What Direct Foreign Investing Means for PMSWhat Direct Foreign Investing Means for PMS

Let's start with the thing that's actually true. We can invest only in Indian markets and do perfectly well. India has been one of the better-performing large equity markets of the last two decades. The growth runway is real and plenty of investors will hit every financial goal they have without ever owning a share listed outside the country. Nobody needs to apologize for a home bias here.

So global allocation isn't a fix for something broken. It's a second option worth having on the menu, and for a long time, Indian investors haven't really had it in any clean form.

The case for having some part of your portfolio allocation in global securities is mostly about two things.

1. First is concentration. India is roughly 3.5% of global equity market capitalization. An all-India portfolio has all of its equity risk riding on a single market's fortunes. That's been a good bet if you look at things over two decades. But in the recent past, that hasn’t been the case because some of the biggest themes of the coming decade—AI, hyperscale cloud, semiconductor design, space exploration, etc.—are being built largely by foreign companies with no Indian equivalent at comparable scale yet. Getting some exposure to them, whether through individual shares, ETFs, or funds, isn't a vote against India. It's just not wanting everything in one basket.
2. Second is currency. The rupee has gone from roughly ₹43.5 to about ₹95 against the dollar between 2005 and mid-2026, which is >100% depreciation, or close to 4% a year. That's not noise. It's structural, driven by India's persistently higher inflation and a chronic current account deficit. For an Indian investor holding dollar assets, that steady slide works in your favor. The rupee value of a USD investment grows every year as the rupee weakens, compounding on top of whatever the underlying asset returns.

So the question then becomes, “How much international exposure makes sense?” The rough consensus among researchers and practitioners lands around 15-20%. It can be lower, too, if you see your entire future in India, or eventually plan to return to India after living/working abroad for a few years. The 15-20% mark is enough to pick up the currency tailwind and the themes you can't get at home, while the bulk of the portfolio stays in the market you know best and where your future rests.

So the case for having the option is reasonable enough. The problem, until now, has been that acting on it through a PMS was a genuine pain.

Why Foreign Investing Through a PMS Has Been Broken

Unless a PMS had a GIFT City setup, the routes to foreign exposure were bad or worse. And the reason can be traced back to one RBI number.

Since June 2021, the RBI has held a USD 7 billion industry-wide cap on overseas investments by Indian mutual funds. One number, sitting over the entire industry. That cap created two separate headaches, and they show up in different places.

#1: The first shows up in ETFs. When the cap freezes fresh unit creation, the ETF can't issue new units to meet demand. So the market price floats free of the actual value of the underlying stocks. You end up paying a premium.

Here's what that costs you. Say a foreign-holding ETF is trading at a 10% premium to its NAV. You want ₹100 of real exposure to the underlying basket. You pay ₹110 for it. That extra ₹10 isn't a fee anyone quotes you, and it doesn't show up as a loss anywhere in the fund's reported performance. The factsheet looks clean. Your portfolio is quietly down 10% on that position from the moment you buy it, and it only "recovers" if the premium widens further, which just passes the same problem to whoever buys from you next. ETFs like MON100 and MAFANG have both spent long stretches trading well above NAV for exactly this reason. Anyone who bought them at the wrong moment paid for the RBI's cap without ever seeing a line item that said so.

#2: The second hits active funds that invest abroad directly. Same cap, but different symptoms. Most of these funds hit their overseas limit and simply closed to fresh subscriptions. They crack the door open only when an existing investor redeems and frees up a sliver of headroom. These are brief, unpredictable windows that close very soon unless you are keeping track on a daily basis and act within hours when subscriptions open in certain cases. You can't SIP into a door that's locked nine weeks out of ten.

Put the two together and the picture is bleak. Pay an invisible premium through an ETF or stand outside a locked door hoping someone leaves so you can take their spot. Foreign exposure through the Indian fund route has been a workaround dressed up as a strategy—expensive, capacity-constrained, and never quite the real thing.

What SEBI Is Now Proposing

SEBI's July 2026 consultation paper on PMS Regulations wants to change all this. Among a longer list of reforms, it proposes letting PMS firms invest client money directly in foreign securities including—listed foreign equity, listed foreign debt, overseas funds that hold listed securities, and overseas-listed REITs. Of course, all this needs to happen within FEMA and LRS limits.

This is good. It's overdue, and it points the right way. A PMS manager who wants to give a client genuine global exposure would no longer have to route it through a premium-priced ETF or wait for a fund to reopen or need to open a GIFT City branch or subsidiary. They could just buy the thing. As a PMS, Capitalmind Wealth is hugely supportive of this proposed regulation which allows PMS firms to directly invest client money in foreign securities. At the same time, it forces us to think about the regulatory and operational guardrails needed to be put in place to enable this.

Permission is the easy part. A line in a regulation saying "you may now invest in foreign securities" doesn't build the pipes that make it work. 

