 15% premium. This sounds crazy, but it's true. It's happening right in front of us. So I would say at this point buying a US ETF is a bad idea. This premium is going to vanish if RBI increases the limits. So at one level, testing that away from the, the overall equation. But what I would say here is mutual funds are one way. The next thing would be to go to a foreign jurisdiction and say I want to give to a person who can manage my money in a foreign jurisdiction. One of the ways to do this, maybe go to a Gift City. Gift City is considered not to be in India. It's a part of Gujarat, but you know, not to be in India kind of thing. The idea is you're outside of India so you actually have to do a liberalized remittance international transaction to move money from an Indian bank account to Gift City in Ahmedabad. When you do that, you can use that money to invest abroad. Now there may be a fund in Gift City. That fund in Gift City is a vehicle that says, well take this fund and collectively pool it into one fund and use that money to invest abroad. Gift City outgo outbound fund is an interesting way for you to be able to invest while a third party handles the actual integrities. Of the investments and there are some tax issues with this. We can come to that. I think we'll come to the nuts.

[Shreya]

And bolts just to name, I mean, not an endorsement of any sort, but just to name two people we know, friends of ours who do this. There's that Eravath Capital Fund, Global Tech Fund, and I think Ioniq wealth has also launched something like this. So there are a couple of funds like this which you could access where you have someone who you can speak to in India, but who's doing that.

[Deepak Shenoy]

Yeah. And then in the same Gift City, you could actually build yourself a PMS in a pms. The difference is that PMS takes your money and invests it abroad. So they have a partnership with like an interactive broker, one of the brokers in the US where it's a managed account. So you give them permission to use your money to buy and sell and they automatically buy and sell on your behalf. Now, you could do this with any number of customers and with any value as long as the money moves from India to Gift City and from there onwards. Now, Gift City is a moniker because Gift City is outside of India, but, you know, physically in India kind of thing. But you could also do the same thing with Singapore, US or if you could directly move your money, Cayman Islands, one of these places where there could be a fund that resides in Cayman Islands and you buy that fund and that fund goes and buys the stocks that they like in the. In the US or in any other jurisdiction. This is another. This is another part. So this managed asset part component can be. The easiest is the Indian mutual fund, of course. Of course. The easiest being get hired by the companies you want to buy shares of.

[Shreya]

I think Nvidia employees are very happy right now, I'm sure.

[Deepak Shenoy]

I mean, I think given. Given this, a lot of companies, a lot of people have actually built retirement corpuses entirely from sorts of. There's no doubt about that. But I would say if you're doing the managed assets, you could go down this road. I don't know. I hope we can do something about it, but maybe Capital Mind will also.

[Shreya]

I was just going to go there. Hopefully we'll have something there as well. But I guess everything depends on what the future holds on the short term.

[Deepak Shenoy]

On the mutual fund. All I can say is that we've applied to be a mutual fund ourselves in India. So if we do get a license, that's one if. And then if RBI increases the limits, that's another if in the combination of the two, then we should be, you know, very likely to because we think our investing prowess, which is mostly your investing prowess would be useful to, you know, translate into a fund that can invest abroad. And both from a subjective analysis based even if it means that these are product great products. Why don't we have them in India? Let's buy the stock versus a quantitative approach which is what Anoop might say. Listen, I want to do this. My computer is going to burn and churn and give me 10 stocks to buy internationally. But both of these I think have opportunities that we could do at some point in the. If you're allowed to all the if conditions are met. We also have a vehicle in Bift City like you know and we haven't operationalized it because we're waiting for this license bits to come. So I think very exciting times from a potential to buy abroad. But much as I said I want to say this. When people tell you that this is the sure short thing to make money in, that's probably when it's the biggest fad, right? We are telling you at a time when it's not the sure sure thing to make money. So in that sense I think we're being more true.

