Investing abroad from India: directly via LRS or through Indian international funds?

Route 1: Indian mutual funds that invest abroad

Many Indian fund houses run international funds and fund-of-funds that buy foreign shares or ETFs. You invest in rupees through a normal SIP — no LRS paperwork and no TCS. The fund still holds dollar assets, so a weaker rupee raises its value.

The catch is capacity: SEBI caps the overseas investment of the whole mutual fund industry (US$7 billion, and US$1 billion per fund house). When these limits fill up, fund houses pause fresh investments, and SIPs can stop without warning — this has happened several times since 2022.

Route 2: global ETFs in your own name

Under the LRS you can open an overseas brokerage account and hold ETFs directly, in US dollars, in your own name. There is no industry cap, the money is already in dollars when the fees fall due, and you can pay a university straight from it. In exchange you have the LRS paperwork, TCS above ₹10 lakh a year (adjustable against tax), and an extra disclosure in your tax return (Schedule FA).

How gains are taxed

• International funds bought in India: treated as non-equity funds. Gains on units held more than 24 months are generally taxed at 12.5%; shorter-term gains are added to your income.
• Foreign ETFs held directly: gains on holdings over 24 months are generally taxed at 12.5%; shorter-term gains at your slab rate. Dividends are taxed at your slab rate, with credit for tax already withheld abroad.

Which suits a family saving for fees abroad?

Many families use both: a rupee SIP for flexibility and costs in India, and a dollar portfolio for fees that will be paid in foreign currency. The right mix depends on your timeline, tax position and how much you will send abroad each year — a question for a registered adviser.