Market Insights8 Mins Read
All about LRS (Liberalized Remittance Scheme)
We all at some point in time have wanted to be a part of the top companies like Google, Apple, Microsoft, Coca Cola, Amazon, etc. after hearing the investor success stories of Warren Buffett and George Soros. Would it not be great to earn dividends from our favorite top companies around the globe and not be limited to only the Indian market? As an Indian resident, you can now invest up to $250,000 in foreign countries every financial year under the Liberalized Remittance Scheme (LRS). We at Kristal are here to guide you through your journey of Global Wealth.
First, why should you invest in foreign markets?
According to the International Monetary Fund (IMF), India’s share in the world GDP in terms of purchasing power parity (PPP) is 7.98%, which shows that Indians are not very involved in the overall world’s economic growth. Indian investors have almost 100% of their portfolios made of Indian stocks and mutual funds. This means they are missing out on profits from the massive global economic growth. What are the benefits of going global?
- Portfolio Diversification: As any experienced investor will tell you, the most important factor to make a resilient portfolio is diversification. By putting all your eggs in a single basket, you increase the risk factor. By diversifying into international economies, you mitigate the risk for your portfolio and increase your chances of returns. For any investor, the end goal is always to increase their assets, and Kristal allows them the chance to do that.
- Not concentrating your investments in a single market: Market volatility depends on many factors. As we know, the U.S.-China trade war has caused many upheavals in the stock market. A similar thing happened in India post the demonetization move in 2016 when stocks fell by as much as 15-20%. Also, last year’s IL&FS crisis caused a lot of panic in the markets. If you are invested in a single country, you are fated to lose if that country has any growth slowdown. By opening up your investment opportunities, you reduce market or geography dependence and make your portfolio market-proof.
- Create assets that match future needs: Imagine if you are saving up for your child’s education in a foreign university, or purchase of an international asset such as property. Let’s say you only invest in Indian assets and get a lump sum amount of Rs. 10 lacs after a few years. The 10 lacs could very well be worth less in USD terms if the INR were to depreciate over the years. Instead of pooling all your capital in India you can start investing in global assets, which are typically denominated in USD. Thus, you will be able to create a savings pool that directly matches your future cash outflow requirements with no foreign exchange risk.
- Be part of your favorite companies: If you look at your phone maker, it is probably Samsung, Apple, Motorola, etc, and similarly, many popular brands around you would be international companies. Hence, why not invest in them and be a part of your favorite companies from around the globe?
Understanding Liberalized Remittance Scheme (LRS)
Liberalized Remittance Scheme (LRS) was launched in 2004 by the RBI for all Indian residents, including minors. It is a facility to spend money in foreign countries for specific purposes such as asset purchase, education, tourism, medical treatment, etc. The remittance, in this case, means sending money overseas to an overseas account for a specific purpose. The current remittance limit is set to $250,000 per person in a given financial year. Under this scheme, individuals can open and maintain foreign currency accounts with overseas banks for carrying out transactions and purchasing of shares, assets, and properties.
How to Get Started with LRS
We at Kristal are here to help you get started with global investing and assist you with your LRS procedure. Here’s how to get started with LRS and Kristal.ai:
- Head over to https://portal.kristal.ai/signup and provide your basic details to create a free account.
- Next up, start your KYC procedure and upload a few necessary documents. This is a standard KYC process followed by all Indian banks, with the key difference being it is online with no lengthy forms.
- Fill out the Risk Profile questionnaire, which is needed to gauge your investing style and risk appetite, for us to suggest you the best strategies.
- Once your account is approved, you can get started with the LRS procedure. Head over to your local bank and fill out the A2 form, which is required for international remittance in INR, under current SEBI guidelines. Kristal.ai will soon have fully assisted LRS service available for our clients to make this procedure completely hassle-free.
- This money will then be processed into your Kristal account and you can invest it into your selected assets.
- There is no lock-in period with Kristal.ai, and the invested money can be digitally withdrawn anytime.
Access to Global Investments through LRS
Once you have made a Kristal account and LRS, you would wonder how does all of this allow me to access global investments?
Through our platform, you can invest in the top-performing companies and sectors by investing in particular Exchange Traded Funds (ETFs). ETFs provide higher diversification and provide exposure to entire sectors and geographies, to reduce risk compared to single company stocks. Here are some more reasons why ETFs are better than just stocks. ETFs have lower expense ratios compared to Mutual Funds and we provide our India-based clients’ a very cost-efficient way to invest in them. Some brokers charge US $6.99 per trade along with a one-time charge of INR 500 and other platforms might charge as high as US $9 or 0.75% commission. We provide our clients with a completely “free of charge” Kristal Account till their Account valuer reaches US $5000 and thereafter only $1 charge per transaction.