[Shreya]

This is my next and last question of this segment. Is this really a time to grow global, go global? Because it just looks like you're losing money on everything and it just marginally phase shifted. India started falling. Was it September, October? You got six more good months in the US but now even that's catching up. So does it really matter? Like everything seems to fall at the same time. So what are you really getting is diversification? Isn't something supposed to go up and make me feel happy?

[Deepak Shenoy]

Yeah, you know, on a long enough timeline we're all dead in the sense. But with a long enough timeline you realize that crisis is crisis crises, prices, yes, cause everything to be correlated instantly. So when life goes bad, the bond market falls, the stock market falls, gold markets fall. You're almost like what is there? Nothing that kind of. So in a crisis situation everything falls. But in the normal situations you find that people kind of try to find what their real values are and those real values actually come from a few important things. It could be because German defense manufacturers or European defense manufacturers suddenly shine because America has done this right? It could be because when China is being tariffed so much, some other countries that take up its case and it might not be India suddenly see a massive influx of orders. Remember that a company that has a turnover of say a billion dollars that suddenly gets revenues which are 10x its revenues, simply because its competitors are shut out or moved out of the market or tariff or whatever it is, you suddenly have a massive jump, a quantum jump if you may, in the profitability by factors that you normally couldn't have foreseen in the first place. But when you see this and foresee this, you might actually see great investors investments come from it. So right in that everything gets hurt at the same time, but not everything goes up in exactly the same way. And the pace that it grows up at. I hope it's India that just beats the daylights out of everything else. Very selfishly, I really hope it's India. But my gut feeling is that we're not going to be the only guys. And given that we have access to the Internet and data and 24 hour markets availability, it's possible that the great markets are somewhere else and therefore we shouldn't lose size of that opportunity. It's just that I'm thinking that if something is doing well somewhere and there's a good reason for it today, I can tell you that this is not something you should miss when you're beyond a certain minimum investable size.

[Shreya]

Sure, I'd like to get to some nuts and bolts. We'll go through these fairly quickly and do it. So in your opinion, what's a better way to do it? Would you rather have like a bank and brokerage account abroad so that you can buy and sell and keep it abroad and potentially one day spend from there as well? Or would you be okay with just using say I think Vested is a popular app from India. Then I know the IND money folks also have an app which lets you invest abroad. And recently someone in office tried ICICI Direct had some linkage I think it was to the interactive brokers and you can actually just open interactive brokers sitting in India as well. The foreign trading. Would you rather have a setup where when you sell the money comes back to India or would you rather have a bank in demat abroad? Any views on that?

[Deepak Shenoy]

You know, that's a great question because you can do three things. You could buy a fund abroad, you could buy direct stocks abroad through one of these platforms, Vested and so on. You could directly go abroad online on interactive brokers.com, create an account and then you know, do this transfer business. You could or go abroad, create a bank account demat statement and you know, demat account and then kind of do this. Now how do you do each one of them and at what, what pace? So I think the Answer to this would be the first layer would be what is the corpus size you have the smaller your corpus is. Some of these opportunities not available to you. But the bank in Singapore that says I'll let you invest worldwide says the minimum you need is over 250 sing dollars. So 250,000 sing dollars. So now if you're already, if you're not worth 5 or 6 crores, you're not going to put 2 crores into Singapore. And so you need to be worth 5 or 6 crores in liquid assets to be able to put 2 crores in Singapore for you to be able to do this. So yeah, maybe that, that's not an option. So what can you do with lesser. The answer then could be I could invest in a gift city fund that also requires a minimum of US$150,000 which is 1.2 crores. So again you need 3,4 crores before you can put 1.2 crores into a gift city fund. And that's the other thing, a gift city PMS. I think there the minimums are much lesser, maybe 30 lakhs. I mean I think it's debatable how.

[Shreya]

And it keeps coming down also.

[Deepak Shenoy]

It keeps changing. Yeah. So that may be a managed account that you could build out of a gift city entity and that will be easier for you to do if you have smaller amounts of money. Vested stockal are retail so you could do as little as 5,000 rupees. But if you do 5,000 rupees, most of the money will be made by the banks that transfer your money because they charge you 800 rupees flat fee and 1.5% LRS fee and transfer and dollar exchange fee and all that. On top of that, these guys use a broker. Vested users drive wealth and I think and IND money uses drive wealth and.

