If you are building a global portfolio today, you are most likely using one of these routes:
- US-listed stocks and ETFs
- Indian international mutual funds like Motilal Oswal NASDAQ 100
- GIFT City outbound funds
All three give you global exposure. All three are legitimate. But each comes with a structural gap that reduces how much of your portfolio’s returns you actually keep. This gap comes from the instrument you choose, and it widens every year.
Understanding this before your next LRS remittance matters more than most allocation decisions.
Table of contents
- US-listed Stocks and ETFs
- Indian international mutual funds
- GIFT City outbound funds
- Why HNIs are switching to UCITS
- Think beyond allocation
- About Paasa
US-listed Stocks and ETFs
US-listed stocks and ETFs are where most HNIs begin. The issue is not the market exposure. It is how the instrument is designed.
Dividend problem
US-listed ETFs are distributing instruments. There is no growth class and no opt-out. Every quarter, dividend income from the underlying stocks is paid out as cash into your brokerage account.
Under Indian tax rules, this is foreign dividend income, taxable at your slab rate in the year it is received, regardless of your investment horizon or whether you reinvested it the same day.
For most HNIs, that rate is 34% or higher once surcharge and cess are included, thus a 1.2% dividend yield on a $100,000 portfolio generates roughly ₹1 lakh in gross dividend income annually.
At 34%, approximately ₹34,000 leaves as tax every year, automatically.
That ₹34,000 is no longer compounding inside your portfolio.
Over 10 years, the compounding loss on that recurring outflow becomes significantly larger than the tax itself. This is not the result of a poor decision. It is the result of an instrument that was designed for a different investor in a different tax jurisdiction, where dividend income is taxed far more favourably.
Estate tax problem
There is a second structure issue with US-listed instruments that most platforms & advisors never mention.
If you hold more than $60,000 in US-listed assets as an Indian resident, you create a US estate tax exposure. Non-resident investors are subject to US estate tax at rates up to 40% on US situs assets above this threshold. India has no estate tax treaty with the US.
For anyone building a meaningful global portfolio, where $60,000 is not a high bar, this is a structural liability that exists from the moment the threshold is crossed. It is a real exposure that compounds as the portfolio grows.
If you want a deeper understanding of how this works in practice and what triggers the liability, read: Understanding US estate tax for Indian investors →
Indian international mutual funds (Motilal Oswal NASDAQ 100, Axis Global Alpha, etc.)
Indian mutual funds solve the dividend problem. In growth plans, dividends are reinvested within the fund. You do not receive cash distributions. There is no annual tax event on that income.
This makes them cleaner than US-listed ETFs on that dimension. But the cost shows up elsewhere.
High fee
A fund-of-fund structure invests in an underlying ETF and layers its own expense ratio on top. For Motilal Oswal NASDAQ 100 FoF, that combined total comes to roughly 0.80% annually, compared to 0.07% to 0.20% for holding a direct ETF tracking the same index.
That difference of 0.60% to 0.70% sounds small. Compounded over time, it is not. On a $50,000 portfolio, that additional fee drag costs roughly ₹25,000 every year before markets have moved at all. Over 10 years, assuming 8% annual returns, the compounding loss from that fee gap exceeds ₹4 lakh.
Continuity risk
Beyond cost, there is a structural risk that has nothing to do with markets or fund management quality. SEBI’s overseas investment cap can halt fresh subscriptions entirely, with no notice to the investor. Motilal Oswal NASDAQ 100 investors experienced this in early 2025. The fund closed. The ability to continue building the position stopped with it, mid-plan and mid-accumulation cycle.
GIFT City outbound funds
GIFT City outbound funds are the newest route into global markets for Indian investors, a structure that has emerged over the last two years as SEBI’s overseas limits constrained the mutual fund route.
Internal churn cost
Every time the fund manager buys and sells securities inside a GIFT City outbound fund, those transactions become taxable events at the fund level. Short-term gains (positions held under 24 months) are taxed at approximately 42%, regardless of your personal income bracket.
This tax is applied before returns reach you. It reduces the NAV directly. You do not see it as a line item. You do not control when it is triggered.
Unresolved questions
There are two areas around GIFT City funds that are still not fully settled:
- Taxation at redemption: There is no clear statutory position on whether investors have additional tax liability beyond the fund level.
- Schedule FA disclosure: Whether these investments need to be reported as foreign assets remains unclear under FEMA/Income Tax laws.
Why HNIs are switching to UCITS
Indian HNIs building serious global portfolios are moving toward accumulating UCITS ETFs. This shift is driven by how the structure behaves across all dimensions.
What UCITS ETFs are
UCITS is a European regulatory framework, typically domiciled in Ireland or Luxembourg. The accumulating share class does not distribute dividends. Income stays within the fund and is reinvested into the NAV. Nothing is paid out; nothing is taxed annually.
The entire return is taxed at exit at 12.5% after 24 months. For a high-tax Indian investor, this is a rate advantage: income that would have been taxed annually at 34% is instead taxed once at 12.5%.
Estate tax advantage
UCITS ETFs domiciled in Ireland are not US situs assets. This removes US estate tax exposure entirely, regardless of portfolio size.
Comparison Summary
| Feature | US ETFs | Indian MFs | GIFT City | UCITS |
|---|---|---|---|---|
| Dividend tax | High | None | Embedded | None |
| Fees | Low | High | Moderate | Low |
| Internal tax | None | Hidden | High | None |
| Estate tax | Yes | No | No | No |
| Control | Full | None | None | Full |
| Tax clarity | Clear | Clear | Uncertain | Clear |
Think beyond allocation
If you are building serious exposure, the goal is simple. Keep more of what the market generates, minimise what leaks out along the way, and retain control over how and when decisions are made.
About Paasa
Paasa is a platform that helps Indian investors invest in global markets including the US, UK, and China. You can trade directly through our platform, or work with our SEBI-registered advisory team who will build and manage a model portfolio for you, built around accumulating UCITS ETFs and managed with professional rebalancing discipline.
If you want to see how this works for your specific allocation, book a call with our advisory team.
