Unlocking global markets: How to diversify with portfolio management services
Source: Live Mint
With India’s mutual fund industry hitting the market regulator’s $7 billion overseas investment limit, one door has been shut for Indian investors looking for global diversification. But they have the alternative option of investing overseas through portfolio management services (PMS), which are professionally managed funds with access to international markets.
This route requires investors to transfer funds via India’s liberalised remittance scheme (LRS), under which individuals can remit up to $250,000 in a financial year for investments. The minimum ticket size for PMS funds is $75,000, or about ₹66 lakh.
Pramod Gubbi, co-founder at Marcellus Investment Managers, said Indian investors tend to have nearly 99% of their portfolios allocated within the country due to a home-country bias, with minimal exposure to international markets, which can limit the potential for higher returns and better risk-management.
But as awareness grows, investors are slowly shifting towards a more balanced approach with overseas allocations, he said. “The right ratio depends on an individual’s risk appetite and investment horizon, but global diversification is becoming increasingly essential for a well-rounded portfolio.”
Geographical allocation in a global PMS portfolio
Marcellus’ Global Compounders Protfolio allocates about 75% of its corpus in the US, about 20% in Europe, and 5% in Canada, investing mainly in market leaders in key industries.
The US portion of the portfolio is primarily focused on industrials, which account for 39% of the allocation. Gubbi believes this sector is currently undervalued compared to technology, which makes up 26% of the portfolio. Financials have an 11.6% share, consumer discretionary holds 9.5%, and healthcare, 7.8%.
On industrials, Gubbi said any policy push towards re-industrialization in the US could significantly benefit the sector, which, he said, has historically provided stable and consistent long-term returns, making it a strong candidate for strategic investment.
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Why Marcellus avoids some emerging markets
Marcellus’ Global Compounders Protfolio avoids emerging markets such as China, Brazil, and Russia, although it has made an exception for Taiwan Semiconductor Manufacturing Co. Ltd (TSMC).
Gubbi outlined four key reasons for avoiding emerging markets.
1. Most emerging markets, except India, have not delivered consistent gains over the past two decades.
2. Regulatory crackdowns in China on firms like Alibaba have made such markets less predictable and less investor-friendly.
3. Indian investors already have ample exposure to emerging markets through domestic investments.
4. Well-established and high-quality companies are predominantly found in developed markets like the US and Europe.
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How to invest
To invest in the Marcellus Global Compounders Protfolio, individuals need to first upload customer verification details including identity proof, PAN card and a canceled cheque or bank statement on the firm’s website.
Marcellus’ team will then create an account for the investor with Interactive Brokers, a US brokerage, which typically takes about two working days. During this period, the client should be available to provide any additional information or clarifications required.
The next step is for the investor to transfer funds to Marcellus’ overseas pool account. A minimum investment of $75,000 is required, which must be sent via the Liberalised Remittance Scheme (LRS) route from the investor’s bank account. This fund transfer usually takes an additional working day.
Tax considerations
Investing in US stocks and exchange-traded funds (ETFs) through a portfolio management service comes with specific tax considerations for Indian resident investors.
According to Kinjal Shah, a member of the Bombay Chartered Accountants’ Society, PMS is considered a “pass-through” vehicle for tax purposes in India. This means the tax liability falls directly on the investor, as if they were purchasing and selling securities on their own. The tax treatment of such investments depends on the nature of the underlying assets—whether they are equity or non-equity—and the holding period.
Overseas investments may also lead to double taxation at the time of sale, requiring investors to claim relief under the Double Taxation Avoidance Agreement (DTAA), said Poorva Prakash, partner at Deloitte India.
The India-US DTAA plays an important role in preventing double taxation. This agreement allows investors to claim credit for taxes paid in the US against their tax liability in India, ensuring that the same income is not taxed twice.
US companies typically withhold 25% tax on dividends paid to Indian investors. In India, these dividends are added to the investor’s taxable income and taxed as per their applicable income tax slab. However, investors can claim a credit for the US withholding tax, reducing their overall tax burden.
Capital gains taxation for US stocks in India depends on the holding period. If the stocks are held for more than 24 months, the gains are classified as long-term capital gains (LTCG) and taxed at 12.5%, plus the applicable surcharge and cess. Indexation benefits, which are adjustments made for inflation, are not available for such gains.
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Also, as tax is collected at source on remittances made under LRS, investors must ensure they report their foreign-held investments in their Indian tax returns based on their residential status, regardless of whether they made gains or losses.
This requires filling relevant tax forms—Schedule FA (Foreign Assets), Schedule TR (Tax Relief), and Form 67—for claiming foreign tax credits.
The Finance Bill 2025 has proposed increasing the threshold for tax collected at source (TCS) from ₹7 lakh to ₹10 lakh. Any remittance exceeding this limit will be subject to a 20% TCS.
If an investor remits ₹66 lakh overseas, a 20% TCS would apply on ₹56 lakh, if the proposal for the ₹10 lakh threshold is cleared. In effect, a TCS of ₹11.2 lakh would be deducted at the time of remittance and reflected in Form 26AS.
Since TCS is not an additional tax, it can be adjusted against the investor’s total tax liability. If the TCS paid exceeds the total tax liability, the excess amount can be refunded when filing the income tax returns.
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