Is LRS a Smart Path to Build Global Wealth?

Much has been written about why international investing is relevant to the portfolio of every savvy and affluent investor. The four major factors are dollar spending, rupee depreciation, access to specific businesses, and diversification.

Many companies listed in the US are truly global and a significant portion of their revenue is earned from non-US markets. They deliver exceptional financial performance, often reflected in fresh cash flow and profitability growth of over 20%. Investing in US markets makes these types of companies a part of your portfolio. Here’s how to invest in such companies.

Fund Route: Many Indian mutual fund schemes invest in internationally listed companies. Some of them are feeder funds. They collect money from Indian investors and buy units of actively managed funds domiciled outside India. Currently, this option is not available as the Indian mutual fund industry has reached the $7 billion limit set by SEBI. Another category of mutual funds, which invest in globally listed ETFs, have a SEBI (market regulator Securities and Exchange Board of India) limit of $1 billion, which is also likely to be reached in due course, and hence it May not even be a viable option. Furthermore, since this investment mode is still a rupee-denominated, while it offers diversification benefits, it does not provide access to dollar currency.

Liberalized Remittance Scheme (LRS)Reserve Bank of India allows remittances up to $250,000 per person in a financial year. This remittance is for all your foreign exchange expenses including investments outside India. These investments can be made in ETFs, stocks and actively managed funds. Money may also be routed through some boutique investment managers who run specific focused strategies focusing on growth companies with high ROE and free cash flow.

The advantage of the LRS route is that the accumulated investments can be sold or redeemed at any time to generate a large dollar balance which can be used for any expenditure/investment without any limit. We have seen that HNIs are increasingly using these limits to remit funds outside India and gradually build up a corpus of offshore assets.

With SEBI cap on Indian funds investing internationally, HNIs are resorting to increased LRS where the limit is not on the fund but on each individual.

Due to the ongoing geopolitical conflict, the equities have seen some downside. For example, the Nasdaq is down 10% so far in 2022. Therefore, one can take advantage of this volatility to start building or increasing international exposure in a staggered manner.

India’s financial year is about to end. One can view the unused LRS limits and deposit the required balance before 31st March. Also, if necessary, some more funds can be remitted in April or May from the next financial year’s limit to take advantage of the lower markets.

Arihant Bardia is the Founder and Chief Investment Officer of Waltrust Capital.