In a PMS, the pipes are unusually tricky because of one structural fact people tend to forget. In a PMS, the securities sit in the client's own demat account. Not the manager's, not a pooled vehicle, but the client's, in their own name. That single feature is what makes the next six questions important to address. They're the homework the industry (portfolio managers, brokers, and custodians together) has to finish before the first client actually holds a foreign security as per the proposed regulations. 

Where do the securities actually sit? 

Indian PMS runs on the client's demat account. That's the whole model. Most foreign brokers don't offer custody in the sense we mean it, and the ones that do hold it offshore. So how does a foreign holding—whether it be a US-listed share, an ETF, or a UCITS fund—end up reflected in an Indian demat account? And if it structurally can't, then what holds it instead? Is it some feeder or nominee arrangement, and if so, how does that position get reported back into the client's statement cleanly, in a form an Indian auditor and an Indian investor both recognize?

This is the load-bearing question. Get the custody wrong and nothing built on top of it stands.

Who’s the nominee?

Indian demat and brokerage accounts have nominees. It's how holdings pass on without a court fight. Foreign brokerage accounts, by and large, don't have the concept of nominee at all. They run on joint holdings instead. So does every foreign-investing PMS client now need to open a joint brokerage account abroad? And if they do, what does that do to how the holding passes on when the primary holder dies, and to the neat single-holder structure Indian investors are used to? What happens if the client doesn't want a joint account?

Does the client know about US estate tax?

Here's the one that quietly bites, and most investors have never heard of it.

US-situs assets, including directly held US-listed stocks, can attract US estate tax of up to 40% when the holder dies. Not Indian estate tax (India doesn't have one right now), but US estate tax, levied by the US, on the India-resident holder's US securities. And the exemption for non-resident aliens is small. Uncomfortably small, and a fraction of the exemption a US citizen gets. Cross it, and the estate can face a serious bill on the way out.

The standard workaround is well known in the wealth world and almost unknown outside it. Your US exposure can be held through UCITS funds (European-domiciled fund structure out of Ireland and Luxembourg mostly). This is what professional investors use partly because it sidesteps the US estate-tax trap where instead of holding the US stocks or ETFs directly, you hold units of a fund that holds US securities. Same underlying exposure, very different treatment when the holder passes on.

This isn't obscure trivia to bury in a footnote. It's the difference between an estate keeping or losing a real chunk of the position, and any PMS offering direct US stocks or ETFs to Indian clients owes them a plain-language explanation of it before the first trade.

Who guards the LRS limit?

Every resident Indian gets USD 250,000 a year under the Liberalised Remittance Scheme (LRS)—the RBI window that lets money legally leave the country. But here's the catch: That single bucket covers everything, whether it be a foreign holiday, a child's university fees abroad, money wired to relatives, and investments. It all comes out of the same USD 250,000.

So picture a client who's already spent half of it on a Europe trip and a semester's fees for his children. The room left to invest has shrunk to USD 125,000, and they may not even be thinking about it in those terms. Who's tracking the running total? The client's bank, which sees the remittances go out but not the intent behind them? The portfolio manager, who's placing the investment trades but can't see other spending? Somebody has to own that reconciliation, because an LRS breach is the client's regulatory problem first, and the portfolio manager's headache later.

Where does the cash go?

When money leaves a client’s account for a foreign trade, what's the actual route it takes? Into an Indian subsidiary of the foreign broker sitting in GIFT City, and then out? Or straight to the foreign broker's bank account overseas?

The choice looks like trivial but it isn't. It changes the compliance trail, the FEMA treatment of the flow, the paperwork the client signs, and very practically, how fast money can move when a trade needs settling on a T+1 cycle in a different time zone. Route it clumsily and you've got cash stuck in transit while a settlement deadline ticks.

What are the settlement timelines, and when does the client dashboard update?

Different exchanges keep different hours and settle on different cycles, and none of them line up with the NSE.

US markets run roughly 7:00 pm to 1:30 am IST, shifting by an hour when the US changes for daylight saving, and settles T+1. With the US now moving toward a near-24-hour trading session and T+0 settlement on the horizon, that may change. The UK trades from about 12:30 pm to 9:30 pm IST and settles T+2. So a client's US trade executes while India sleeps, and their UK trade settles a day later than their US one.

Now fold all of that into a client dashboard that was built for NSE timings and India's settlement calendar and still show a single coherent portfolio the client can open at 9 am over chai and actually understand what's settled, what's pending, what it's worth in rupees at this morning's rate. That's a real engineering problem, and it's the one the client sees every single day.

Capitalmind Wealth’s View

The direct-investment route is the right call, and it's good to see SEBI open it. For investors who want some global exposure option, the old workarounds were genuinely cumbersome, and a well-run PMS is a sensible place to house it.

But the reform actually lands the day the infrastructure works, not the day it's notified. Whoever solves custody, nominee, LRS tracking, and cash-flow routing cleanly, and in a way that survives an audit gets to offer real global diversification instead of another premium-priced proxy. The regulation is the permission slip. The operational build is the actual product.

Until that build is done, treat the headline for what it is: a door that's been unlocked, with a fair bit of construction still going on behind it.