Hi folks,
I’m an Indian citizen living in Switzerland with a C Permit. I’m considering investing in Indian ETFs. Looking for recommendations from folks who’ve done this on:
Which funds do you recommend? I currently found INDA and INDY but are there are others more diversified with lower TERs?
I’m planning to invest via IBKR and not a NRI Demat account to keep my tax situation simple and avoid cap gains taxes in India. Are there other methods that you recommend? Which ones and why?
Do you prefer to buy INR funds (trading on BSE / NSE) or USD funds (like INDA, INDY)?
Apparently you can trade on the NSE with IBKR, where you have access to the NIFTY 50 ETF for instance.
Could also find the company I was working with in India on IBKR.
Actually, in those countries, they want to attract outside investment, so not much issues there. However, it is difficult for Indian residents to invest outside of their country (for instance, in India it is capped).
For India, I would think hard to invest in it, especially an ETF. Nearly 37% are banks, so not well diversified in sectors, as well as an erratic money policiy (demonetization in 2018 if I remember well). Sure, gains are looking nice, but the inflation rate is nearly consistently above 5% since the 60s.
There’s no question it‘s „available“ as in „shown on their site“. The question is whether you can trade as in actually having trading permissions:
„By regulation, trading access to the Indian financial markets for individuals residing outside India is currently restricted to “Non-Resident Indians” (“NRIs”) and “Financial Institution Intermediaries” (“FIIs”) only“
„According to regulations, Indian residents are eligible to trade all available products on domestic Indian markets, including futures and options. On non-Indian markets, Indian residents are prohibited from trading futures, options or margin-based products but are permitted to trade stocks, bonds and ETFs.“
Ok I understood the site as “access to the NSE available”, my bad.
I meant that Indian residents cannot invest as they would like outside of India, it was not well written. The amount they are allowed to transfer out per year is capped.
Thanks for the input! I’m an Indian citizen so shouldn’t be an issue to invest in NSE directly if I wanted. Wondering if it’s better to directly deal with INR or have an USD fund of Indian companies.
RE inflation, yes that’s true but genuinely curious if one can have growth without inflation? IIRC, the 2% inflation rate was a number decided in an US fed meeting (without much in terms of data) and might not be universally applicable.
1: What aspect of India do you want to invest in and why ?
If you believe in the growth of Indian consumer and GDP, you might want to look for a fund that focuses on that. This may not be the same as investing in a tracker of companies listed on the Indian stock market
One example if you own global companies like Microsoft (I assume they have sales in India?) then you already have some exposure to the growth of the Indian economy. There may be other non-India listed companies with a strategic focus on India.
2: Why do you want to invest via an ETF?
ETF should have lower costs - if that is the reason then fine. But I’ve seen arguments put forward that developing markets like India are further away from perfect market theory. An active fund manager may have more opportunities to beat an ETF tracker than in developed markets.
If you buy an index ETF you buy all the constituents - I do not know much about India but in the headlines about China there are often companies with alleged challenging financial situations being propped up by the state etc.
What was your final conclusion?
I am also looking into Indian ETFs as I am also an Indian citizen but Swiss resident.
However the complication I see in Indian ETFs is that they are generally always accumulating and I cannot find them under ICTax database. This can make the tax declaration complicated because Swiss authorities would like to tax deemed dividends.
On the other hand there is also a choice of investing in Indian mutual funds (IDCW option) where dividend and capital gains from index management are distributed as « distributions ». The disadvantage is that all of is treated as income in India and income tax applies. However you can get it reimbursed using DTAA but still paying income tax on capital gains distributions is not interesting being Swiss resident
I think FLXI might be best option for easy tax declarations but looking at their annual report they are also paying quite a lot of withholding Capital gains tax which I believe is result of index rebalancing
I have a specific question for investing in Indian equity markets. Is there anyone on this blog who invests in Indian mutual funds or ETFs (with domicile in India) ?
For time being, only Irish or US domicile ETFs are listed under ICTax. So I am wondering if I do invest in Indian mutual funds, how can I actually declare income taxes in Switzerland?
I am a bit concerns that Swiss authorities can claim that all of the gains need to be declared as “income” in absence of proper documentation by the fund houses
Some points to note
Most Indian funds are called “growth plans” which means they do not distribute dividends. Even the ones which fall under category IDCW don’t distribute dividends consistently.
If you don’t invest in Indian mutual funds but have a similar situation in terms of tax return filing, then please feel free to share the approach
I think members of the forum filled a contact form in ictax with a request to add new funds to the database. It’s likely you will pay taxes on the accumulated income (dividends and interests), but it’s just much easier to fill the tax declaration when there is an official value calculated by the authorities.
Indian funds are probably regulated as well and have to publish reports. All the information required to determine the Swiss taxable income from the fund’s income statement is probably public already.
From a Swiss tax perspective, it makes no difference whether dividends are accrued or distributed. Dividends always count as taxable income for the year in which they occur.
So you just declare the fund shares and the dividends, as you would with any other stock or fund.
Yes i understand that. The issue is that these funds do not publish dividend information anywhere if they are under “growth” plan. I will need to ask ICTax folks if they have information about these funds before i go ahead and invest. I want to avoid that i end up having no clear information about “assumed dividend” income.
For example ISIN IKF109K012M7
This is just an example, it is an index fund for Large caps in India.
For Non Resident Indians (my case), following would be benefits vs. IRISH Domicile ETFS
Dividend withholding tax can be recovered via tax return claiming Double tax treaty between India and Switzerland. Irish ETF like FLXI (which has lowest TER for Indian exposure) pay approx. 20% withholding tax (not sure why not 10%) and I don’t think they can recover. I file tax return in india anyways, so it is not too much work.
Capital gains
Typical Indian funds are accumulating because capital gains/loss ( from rebalancing of Index) and dividends can be reinvested and is not taxed. Only capital gains tax (10%) at time of sale of fund units. And as far as I understand because of treaty, even this is exempt for non-resident Indians.
Irish funds are forced to pay capital gains tax too (I saw it in annual report from FLXI). This also gets lost.
Choice of funds is much bigger
What I wrote above is based on how I understand the rules. I am not completely sure. This is why I am investigating a bit if I am better off investing in Indian mutual funds or Irish ETFs. The issue I am getting into is that Indian ETFs (none of them) are listed on ICTax. I am planning to write to ICTax guys. I was just hoping someone from India was investing already and could share experience.
Normally I wouldn’t bother, but I want to keep 10% of my portfolio allocation linked to India (you might call it home bias or simply the fact that I want to be invested in India more than market weight), so it becomes sizable with time.
The comments about FLXI are derived from Page 52 of the annual report from ETF provider
Invested in some funds since 2017-18. All of them in direct plan growth
Never sold any of it
I report ZERO dividends on them every year. no questions asked by tax office (zurich kanton) (EDIT: I once tried calculating dividend income of indian mutual funds growth plan using their annual reports but got fed up. also annual reports are for April-to-March financial year in India rather than Jan to Dec for Europe and US).
When I sell, I’ll learn what happens then in terms of taxation. But be prepared that when you sell you’ll have 30% TDS (tax deducted at source) on capital gains because of NRI status. When you file tax in India, you can bring it to 10% or zero (as per your expectation)
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or simply the fact that I want to be invested in India more than market weight), so it becomes sizable with time.