The Liberalised Remittance Scheme (LRS), AIF (Alternative Investment Fund) structures at GIFT City, and the concept of accredited investors are all opening new doors for Indian investors to diversify their wealth, broaden their global reach, and potentially access more stable returns.
Rising appetite for overseas investments
With the LRS introduced in 2004, Indian residents can remit up to $250,000 annually for a variety of capital and current account transactions, including investments in foreign securities and real estate. As a result, Indian interest in overseas investments has surged.
According to The Wealth Index Report by 360 ONE Wealth, transfers for deposits, property acquisitions, and investments in equities and bonds reached $2.45 billion in 2022-23, reflecting a compound annual growth rate (CAGR) of 26% since 2018-19. Of these, equities and debt securities formed the largest category, boasting a 31% CAGR.
A distinct appeal of these overseas investments is their potential to enhance portfolio diversification. With Indian equity markets showing a positive but relatively low correlation to global equities, investments in developed markets provide a buffer against domestic market volatility. This risk mitigation is particularly valued by wealthy Indian investors seeking to safeguard their portfolios against local economic fluctuations.
Diversification benefits
Given an environment of global uncertainty and volatility, investors prefer a diversified portfolio with exposure across the US, other developed markets, and emerging markets. Moreover, an actively managed approach is often preferred, as clients are deeply engaged in running their own businesses and value the oversight of dedicated advisors who actively monitor and manage their portfolios. The need for advice and active management is enhanced in times of volatility and uncertainty.
India’s gateway to international finance
India’s efforts to create a global finance hub led to the establishment of GIFT City in Ahmedabad in 2015, modelled after free trade zones in Singapore and Dubai, the avenue aims to position India as a powerhouse for international financial services by offering tax incentives, a streamlined regulatory framework, and facilities to facilitate cross-border financial activities. No FIF (Family Investment Fund) has received approval in GIFT for Indian resident capital going out.
Nevertheless, GIFT City remains a relatively new and complex concept. Awareness is limited, with only 55% of survey respondents aware of its offerings, and nearly half expressing no interest in exploring the opportunities it presents. For those who are attuned to the benefits, GIFT City’s FIF structure can serve as a lucrative vehicle for managing family wealth internationally, providing Indian investors with a controlled yet global platform.
Exploring the accredited investors avenue
For wealthy individuals seeking access to a broader array of financial products, accredited investor status offers significant opportunities.
Introduced by the Securities and Exchange Board of India (Sebi) in 2021, this designation allows individuals and entities meeting specific financial thresholds to engage in relatively high-risk, high-reward investments.
Accredited individuals must have a net worth of at least ₹5 crore, with an annual income of ₹50 lakh or more, while corporates require a net worth of ₹25 crore. The purpose of accredited investor classification is to empower wealthy, financially sophisticated investors to diversify into high-potential yet complex financial products. Despite the potential advantages, only a fraction of India’s affluent are taking advantage of this designation—the report held that while 50% of respondents are aware of the status, a substantial 85% have not applied for it.
In comparison, the concept of accredited investors is well established in markets like the US, where 24 million households qualify as accredited, making up 18.5% of all households.
Investment opportunities for India’s affluent are expanding well beyond domestic boundaries. With a growing number of Indians investing abroad under the LRS, a robust international financial centre in GIFT City and the emergence of the accredited investor category, Indian wealth is increasingly globalised.
While some investors remain cautious, professionals can be instrumental in helping them understand, assess, and capitalise on the diverse avenues available. As awareness builds and more high-net-worth and ultra-high-net-worth families and individuals embrace these opportunities, India’s wealthy are well-positioned to secure and grow their wealth across borders, underscoring the power of a well-optimised, internationally diversified portfolio.
Aarthi Ramakrishnan, head of strategy, 360 ONE Asset.