Investing from India



This page intends to provide information to retail Indian residents investing in India. While Vanguard is yet to enter the Indian market, it is possible to apply the Bogleheads principles for portfolio construction. This page provides information on available investment options and their features, including the tax treatment of various financial instruments.

Savings and investing in India
Retail investors in India have access to the investments below:
 * 1) Fixed Deposits (FDs): These are debt instruments similar to CDs in the US. Term ranges from 7 days to 10 years. Balance up to Rs 100,000 at each bank is guaranteed by the government. Deposit can be made at any bank or post office.
 * 2) Recurring Deposits (RDs): These are similar to FDs except that monthly contributions are made instead of an upfront lumpsum. Interest rate and term is fixed upfront.
 * 3) Public Provident Fund (PPF): PPF is a debt saving instrument where investments earn a small spread over the prevailing government bond yields. Interest rate is declared every quarter by the government and entire account balance is fully guaranteed by the Central government. PPF taxation is EEE in nature, meaning that contributions, accumulations and withdrawals are tax-free. Maximum yearly limit for investment is Rs 150,000. The account matures in 15 years and investors can withdraw the entire balance. Alternatively, investors have a choice to extend the account in bunches of 5 years indefinitely.
 * 4) National Pension System (NPS): NPS is a defined contribution retirement plan similar to 401(k) plans offered in the US. The portfolio consists of three components: Equities, Corporate bonds and Government bonds. Investors can choose their asset allocation as per their risk tolerance and age. Portfolio is re-balanced once a year on investor's birthday. NPS taxation is EEE in nature, meaning that contributions, accumulations and withdrawals are tax-free. Investors are required to buy an annuity with at least 40% of portfolio amount on withdrawal on retirement at age 60.
 * 5) (Numbered list item goes here)

Benchmarks and Underlying securities
As per the direction of Securities and Exchange Board of India (SEBI), Association of Mutual Funds of India (AMFI) classifies all listed stocks in India into large-cap, mid-cap and small-cap once every six months. The categorisation is as below in the decreasing order of market cap:
 * 1) Large-cap: Stocks ranked 1 to 100
 * 2) Mid-cap: Stocks ranked 101 to 250
 * 3) Small-cap: Stocks ranked 251 and below.

The two major stock exchanges in India are National Stocks Exchange (NSE) and Bombay Stock Exchange (BSE). Both own subsidiaries that provide benchmarks that mutual funds track. BSE Sensex and Nifty 50 are oldest and most popular equity benchmarks but over time broader benchmarks have been introduced.

Large-Cap Benchmarks
 * 1) BSE Sensex: Constituting 30 largest and most liquid stocks in terms of free-float market capitalisation listed on BSE.
 * 2) BSE Sensex 50/Nifty 50: Constituting 50 largest stocks in terms of free-float market capitalisation listed on BSE/NSE.
 * 3) BSE Sensex Next 50/ Nifty Next 50: Constituting next 50 (rank 51-100) largest stocks in terms of free-float market capitalisation listed on BSE/NSE.
 * 4) BSE 100/Nifty 100: Total of Sensex 50/Nifty 50 and Sensex Next 50/Nifty Next 50 benchmarks.

Large-cap space is where passive investment is gaining popularity.

Mid-Cap Benchmarks

BSE MidCap, BSE 150 MidCap, Nifty MidCap 50, Nifty MidCap 100, Nifty MidCap 150:

There are only a few Mid-cap ETFs available in India currently.

Small-Cap Benchmarks

BSE SmallCap,BSE 250 SmallCap, Nifty SmallCap 50, Nifty SmallCap 100, Nifty SmallCap 150

Currently there are no Small-cap index funds or ETFs available in India

Multi-Cap Benchmarks

BSE 500/NSE 500: These are broadest equity benchmark available in India and are sum total of BSE 100/NSE 100, BSE 150 Midcap/NSE Midcap 150 and BSE 250 SmallCap/Nifty SmallCap 250.

Stock index funds
Currently, Index mutual funds (excluding ETFs) are available in India only for large-cap indices. Most index funds benchmark to Sensex, Nifty 50 or Nifty Next 50. Some of the good options are:
 * 1) HDFC Index Fund Nifty 50 Plan - Direct (expense ratio 0.10%) - Benchmark Nifty 50
 * 2) UTI Nifty Index Fund - Direct (expense ratio 0.13%) - Benchmark Nifty 50
 * 3) UTI Nifty Next 50 Index Fund - Direct (expense ratio 0.27%) - Benchmark Nifty Next 50
 * 4) ICICI Prudential Nifty Next 50 Index Fund - Direct (expense ratio 0.44%) - Benchmark Nifty Next 50

Stock ETFs
Stock ETFs is the most active area for passive investments in India today with almost all AMCs coming out with ETFs products. Some popular ETFs attractive for buy-and-hold investors are listed below:

Large-cap ETFs
 * 1) ICICI Prudential Nifty ETF (expense ratio 0.05%)
 * 2) HDFC Nifty 50 ETF (expense ratio 0.05%)
 * 3) Reliance ETF Nifty BeES (expense ratio 0.11%)
 * 4) SBI ETF Nifty 50 (expense ratio 0.07%)
 * 5) Reliance ETF Junior BeES (expense ratio 0.23%)

Mid-cap ETFs
 * 1) Reliance ETF Nifty Midcap 150 (expense ratio 0.30%)
 * 2) Motilal Oswal Midcap 100 ETF (expense ratio 0.20%)
 * 3) Motilal Oswal M50 ETF (expense ratio 0.15%)

Bond index funds and ETFs
Currently there are no bond index funds in India, and only three bond ETFs
 * 1) Reliance ETF Long Term Gilt (expense ratio 0.04%) - Benchmark NIFTY 8-13 yr G-Sec Index
 * 2) SBI ETF 10 Year Gilt (expense ratio 0.14%) - Benchmark NIFTY 10 yr G-Sec Index
 * 3) LIC MF G-Sec Long Term ETF (expense ratio 0.25%) - Benchmark NIFTY 8-13 yr G-Sec Index

Taxation
Investment in equity and equity-oriented mutual funds and ETFs for more than 1 year qualifies for long-term taxation, while the same time for debt-oriented mutual funds is 3 years. Below are the tax rates for these:


 * 1) Equity MF short-term capital gain: 15% plus surcharges
 * 2) Equity MF long-term capital gain: 10% (exempted up to a gain amount of Rs 100,000 per year)
 * 3) Debt MF short-term capital gain: Marginal tax rate of the individual
 * 4) Debt MF long-term capital gain: 20% with indexation, plus surcharges

Some strategies for tax efficiency:
 * 1) Since there is no wash-sale rule in India and equity MF capital gains attract no tax up to a gain of Rs 100,000 per year, it is advised to sell and immediately buy equity funds to increase cost basis. This ensures utilisation of exempted limit for the year.
 * 2) Tax loss harvesting has limited use. Capital losses can only be offset against capital gains and not against any other income source. Long-term loss can only be offset against long-term gain while short-term loss can be offset against either short-term gain or long-term gain. Losses can be carried forward up to a maximum of 8 years.

Brokerages
Example pages are here: