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.

Note for non-Indian readers: This page uses the Indian numbering system for monetary values.

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 5,00,000 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 lump-sum. 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 1,50,000. 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 four components: Equities, Corporate bonds, Government bonds and Alternative Investment. 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) Employees' Provident Fund (EPF): EPF is retirement plan where equal amount is contributed by employee and employer every month and the account earns an interest as declared by the central government every year. The usual amount of contribution is 12% of basic pay. An employee can choose to contribute more through Voluntary Contribution Fund (VPF).
 * 6) Sukanya Samriddhi Yojana (SSY) (English: Girl Child Prosperity Plan): SSY is a saving scheme similar to PPF and is targeted at parents of girl children. It encourages parents to save for education and marriage of girls. Unlike PPF, the account matures in 21 years and contributions can be made for first 14 years. The girl on attaining the age of 18 can withdraw up to 50% of the account balance for higher education. Tax treatment is similar to PPF but SSY currently earns slightly higher interest than PPF.
 * 7) Mutual funds and ETFs: India has a large stock and debt market and there are thousands of mutual funds available for investors. These funds include equity mutual funds and debt mutual funds of various categories. There are also a large number of Gold ETFs available.
 * 8) Sovereign Gold Bonds (SGBs): In order to stop the large import of gold in India due to high demand, Reserve Bank of India (RBI) launched SGBs to encourage people to hold gold in paper format. Currently, it is one of the best ways to hold gold since there is no expense ratio, and SGBs pay 2.5% interest annually. On maturity, the amount equal to market value of gold in India is paid out, as published by India Bullion and Jewellers Association.
 * 9) Equity Linked Savings Scheme (ELSS): With a lock-in period of 3 years this scheme offers tax deduction of up to Rs 1,50,000 under section 80C. However, investments must be held in a qualified closed ended fund.

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 Stock 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 is only one Small-cap index fund (no 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:

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

Bond index funds and ETFs
Since the Indian bond market is dominated by gilt securities, the only index funds are based around gilts of 10-year maturity. Some of the available index funds are:

The only available ETFs are:

Investing in India domiciled mutual funds or ETFs
Investment in equity and equity-oriented mutual funds and ETFs (65% investing in Indian stocks) for more than 1 year qualifies for long-term taxation, while the same time for debt-oriented/international mutual funds is 3 years. Below are the tax rates for these:


 * 1) Equity mutual fund short-term capital gain: 15% plus surcharges
 * 2) Equity mutual fund long-term capital gain: 10% (exempted up to a gain amount of Rs 1,00,000 per year)
 * 3) Debt/International mutual fund short-term capital gain: Marginal tax rate of the individual
 * 4) Debt/International mutual fund 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 mutual fund capital gains attract no tax up to a gain of Rs 1,00,000 per year, it is advised to sell and immediately buy equity funds to increase cost basis. In other words, gains up to Rs 1,00,000 should be booked every year. 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.

Bitcoin and cryptocurrencies
For cryptocurrencies the information can be found here. Note that cryptocurrencies and bitcoins held in crypto exchanges which have servers or wallets located outside India may be considered as foreign assets and in that case Schedule FA must be filed if the cryptocurrencies are still stored in exchanges and not withdrawn to local wallet immediately.

RSUs and ESPPs
For RSUs (Restricted Stock Units) or ESPPs (Employee Stock Purchase Plans) the information can be found here.

Investing in Foreign Domiciled Mutual Funds/ETFs or Direct Foreign Equity
If you are investing in Mutual Funds/ETF's or Stocks domiciled outside India -- that is, ETFs/Stocks listed in a foreign stock exchange like NYSE, LSE, or NASDAQ, and held with brokers such as Charles Schwab, Interactive Brokers, Vested Finance -- then the Information on Taxation regarding this can be found in this YouTube video Tax on US Stocks India Explained | Vested x Galactic.

