Investing in Asian markets: Should you invest in direct stocks or mutual funds? A practical guide for...

Investing in Asian markets: Should you invest in direct stocks or mutual funds? A practical guide for investors

For Indian investors looking to tap into opportunities in Japan, South Korea, and Taiwan, investing directly in Asian markets is possible, but it comes with a fair amount of complexity.

While the Reserve Bank of India's Liberalised Remittance Scheme (LRS) allows residents to invest up to $250,000 abroad each financial year, experts say the process entails opening overseas brokerage accounts, managing foreign remittances, handling currency conversions, and navigating tax and compliance requirements.

For most retail investors, mutual funds offer a far simpler route, providing international exposure without the operational and administrative burden of direct investing.

Before choosing either route, investors should take a close look at the differences in costs, taxation, paperwork, and ease of investing.

Under the RBI’s Liberalised Remittance Scheme (LRS), you are allowed to remit up to $250,000 per financial year for overseas investments. However, Amit Kumar Maheshwari, QPFP®️, Founder of AKM Wealth Pvt. Ltd., said, "'technically possible' and 'hassle-free' are two very different things."

Maheshwari said that to go direct, you would need to open an account with a global broker that provides access to the Tokyo, Korea, and Taiwan stock exchanges. Handle the paperwork for foreign remittances and deal with currency conversion compliance. Navigate complex trading systems, settlement processes, and corporate actions on your own.

Also read: Can Indians invest directly in stocks in Japan, Korea, and Taiwan? Rules, restrictions, costs and taxes explained

"In contrast, investing through Indian mutual funds is much simpler. You skip the foreign brokerage account entirely, the KYC process is a breeze, and you get professional fund management," he said.

If you go direct, you aren’t just paying for the stock. "You have to factor in bank remittance charges, forex conversion spreads (which can range from 0.5–3 percent), brokerage fees, and potential tax filing costs. All in all, a 'round-trip' transaction (buying and selling) can eat up 2–5 percent of your capital.

With mutual funds, it’s much more transparent. "You pay an annual expense ratio (usually 0.5–1.5 percent), and that’s it. No hidden remittance paperwork or separate brokerage charges," said Maheshwari.

This is where many investors get caught off guard. If you invest directly, your foreign stocks are treated as unlisted securities for tax purposes in India.

Till the period of Holding of 24 months and below, the tax rate will be the slab rate and above 24 months, it will be taxed at 12.5 percent (Equity taxation). "You have to calculate gains after converting everything back to INR, which is a significant administrative task," said Maheshwari.

You will need to meticulously maintain purchase records, contract notes, foreign tax statements, and dividend records for your tax filings.

With mutual funds, you get clean, consolidated account statements (CAS) and tax-ready reports like AIS and TIS, making your life significantly easier at tax time.

Also read: Investing in Taiwan, South Korea and Japan stocks? Risks and fine print Indian investors must know before taking a bet in Asian markets

For the global investor, cross-border allocation requires navigating a dual scorecard where corporate performance can be completely divorced from final portfolio returns.

Abhishek Bhilwaria, Partner, Bhilwaria Finserv, said, "From an investor’s perspective, buying an asset denominated in yen, won, or Taiwan dollars means inadvertently taking a speculative, long position on that foreign currency while simultaneously shorting your home currency. This reality introduces a severe hazard: you can meticulously analyse balance sheets, correctly identify a market leader, and watch its stock price soar in local terms, only to suffer a net loss at liquidation."

Because your daily liabilities, fund benchmarks, and ultimate purchasing power are anchored strictly in rupees, the exchange rate acts as an unyielding filter through which all overseas gains must pass.

"If the foreign central bank aggressively devalues its currency, or if macro headwinds cause that Asian tender to slide against a resilient rupee, the currency translation will quietly hollow out your equity gains, transforming what looked like a brilliant stock pick on a foreign exchange into a flat or negative net return the exact moment the capital is converted back into your native tender," said Bhilwaria.

Adding to it, Maheshwari said, "If you have a substantial portfolio and the time to manage the complexities of international tax and compliance, direct investment (through tools like iShares MSCI Japan, South Korea, or Taiwan ETFs) is an option. There are specific ETFs available for those who choose this path."

"But I strongly suggest sticking to mutual funds. You get exposure to these regions through funds like the Nippon India Japan Equity Fund or the PGIM India Global Opportunities Fund (for Japan) and various feeder funds that provide indirect exposure to the Greater China region, Edelweiss Greater China Equity Offshore Fund, Franklin Asian Equity Fund, Edelweiss ASEAN Equity Offshore Fund. It’s the 'sleep-well-at-night' approach: professional research, easy SIP/SWP facilities, and simplified tax reporting," said Maheshwari.

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