US-focused funds have delivered stupendous returns over the past 10, 15, and even 20 years, often outperforming several major asset classes, including Indian equities. But does that mean investors should significantly increase their allocation to US equities? Also, So, how much should you allocate to US equities?
Explaining this on a Linkedin post, Abhishek Kumar, SEBI RIA, Founder- SahajMoney, said, 3 people asked me the same question this week: “Should I move 40% of my SIPs to US funds?”
All three cases included, EMIs in rupees, kids’ school fees in rupees and retirement goals planned in rupees. Yet social media had them convinced they were “financially illiterate” for not loading up on US equities.
Kumar says, “This isn’t diversification advice anymore. It has become manufactured panic with a product to sell.”
Here’s what nobody tells you about investing overseas:
The 20% TCS hit
When you buy US ETFs via investment platform for more than ₹10 lakh in a Financial Year then a TCS (Tax Collected at Source) of 20% is upfront collected by your bank on the amount over and above this threshold amount.
You get it back by filing ITR but that cash is locked up for months. So you end up giving an interest free loan to the government.
The tax math is brutal
Post-April 2023, most international funds are taxed like debt and your gains added to your income, taxed at your slab rate (up to 30%).
No LTCG benefit, no ₹1.25 lakh exemption. A 30% slab taxpayer paying 30% on gains vs. 12.5% on domestic equity LTCG. That’s a massive drag.
The US estate tax trap
If you hold US stocks directly above $60,000, in case something happens to you, your nominee can face up to 40% US estate tax.
Your liabilities are in rupees
If 95% of your future expenses, like home EMI, school fees, retirement. are in INR, why does half your portfolio need to be in USD?
The “rupee will collapse” panic is overdone
INR has depreciated ~3% annually against USD over 20 years. Nifty 50 delivered ~12% CAGR in INR over the same stretch.
The math rarely justifies the hype.
So, how much should you allocate to US equities?
“Depending on your risk appetite and long term horizon a 5% to 15% allocation to international equity is reasonable for diversification,” Kumar advised
Beyond that, you’re not diversifying. You’re chasing recent performance and speculating on currency, he adds
“If your goals are in rupees, your core portfolio should be in rupees.”
How different asset classes performed?
Data shows that Indian equities delivered annual returns of 13.2% over 10 years, 11.3% over 15 years and 11.4% over 20 years. At that pace, investments would have multiplied roughly 3.5 times in 10 years, 5 times in 15 years and nearly 8.7 times over two decades.
US equities performed even better, delivering annualised returns of 19.4% over 10 years, 19.8% over 15 years and 15.2% over a 20-year period, with money multiplying at 5.9x, 15x and 17.01x over similar periods.
As compared to that, real estate provided a return of 5.6% and 7.9% in 15 and 20 years and debt instruments provided returns in the range to 7.5% to 7.6% over the same period.
Gold also delivered impressive long-term returns, generating 14.6% retuns over 20 years and multiplying investments by more than 15 times. However, even that strong performance could not beat returns generated by US equities over the same period.