SEBI RIA Abhishek Kumar warns that a 40% allocation to US funds creates a tax drag up to 30% versus 12.5% on domestic equity. INR goals matter more than past returns. A 5-15% band is safer.
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Three investors last week asked SEBI-registered investment adviser Abhishek Kumar the same question: should they move 40% of their SIPs into US funds? Kumar, founder of SahajMoney, posted a clear answer on LinkedIn. The risk event is not a market sell-off or a regulatory ban. It is a steady, compounding drag from taxes, currency mismatch, and estate rules that most retail investors ignore while chasing recent US equity outperformance.
The simple read is obvious from the numbers. US equities delivered annualised returns of 19.4% over 10 years, 19.8% over 15 years, and 15.2% over 20 years. A lump sum multiplied 5.9x, 15x, and 17x over those periods. Indian equities returned 13.2%, 11.3%, and 11.4% over the same stretches. Even gold, at 14.6% annualised over 20 years, could not match the US index.
The better market read digs deeper. Tax treatment for international funds changed after April 2023. The currency tailwind is a two-way bet. The estate tax trigger above $60,000 is a trap for direct stock holders. An investor piling 40% of INR-denominated savings into US funds is not diversifying. That is speculation on currency and regulatory regimes.
Kumar’s clients all had liabilities denominated in INR: home EMIs, children’s school fees, retirement spending. Social media pressure had them convinced they were “financially illiterate” for not loading up on US equities. Kumar called it “manufactured panic with a product to sell.”
All three asked whether they should move 40% of their SIPs to US funds. Kumar’s response: no. If 95% of future expenses are in INR, why would half the portfolio be in USD? That logic underpins the entire risk event.
Post-April 2023, most international equity funds held by Indian residents are taxed as debt instruments. The implications are straightforward:
For a taxpayer in the 30% slab, the effective tax on US equity gains can reach 30%. This compares with 12.5% on domestic equity LTCG (for gains above ₹1.25 lakh). On a fund compounding at 15-20% annually, that tax gap generates a significant drag over a decade.
When buying US ETFs or stocks through an Indian investment platform, if the total purchase exceeds ₹10 lakh in a financial year, the bank collects 20% Tax Collected at Source (TCS) upfront on the amount above that threshold. The money is reclaimable only by filing an income tax return. The cash sits idle for months. Kumar describes it as “an interest free loan to the government.” In a high-growth portfolio, locking up 20% of incremental investment capital reduces the compounding effect.
Kumar’s core argument is structural. If 95% of future expenses are in INR, what does a 40% USD-denominated portfolio solve? The currency mismatch creates risk, not diversification.
The Indian equity market, with its higher volatility and political risk, already provides a currency-matched growth engine. Adding more US exposure beyond a point becomes a bet that the USD will continue to appreciate faster than INR at the margin. Currency forecasting is a low-probability edge for retail investors.
| Asset Class | 10-Year CAGR | 15-Year CAGR | 20-Year CAGR |
|---|---|---|---|
| Indian Equities | 13.2% | 11.3% | 11.4% |
| US Equities | 19.4% | 19.8% | 15.2% |
| Real Estate | – | 5.6% | 7.9% |
| Debt Instruments | – | ~7.5% | ~7.6% |
| Gold | – | – | 14.6% |
Sources: Mint article citing SEBI RIA Abhishek Kumar. Real estate and debt CAGRs provided only for 15 and 20 years.
The table shows US equities delivered higher headline returns. The gap narrows in absolute terms over 20 years. Meanwhile, the tax advantage of domestic equities is hard to replicate.
An often overlooked risk: if an Indian resident holds US-listed stocks directly and the portfolio exceeds $60,000 at the time of death, the nominee faces up to 40% US estate tax on the excess amount. The tax is levied on the gross estate value, not just gains. For a portfolio that has compounded at 15% for a decade, the estate tax can wipe out a meaningful chunk of the inheritance.
This rule does not apply to Indian mutual funds that invest in US equities. Many investors prefer direct US stocks or ETFs through international brokerage accounts. The estate tax exposure is a hard stop that few diversification advocates mention.
Kumar recommends a 5% to 15% allocation to international equities as a reasonable diversification band. Beyond that, he says, “you're not diversifying. You're chasing recent performance and speculating on currency.”
The risk event is not that US equities will stop outperforming tomorrow. It is that retail investors are making a concentrated, tax-inefficient, currency-mismatched bet on one asset class because social media turned diversification into panic. Kumar’s three clients asked the right question at the wrong moment. The answer, for most Indian investors with INR goals, is to keep the US equity sleeve small and tactical.
For broader stock market analysis and a framework to evaluate asset allocation against real liabilities, the underlying principle is the same: match the currency of assets to the currency of goals. The past 15 years of US equity returns are an impressive data point, not a portfolio blueprint.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.