How I Am Investing in the Indian Market as an NRI

I know many of us feel FOMO (fear of missing out) when it comes to investing in the Indian market. However, as a US resident, there are challenges in investing in Indian ETFs or mutual funds due to the PFIC (Passive Foreign Investment Company) tax rule. Despite these challenges, some people still choose to use traditional methods to invest in Indian markets.

I took a different approach to investing in the Indian market. Stock picking is not a good option for me—it’s a complex process that requires a lot of time spent researching companies and keeping up with market updates. It can feel overwhelming, especially with other day-to-day responsibilities. Instead, I focused on understanding the PFIC rule and finding a solution that works for me.

Understanding the PFIC Rule

The PFIC rule is a US tax regulation that applies to investments in foreign companies generating passive income. It is triggered if:

• At least 75% of the company’s gross income is passive (e.g., interest, dividends, rents).

• At least 50% of the company’s assets are used to generate passive income.

  
  

If you invest in companies primarily earning from active business operations (like manufacturing or services), the PFIC rule does not apply. This makes it crucial to focus on investments in non-PFIC entities to avoid complex taxes and reporting requirements.

My Approach

I opened a Zerodha brokerage account using my Non-PINS NRO account and started investing in Smallcases.

What Are Smallcases?

Smallcases are portfolios curated by SEBI-registered advisors. These advisors research and create groups of stocks based on specific themes, risk levels, or goals such as dividend income or long-term growth. You can select a Smallcase that aligns with your risk appetite, providing both flexibility and diversification.

Platforms like Zerodha integrate seamlessly with Smallcases, allowing you to place orders directly. A significant advantage is that all the companies you purchase through Smallcases appear in your Zerodha account. You can also customize your portfolio—selling individual stocks and adjusting allocations as needed.

Once you subscribe to a Smallcase, you’ll receive regular updates to rebalance your investments, ensuring your portfolio stays aligned with its original strategy.

Example Smallcases:

• Green Energy Leaders: Focuses on companies driving renewable energy growth.

• IT Growth Portfolio: Invests in India’s leading technology firms.

  
  

My Experience

I’m a new investor in Smallcases, but based on my research and understanding, I really like the concept. However, no platform is perfect. One downside is that Smallcases aren’t fully regulated. For example, an advisor might include risky companies or short-term strategies to boost returns for a low subscription fee.

That’s why it’s important to thoroughly research the advisors and their portfolios before subscribing to any Smallcase. Make sure their strategy aligns with your investment goals and risk tolerance.

Final Note

Choosing the right Smallcase is crucial. Avoid Smallcases that include ETFs, as they may trigger the PFIC rule for US residents. Focus on Smallcases with individual company stocks. Lastly, always do your own due diligence—research advisors, understand the portfolio, and monitor your investments regularly to stay on track.