[Shreya]

Well, Drive wealth is definitely one of the biggest ones.

[Deepak Shenoy]

Interactive Broker is the next biggest one. Now Interactive Brokers has a fee on a per share basis or a percentage of value basis. Drive wealth has a 1, it's a certain fee that is charged. Again, there are different fees in comparison. So these fees can be much higher than what you're used to in India. In India you're thinking buy a stock, I pay nothing. Yeah. Or payment.

[Shreya]

And so unless you're able to open a Robinhood USA account, which I don't think they like you doing from here.

[Deepak Shenoy]

They'Re not allowing in India to open the app. So you can't get zero brokerage. So you, you end up with a higher Cost structure when you do something like this and then the pain of the lrs. But there's one massive factor you have to consider which is that the US has an inheritance tax and maybe we.

[Shreya]

Can go to that. But before inheritance tax, what about just taxation? I buy stocks abroad. If I'm not mistaken, two years is slab rate which could go as high as, what is it, 39%, 36% or something. 39%. And after two years it becomes long term capital gains which is just not so bad. This can take quite a significant toll as well. Right. Because of the short term on the domestic market is one year 25% say at the highest rates and so on. So that can eat away at quite a bit of your profit.

[Deepak Shenoy]

Yeah. So if you for instance want to do momentum kind of algorithm that changes things every month, you're paying 39% on profits made in those transactions on a short term basis. But if you hold stocks for two years then it's possible that you are going to get a much better return. So if you do the pms, your vested stock, Interactive Brokers in Money, all of these things involve buying stocks in your own name. And then you're going to be taxed on the exits as capital gains. In India. Luckily the US does not charge you any tax. Most countries don't. The US also doesn't. But let's also say that there are other areas. So for instance you get, you buy a stock and gives pays out a big dividend. 25% of the dividend is withheld in the US as US tax. It comes back to you. And if you have this vested or Interactive Brokers accounts it will reflect in a statement they will give you saying Shendra, you got a $100 dividend, $25 has been retained for you in the US when you file your Indian taxes you can say I got $100 converted to rupees, $25 converted to rupees has been held in the US therefore I have to pay only on the remaining how much ever. This does not happen. Sometimes if you do this bank thing because in the US sometimes when a bank buys stocks that you wanted to buy, the bank may own the stock in its own name. The withholding tax, if any, is held done in the bank's name. You can't go to the Indian government and say well you know, Royal bank of Scotland, I mean well at that time when it existed or UBS has a tax statement from the US government saying that they have received 25 of tax. The government is like, is Your name? Shree Chandra or is your name ubs? No, no, my name is.

[Shreya]

So then you lost that.

[Deepak Shenoy]

Then you lost that. So. So you have that problem of some of these intermediaries yanking away those tax. But there's another problem in a gift city fund. If you are an Indian investor investing into a gift city fund as an Indian citizen and that fund primarily consists of Indians and that fund invests abroad, that fund is taxed on long term capital gains at 12% after two years. So the fund itself pays tax. You don't pay tax when you exit, but the fund itself pays 12.5% tax each time. Whereas if I take off money and put it into a Cayman Islands fund, the fund can buy and sell as much as it wants. And there is no tax on the Cayman Islands fund because Cayman Islands is not taxing that fund at all. So when you get out of the Cayman Islands fund, whenever you do, you will be taxed in India on the full gains at 12.5%. So you could do this momentum level trading in a Cayman island fund but you couldn't do it in a gift sitting.

