Money Wise: A Compelling New Way To Transact For Globetrotting Indian

India is at the forefront of digital transactions. Demonetisation may be a fading memory, but one of its lasting effects is the propensity of the average Indian to use the National Payments Corp's Unified Payment Interface — popularly known as UPI. A development this week could signal a true global coming of age of the technology.

US-based online payment service provider PayPal announced on Wednesday that it had tied up with the NPCI to integrate UPI to its ecosystem. The initiative is called PayPal World and aims to connect the world’s largest payment systems and wallets. Now, bear in mind that this is simply the initial announcement and the launch of the services is expected at the end of the year. But, it presents a compelling alternative to a growing tribe of globetrotting Indians.

Currently, Indians have three primary options when transacting abroad. They can either buy dollars in India and convert to the local currency or use their credit and debit cards with international payments activated. Or they can purchase a forex card from a number of service providers in India. The first option is not the most efficient — money is lost in two conversions in all situations where the dollar is not the currency being used to transact. Many are now preferring to use their cards. The charges involved include the merchant discount rate and the foreign exchange conversion fee that a bank will levy, but this is usually still cheaper than acquiring physical currency.

The ability to use a mobile application to transact would be a welcome addition to say the least, but the charges that will be levied for transactions is still unclear.

Speaking of looking overseas, Indians have increasingly looked to diversify their investment portfolios by buying equity in companies listed in markets abroad. In the past couple of years, though, this has been challenging because the Reserve Bank of India is yet to increase the overall limit for overseas equity exposure for the mutual fund industry. It still stands at $7 billion for actively managed funds. Even the additional $1 billion limit for Exchange Traded Funds has been exhausted.

The demand is such that the limited ETFs that are available on Indian exchanges have been trading at a premium to their Net Asset Values. The danger with doing this is that a sharp drawdown in these markets could erase the premium, such that investors will lose much more than the index loses.

DSP has launched an interesting product that will operate out of the International Financial Services Centre in GIFT City. It’s a new fund called the DSP Global Equity fund. Indian investors can buy units in the fund like they would in any other mutual fund, but in this case, they would utilise the limits prescribed by the Liberalised Remittance Scheme. In other words, each individual can invest up to $250,000 per year. But why is this an interesting proposition?

It's because the minimum investment is much more affordable than anything else currently operating out of the IFSC at $5,000. That works out to about Rs 4.3 lakh. Investors can make an application to invest either through DSP, in which case, the expense ratio would be 1.5%, or through a distributor, where the cost would rise.

The fund will invest in 30–50 stocks globally — with a market capitalisation of over $30 billion.

It isn’t an option that everyone can consider. Especially because advisors say the ideal international exposure in an individual’s portfolio should be 10%. But with one funhouse deciding to provide a more affordable option, others could follow suit.

Do remember that the tax treatment of this investment will be different from your equity investments here in India. In that, capital gains made by the fund will be taxed, but there will be no tax in the hands of the investor. And also, if investments are over Rs 10 lakh, there will be a need for tax collected at source of 20%. Of course, this can be set off against advance tax, but it could prove to be a deterrent for many.

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