Global Diversification: How NRIs Should Think About It

In: NRI & Global Investing

Quick answer: NRIs should diversify across countries, currencies, and asset classes—anchoring allocations to their spending currency, keeping an intentional India allocation for legacy/goals, and using compliant routes (NRE/NRO/FCNR, IFSC/GIFT City funds, or overseas accounts). Diversification reduces portfolio risk because Indian and global equities don’t move in lockstep. (Illustrative chart below.) (United States of America, PortfoliosLab)

Download the chart

Why global diversification matters for NRIs

Currency reality: Your retirement and big-ticket spending may be in USD/AED/GBP/SGD, not INR. Aligning portfolio currency with future expenses reduces mismatch risk. Total home-currency return on a foreign asset is:
(1 + return in local market) × (1 + currency move) − 1. (AnalystPrep)
Lower correlations: India’s equity market has relatively low-to-moderate correlation with major global markets, offering meaningful risk reduction when combined thoughtfully. (United States of America, PortfoliosLab)
Concentration check: India is a powerful growth story but still ≈4% of world equity market cap; a global core ensures you’re not overexposed to one country. (ETCFO.com)

Start with three anchoring questions

1) What is your base (spending) currency?

If most future expenses are in USD (e.g., US-based NRI), build a USD core (global equity/bond ETFs or funds) and add India exposure deliberately. If you expect partial return to India, a barbell—USD core + INR sleeve—can work.

2) What India-specific goals do you have?

For family support, India real estate, or children’s education in India, maintain an INR sleeve (Indian equity, SGBs, INR bonds, Indian REITs).

3) What regulatory & tax rails apply to you?

Accounts:
NRE: INR account funded with foreign income; fully repatriable.
NRO: For Indian income; current income repatriable freely, other balances up to USD 1 million per FY (subject to conditions).
FCNR(B): Foreign-currency term deposits; fully repatriable. (Reserve Bank of India)
DTAA: Use applicable Double Taxation Avoidance Agreements to avoid being taxed twice; refer to your resident country’s treaty with India. (Income Tax India)

Implementation routes (compliant & practical)

Global Core (outside India)

Use your resident-country brokerage or bank to own broad-market funds (e.g., MSCI ACWI/World, US Total Market, Developed ex-US, Global Aggregate Bonds).
Consider currency hedged vs unhedged bond funds depending on base currency.

India Sleeve (from abroad)

Indian mutual funds via NRE/NRO after KYC; note that some AMCs restrict certain country residents (e.g., US/Canada). Recent updates to capital-gains and TDS for NRIs on mutual funds warrant attention in FY25. (SEBI Investor, ICICI Bank, The Economic Times)
Direct equities and REITs/InvITs are possible via eligible NRI routes and designated accounts; confirm repatriation status (repatriable vs non-repatriable) before transacting. (Reserve Bank of India)

IFSC/GIFT City access

Foreign funds at GIFT City can be fully funded by NRIs under SEBI’s framework—useful for USD-denominated vehicles with India-linked oversight. (Reuters)

How much India vs. Global?

There’s no one-size-fits-all, but here’s a decision framework:

Market-cap baseline: Start with India ≈4% of global equity, then tilt up for familiarity, return expectations, or specific India goals. (ETCFO.com)
Risk calibration: Because correlation with global markets is not perfect, adding global equity can lower portfolio volatility and drawdowns (see chart). (United States of America, PortfoliosLab)
Practical bands (illustrative)
US-based NRI planning to stay abroad: India 10–30%; Global (incl. US) 70–90%.
UAE/Singapore NRI with India goals: India 20–40%; Global 60–80%.
Returning in 5–7 years: Glide India sleeve up gradually (e.g., +5%/yr) as expenses re-INR-ize.

Tip: Rebalance annually or when allocations drift by ±20% of their target. This enforces “buy low, sell high.”

Managing currency risk (without overcomplicating)

Understand the math:
INR return = (1 + foreign asset return) × (1 + USD/INR change) − 1. Positive USD appreciation vs INR boosts INR returns; INR appreciation reduces them. (AnalystPrep)
Hedge where it matters:
Bonds: Prefer hedged bond funds to dampen FX noise in income portfolios. (Investopedia)
Equities: Often left unhedged for growth and natural geographic diversification.
Hold buffers: Consider FCNR(B) or USD deposits for near-term USD needs; NRE/INR instruments for India needs—both are repatriable (NRE/FCNR). (Reserve Bank of India)

Taxes & compliance: the essentials

Source-based taxation in India: Indian income (dividends, interest, capital gains from Indian assets) is taxable in India; TDS applies to NRI redemptions/dividends as per category and holding period. Rules were updated for FY 2024–25; check before transactions. (The Economic Times)
Use DTAA relief: Claim treaty benefits to avoid double taxation—refer to the Income Tax Department’s DTAA page for your country. (Income Tax India)
KYC/FATCA/CRS: Complete residency and tax declarations with your fund house/broker before investing. (Kotak Mutual Fund)

Sample NRI model allocations (illustrative, not advice)

A) US-based NRI, spends in USD, India family support

55% Global (US-heavy) equity
15% Developed ex-US equity
10% Global investment-grade bonds (USD-hedged)
15% India equity (multi-cap/active or index)
5% INR fixed income/REITs

B) UAE-based NRI, possible India return in 10 years

40% Global equity
20% US equity
10% Global bonds (USD-hedged)
25% India equity
5% Gold (SGBs or global gold fund)

C) UK-based NRI, children’s education in India

45% Global equity
15% Global bonds (GBP-hedged)
30% India equity
10% INR fixed income (laddered deposits/target maturity funds)

Common mistakes to avoid

All-in on home bias: Overweighting one country (India or the resident country) can raise risk without commensurate return.
Ignoring repatriation tags: Mixing NRE/NRO without clarity on repatriable vs. non-repatriable status complicates exits. (Reserve Bank of India)
Tax surprises: Not accounting for revised NRI capital-gains/TDS rules on mutual funds in FY25. (The Economic Times)
Product limits: Some Indian AMCs restrict investments from US/Canada-based NRIs—check scheme documents. (SEBI Investor)

FAQs

Is a global fund from an Indian AMC enough for diversification?
It helps, but many funds invest via overseas ETFs and can be subject to industry-wide overseas limits; as an NRI, you may also build a global core via your resident-country accounts or IFSC vehicles. (Reuters)

What’s a sensible India allocation for a US-based NRI?
Start from a global market-cap baseline and tilt to India (say 10–30%) based on goals, risk, and return expectations. Rebalance annually. (ETCFO.com)

How do I compute currency-adjusted returns?
Use (1 + local market return) × (1 + currency change) − 1 in your home currency. (AnalystPrep)

Are NRE and FCNR(B) funds fully repatriable?
Yes; NRO balances are generally remittable up to USD 1 million per FY (beyond current income) subject to conditions. (Reserve Bank of India)

Key takeaways

Anchor your portfolio to your spending currency, then layer a deliberate India sleeve for legacy/goals.
Use compliant rails: NRE/NRO/FCNR(B), resident-country brokerage, and IFSC/GIFT City funds as needed. (Reserve Bank of India, Reuters)
Diversification across countries and currencies reduces risk thanks to imperfect correlations. Rebalance on schedule. (United States of America, PortfoliosLab)