Key insights
- This is an analysis by an Indian investor on the optimal way to invest in US equities, considering taxation, ETF premiums, dividend withholding, transaction costs, and reporting complexities. The investor is weighing the pros and cons of Indian-listed ETFs (MON100, MASTOP50) versus direct investment in US ETFs (QQQ, VOO) for a Systematic Investment Plan (SIP). The conclusion will likely favor FoFs due to the liquidity and premium issues with ETFs.
I want to start a monthly SIP in US tech and large-cap indices to diversify my portfolio. I’ve been looking at Indian-listed ETFs like MON100 and MASTOP50, but I’m also thinking about going direct through US brokers for QQQ and VOO. I’m trying to improve my post-tax returns, but I’m worried about different "leakages" that may not be clear at first. Here’s my current understanding. I would appreciate it if anyone can confirm or correct this:
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Taxation (FY 2026-27): For international funds, is it true that the LTCG (24-month holding) is now 12.5% with no ₹1.25L exemption, and STCG follows the income tax slab rate?
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The ETF Premium: I’ve seen MON100 often trades at a significant premium (sometimes 6-8%+) over its iNAV. Does buying every month at a premium cancel out any tax efficiency compared to a Mutual Fund (FoF)?
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Dividend Withholding: For direct US ETFs like QQQ, the US withholds 25% on dividends. How easy is it to claim the Foreign Tax Credit (FTC) in India to avoid double taxation?
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Transaction Friction: With forex markups, potential TCS on remittances, and withdrawal fees when bringing money back to India, is direct US investing practical for a standard monthly SIP, or is it only suitable for larger portfolios?
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Reporting: Does the mandatory Schedule FA reporting for foreign assets make direct US investing much more complicated during tax season compared to Indian mutual funds?
My goal is to build long-term wealth (5-10 years) with a focus on US exposure while minimizing unnecessary costs like premiums and high transfer fees. What approach are you taking in 2026 for US exposure? Is anyone sticking to FoFs to avoid the liquidity and premium issues with ETFs?