Reasons for not investing overseas

Investors like the market they already know. That is home country bias. The workbook goes further than this one idea, though.

It lists specific, practical reasons why Indian investors do not put money into overseas markets. These reasons sit on top of plain familiarity.

The workbook names 5 distinct reasons: (a) lack of knowledge of opportunities outside the home country; (b) home country laws that may prevent domestic investors from investing outside India; (c) lack of access, and high cost of access where it exists; (d) compliance with the tax and other laws of the other country, which may at times conflict with local laws; and (e) lack of expert advice, since advisers themselves are often not well versed in overseas asset classes.

The workbook also names the mechanism that has partly reversed this in India: the Liberalised Remittance Scheme (LRS), which lets a resident individual remit up to USD 2,50,000 a year for investments outside India, alongside domestic mutual funds that themselves invest in global indices such as the S&P 500 and Nasdaq 100.

Illustrative figures. Mr Deshmukh wants exposure to US technology companies but has never invested abroad. Working through the workbook's five reasons: he genuinely does not know which platforms or funds offer this (a); he checks and finds Indian residents are permitted to invest abroad under the LRS, so no legal bar applies to him (b); a direct US brokerage account would cost more in fees and paperwork than he expects (c); he is unsure how US withholding tax on dividends interacts with his Indian tax return (d); and his own financial adviser, while excellent on Indian equities, admits limited expertise on US markets (e).

His simplest route, given all five frictions, is an Indian mutual fund scheme that itself invests in a global index such as the Nasdaq 100 — sidestepping (b), (c) and much of (d) at once, using the same LRS-driven product innovation the workbook describes.

Chapter 17 (Behavioural Finance in Practice), the sub-section on "Home country bias," lists these five reasons immediately after introducing home country bias itself, followed by the LRS as the practical antidote. Expect a question naming one of the five reasons, or asking for the LRS remittance limit.

• These five reasons are distinct from home country bias itself — bias is the psychological preference for the familiar; these five are the workbook's separate, practical frictions layered on top of it.
• The LRS limit is USD 2,50,000 per year, a per-resident-individual annual ceiling, not a lifetime limit.
• The antidote the workbook names is adviser education, not elimination of all five frictions — advisers getting educated on global investing opportunities is what closes reason (e), and indirectly makes the other four easier to navigate for clients.