You can head over to Kristal.ai, to access a range of ETFs and read up about their underlying assets, past performance and analysis and easily invest in them from the platform by clicking the Buy button. From the dashboard, you can easily see and track your active investments and their performances.
What about the Tax Implications?
If you remit money abroad, you need to be mindful of the approved limits, the permissible purposes under LRS, tax implications of these transfers, including the need for Permanent Account Number (PAN), filing of taxes and reporting requirements:
- It is mandatory to have a PAN for remittances. However, if remittances are for current account transactions, as defined under LRS totaling of up to $25,000 then your Bank may not ask for your PAN number.
- Form A2 is available with the bank through which you remit, or you can download it from the RBI website. The form will have details regarding your remittance along with a declaration by you that the amount has not exceeded the remittance limits.
- Section 195 of the Income-tax Act, 1961, provides that any payment to a non-resident requires appropriate TDS (tax deducted at source) if such payment is chargeable to taxable activity in India (e.g. Fees paid to a law firm for reviewing a contract related to exports from India).
- Effective 1st April 2020, a 5% Tax Cut at Source (TCS) shall be applied on all LRS permissible remittances once they exceed INR 7,00,000/-
- All Foreign Assets holdings have to be reported under ITR-2 filing norms (subject to nature of asset held). This includes transactions to compute any applicable Capital Gains tax.
- The penalties for non-filing and non-disclosure are heavy. There is a 12% per annum interest on tax payment default and penalties for avoiding tax, which ranges from 100-300% of tax sought to be avoided. A penalty is levied for concealment of income or furnishing inaccurate particulars of income for the recipient taxpayer.
- A penalty of 10 lakh will also apply if the wrong information is furnished. But it does not apply to assets whose value is 5 lakh or lower. Also, income from foreign assets may be taxed in India.
- Global ETFs are treated like stocks (unlisted), where long-term means over two years holding. Short-term capital gains tax (STCG) is 30% plus surcharges and LTCG tax is 20% with indexation. Considering positive inflation, the LTCG tax of 20% with indexation may not differ greatly from 10% without indexation applicable on domestic equity investment. Hence, one can add them for geographical diversification if the products meet the goals.
Our role at Kristal.AI
Kristal.ai provides you with a platform to integrate all your investment solutions and help you achieve your financial goals. You can invest in domestic and international assets and track them through the platform. We also provide advisory services to recommend the best strategies suited for your needs according to your goals and risk appetite with minimal cost to you.
We employ our thoroughly vetted AI algorithm to not only recommend but also curate the top-performing ETFs for you. All the ETFs go through a filtration process and then are reviewed by the Kristal Investment Committee. Please refer to our Investment Policy for more information.
Is your money safe?
Kristal.AI and its related entities are well-capitalized and regulated. However, in the unlikely scenario that anything happens to the company, rest assured your investments will remain safe. All client assets and monies managed by Kristal.AI are held in separate accounts each linked to the respective Customer. Customers’ assets are not co-mingled up with the companies’ assets or those of other Customers unless they are invested in Fund-like strategies which are managed on a collective basis. Kristal.AI works with global companies such as Saxo Markets and Interactive Brokers. All assets executed through them are customized with their global custodians, namely Citi and HSBC respectively.
How can I build a high-performing investment portfolio using ETFs?
Kristal.AI can help with creating and managing your portfolio, which will be suitable for your risk profile and is aimed at meeting your Investment goals. The combined output of the Kristal Investment Committee and our AI algorithm help curate ETFs and other Investment strategies (Kristals). Every Kristal is assigned a rating. Only those Kristals which are deemed suitable for a Customer are used to create their portfolio.
You can Get Advice from our AI-powered Advisory algorithm by accessing it in the “Explore” section after you log in and generate recommendations. Kristal.AI’s proprietary risk evaluation and monitoring algorithms are aimed at ensuring Customer portfolios are optimally comprised to generate their target return within their volatility appetite.
How do I know what’s suitable for me?
The combined output of the Kristal Investment Committee and our AI algorithm help curate ETFs and other Investment strategies (Kristals). Every Kristal is assigned a rating and only those Kristals which are deemed suitable for a Customer are used to create their portfolio. Every Customer can only see those Kristals which are deemed suitable based on the information they have provided.
This blog article has not been reviewed by the MAS. It is prepared solely for information purposes and does not constitute an offer or solicitation for the purchase or sale of units in the funds. This does not constitute any form of investment advice and Kristal Advisors (SG) Pte Ltd does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Kristal Advisors (SG) Pte Ltd.
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