Note it is unknown currently whether the Recent Taxation Change (in which Funds which are having <35% Exposure to Indian Equities are taxed at Slab Rates regardless how long you own them) is applicable to Foreign Domiciled Funds.

Brokerages
The largest broker by number of clients in India is Zerodha and is ideal for buy-and-hold investors. It charges zero brokerage for equity delivery and hence charges no brokerage on buying or selling ETFs (Rs 20 brokerage for intra-day trades). It charges Rs 300 per year as account maintenance fees. Largest expense borne by investors is Securities Transaction Tax (STT) which is charged at 0.1% of traded amount.

Other brokers include ShareKhan and other full-service brokers like ICICI Securities, HDFC Securities etc.

20% tax with indexation
Others can be found using the ValueResearch International Search.
 * 1) NAVI US Total Stock Market Cheapest option. 0.5% TER. Only fund still allowing investments after SEBI restricted AMC's from buying Foreign Stocks from Feb 2022 due to them breaching 7 Billion USD Limit for Overseas Investments. This fund due to it being FOF of Index is under a seperate limit of 1 Billion USD which as of March 2023 is not breached. (Including DWT of 25% on 1.6% Dividend Yield= 0.4% and 0.03% TER of Underlying Fund)
 * 2) Motilal Oswal S&P 500
 * 3) Motilal Oswal Nasdaq 100 Exchange Traded Fund
 * 4) Nippon India Multi Asset Fund (Active Fund)
 * 5) Motilal Oswal Multi Asset Fund (Active Fund based on Fund doing market timing but the fund is investing in passive funds)
 * 6) HDFC Developed World Indexes Fund of Fund (Tracks MSCI World Index).

10% tax without indexation
Fund must invest minimum 65% in Indian Equity including Arbitrage to quality for this taxation. The funds below are active funds, except for the Edelweiss Fund.
 * 1) Parag Parikh Flexi Cap Fund (28.96% Feb 2021) (Currency Hedged) (25% DWT)
 * 2) Axis ESG Equity Fund (28.32% Feb 2021) (25% DWT)
 * 3) Aditya Birla SL International Equity Fund Plan B (27.74% Feb 2021) (25% DWT)
 * 4) Axis Growth Opp Fund (21.95% Feb 2021) (25% DWT)
 * 5) Axis Special Situations Fund (21.64% Feb 2021) (25% DWT)
 * 6) Kotak Pioneer Fund (19.2% in "Signature Global Technology Corporate Class Fund -994" Feb 2021) (25% DWT)
 * 7) DSP Value Fund (16.74% Feb 2021) (25% DWT)
 * 8) Templeton India Equity Income Fund (14.16% Feb 2021, Emerging Markets Only) (25% DWT)
 * 9) Principal Large Cap Fund (11.86% Feb 2021) (25% DWT)
 * 10) ICICI Pru MNC Fund (10.73% Feb 2021) (25% DWT)
 * 11) Aditya Birla SL Dividend Yield Fund (10.11% Feb 2021) (25% DWT)
 * 12) SBI Focused Equity Fund (9.09% Feb 2021) (25% DWT)
 * 13) SBI Magnum Global Fund (4.46% Feb 2021) (25% DWT)

Sector:
 * 1) Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund (30.82% Feb 2021) (25% DWT)
 * 2) Franklin India Technology Fund (26% of which 7.63% is invested in Franklin Technology Fund,Class I (Acc) Feb 2021) (25% DWT)
 * 3) DSP Natural Res & New Energy Fund (25.57% of which 15.59% is in BlackRock Global Funds- Sustainable Energy Fund (Class I2 USD Shares) and 9.98% is invested in BGF - World Energy Fund (Class I2 USD Shares) January 31 2021) (25% DWT)
 * 4) SBI Technology Opp Fund (9.27% Feb 2021) (25% DWT)
 * 5) DSP Healthcare Fund (8.56% Feb 2021) (25% DWT)
 * 6) Aditya Birla SL Digital India Fund (3.40% Feb 2021) (25% DWT)