[Shreya]

The next sort of like detail thing I'd like to get into. You already kind of talked about how there are a lot of costs associated with remittances. I remember this is one of the reasons why Zerodha hasn't really launched their product because they haven't been able to create a very seamless and low cost way around this from a couple of years ago. I remember. But I also wanted to point out now there's TCS on the transfer too. So let's say you've managed to save up and you're trying to send a crore abroad. If I'm not mistaken, you have to cough up another 20 lakhs on TCs. Unless I've got this number wrong which is non trivial. So just just wanted to point out.

[Deepak Shenoy]

Yes, in fact two things have happened and they've. The government has decided that all of you as Indian citizens are also tax collectors. So therefore whenever you do things they will try to collect tax from you as if you have earned money. When you get, when you earn income, your TDA tax deducted at source is you earn income minus tax, some taxes paid at source, this is fine. But a TCS is when you spend money, they assume that you earn this money somewhere and they deduct this cash at source. So this is a very retro, you know, retrograde kind of a taxation where they're saying if you spend a crore then please pay us 20 lakhs as advanced taxes. These taxes can be adjusted, of course. But it means. That means you have to cough up 1.2 crores in order to be able to spend a crore, invest a crore investor. Crore. In fact, when my son goes to for higher education later this year I will have to pay some of this. It's not 20% there, it's 5%. And if I take a loan, it's 0.5%.

[Shreya]

Well, you're paying the bank enough that it's.

[Deepak Shenoy]

Maybe that's what it is. But I have to pay 5% TCs for my son's education fees. If I go abroad and I don't know, just take a flight ticket. That flight ticket has a 20% TCS and. And so on. Now up to 10 lakhs, there's no TCS. So if you have four family members you can do 10 lakhs each into four 40 lakhs. And that's fine. Nobody would ask you questions. But if you do personally 40 lakhs then you will get taxed TCS on this. Then you have to claim it back. Now how can you claim it back till a year back? There was no way. You had to wait till the tax filing was done and then file your taxes and claim it back.

[Shreya]

Because you know or hope that you have enough advance tax that you can offset against that.

[Deepak Shenoy]

Let's say you're an income. Let's say you're a salaried person. Your company is deducting tax for you every month anyway. So you have no more tax to pay. So you pay this extra tax and then you have to collect it back. Whereas what they've done this year is very interesting. Where they've said, listen, we understand this is a problem. So you can go to your employer and say, listen, I went abroad, they deducted 20 lakhs of tax. You are giving me a salary every month. You're deducting maybe a lakh of taxes every month. Consider that I've already paid 20. Don't deduct any more taxes from my income and salary. This offset was not available earlier. This offset is now available. So you can go to an employer and see this. Of course, we are fighting with the finance department which needs a formidable army and you know, lots of chocolate cake and ice cream. But assuming that you're able to convince them, the income tax department has no problem if you do this. So I think that is one thing that has saved you. But it is a bummer in the sense that it reduces. It introduces friction into traveling abroad. It forces people to. So it's actually been done because they're assuming that a lot of people who fly abroad don't pay taxes at all. But I think that's fair because, for instance, if my son goes abroad, he's just turned 18, he doesn't have an income. I do, and I am paying this thing. But if I, when he, when, when I pay educational fees for him, it will be from his bank account, paying himself. So it's not like he has the money to pay it. He just received it as a gift from me.

[Shreya]

But I'll end with the last point, which maybe deserve to be part of the first half of this conversation and not the nuts and bolts, but that US estate tax is quite terrifying, right? Because I think the people who've been hit with it the worst are those ESOP holders we've talked about so many times. Because there it is very clearly probably a US company and it's a US security and it's held in a US brokerage. So on the demise, when you have to inform them, they will act. I mean completely, like 100% to the letter of the law to the U.S. maybe it gets a little more flexible the further away you get from them. But the question I have to ask is the US Estate taxes kick in at an astonishingly no number. Something like $60,000 or something like that. Could you talk a bit about that risk?

[Deepak Shenoy]

I think what. So just to expand on what you just said, the inheritance tax, the estate tax in the US is a law that says when you die, your estate will be taxed before it reaches the next of kin. Now, this limit is in millions of dollars. If you are a U.S. citizen or a U.S. resident, that means you live in the U.S. and die. That's fine. You come to India and die. We have a different problem for you. So if you're not a US resident, which means a green card holder, an H1B holder who's in the US or, or as US citizen, then this kicks in at $60,000. At $60,000, they start taxing you more than 60,000. That's about, what, 48, 50 lakh rupees. They start taxing you on your next of kin if you die. That means if you have a portfolio worth, let's say half a million dollars, four crore rupees. The four crore rupees can be there the minute you, let's say you die. Your next of kin can be, I think the maximum tax rate there is 40%. So they could take away 40% of this money and only give you a rest of your. So that's like an insane tax. And you know, in India there's no inheritance tax luckily, so you, you don't have anything to offset it with. So you're going to have to pay that in the. This is because you are directly the holder of a security in the US Whereas if you held an Indian mutual fund that held US Stocks, the US Would not tax you on that because you're not directly owning US Stocks. If you held a gift city fund that held your stocks, this, if you held a Cayman island fund, you'd be fine. But there's some interesting. So let's say I want to buy the NASDAQ 100. I'm like, why should I invest in a gift city fund that invest in NASDAQ 100 sounds like a little bit of. But knowing that this US law exists and knowing that there's a. There's another reason for this. There's something called a U sits fund. It's a pass through ETF that invests directly further onto U.S. eTFs. So it could be. Or U.S. stocks. So it could be UCITS, NASDAQ 100 ETF, which is not located in the U.S. it's a fund located in Ireland or something like that. And Ireland does not have this inheritance tax law. So technically if you died, you would not have to pay US Inheritance taxes, estate taxes, but you would have to pay whatever is in Ireland and Ireland does not have, let's say an estate tax. And therefore you don't have any problem recovering the money in its entirety. For a while, UCITS based ETFs were not allowed for Indians. It was in Ireland open only to Europeans. But now I think they've expanded the scope of usage. Some of these usage ETFs and you can invest in them as well. And it may be easier for you to invest in those. And which then which gives you the same underlying exposure. The economic interest is exactly the same, except this death penalty does not kind of kick in. And the other part of this was also that because dividends are taxed in the US and we talked about in our ETF episode, the US has a special taxation law, but that taxation law allows ETFs to flourish even if it were to buy and increase its aum. But when they receive dividends from the companies that they get, they will be taxed if they don't distribute the money. So they distribute all the dividends they get every quarter. So you take any ETF in the US it's almost always distributing its income every quarter or every year. And because it's a dividend, when you receive that dividend there's a 25% withholding tax. But if the UCIT's ETF receives it, there is no withholding tax. And what they do is they don't pay out a dividend so they're like a growth non dividend etf. And therefore you avoid the withholding tax issues of US ETF directly as well. So you could use these other vehicles to avoid paying the inheritance tax. But remember this, if you're an ESOP holder, you don't have any of these options. So if you know you're dying, which we all do at some date. But philosophically speaking, but let's say you know, you should eliminate owning these stocks directly in your portfolio, sell them, move the money back to India, put them or distribute them to your, you know, next of kin already because otherwise the 40% tax is going to apply.

[Shreya]

So I think all this makes me think that I really hope the RBI and SEBI agree to increase the limit on invest. I think RBI more than SEBI because mutual funds really are the best product for folks in India to be able to access this. And I guess it would be great if Indians own more of all these companies abroad and can diversify while sitting at home.

[Deepak Shenoy]

We need to be rich. It's not only the RBI that needs to buy stuff that's in dollar terms, it's also the Indians.

[Shreya]

Thanks Deepak.

[Deepak Shenoy]

Cheers.

[Shreya]

Well, thanks for listening. If you'd like to hear more episodes then do visit capitalmind.in podcast. And if you'd like to learn more about our investment products then just visit capitalmind.in to find out about our portfolio management service where we invest in stocks and mutual funds. If you have more than 50 lakhs that you can allocate to us till next time.