How to Build a Globally Diversified UCITS Portfolio

When most Indian investors decide it's finally time to invest globally, they do one of the two things.

1. The first is the familiar route: an international mutual fund.

   Motilal Oswal NASDAQ 100, Axis Global Alpha Equity, DSP Global Innovation.

   These feel safe. They sit inside the Indian mutual fund wrapper, the SIP goes out automatically, and the paperwork is no different from any other domestic fund.

   The problem is you've handed over all control of the underlying instruments, you're paying a significantly higher expense ratio than you need to, and since 2022, SEBI's overseas investment cap has created a persistent uncertainty over whether new investments will even be accepted.

   Several of these funds have intermittently halted fresh subscriptions entirely.

2. The second is the direct route: opening an IBKR account and buying SPY, QQQ, or VTI directly.

   This feels more sophisticated, and in some ways it is. You're getting cleaner exposure, lower costs, and full transparency into what you own.

   But if you hold more than $60,000 in US-listed assets as an Indian resident and $60,000 is not a high bar for anyone seriously building a global portfolio, you have just created a US estate tax liability.

   Non-resident aliens are subject to US estate tax at marginal rates up to 40% on US situs assets above that threshold. India has no estate tax treaty with the US. Most platforms that facilitate such investments don't mention it.

Two routes with two different problems. And the frustrating thing is that none of these problems are inevitable: they're all a function of using the wrong structure, not the wrong asset class.

So what's the right structure? And how can you actually build a globally diversified portfolio?

Table of contents

• Step 1: Choose the right structure
• Step 2: Decide your currency before your assets
• Step 3: Start with risk, not percentages
• Step 4: Add what equities cannot give you
• Step 5: Decide what kind of equity you actually own
• Step 6: Do you need bonds, or do you already have them?
• Step 7: Manage the portfolio over time
• Should you build it yourself or have it managed?

Step 1: Choose the right structure

The common thread across all three approaches is not the asset class. It’s the structure, because the structure of an instrument determines things that most investors only think about much later like estate tax exposure, withholding taxes, reporting requirements, and long-term cost.

To see why this matters, take a simple example.

If you want exposure to the 500 largest US companies, you can buy SPDR S&P 500 ETF Trust - listed on the NYSE and domiciled in the United States. Or you can buy CSPX.L - the iShares Core S&P 500 UCITS ETF, listed on the London Stock Exchange and domiciled in Ireland.

Both track the same index. Both hold the same stocks. Both deliver nearly identical returns before tax and costs.

But as an Indian investor, these two instruments lead to very different outcomes.

The point is not that one index is better than another. It’s that the same exposure can be held in different ways, and those choices have real consequences.

You can get the asset allocation exactly right and still build a structurally inefficient portfolio because of where the instruments are domiciled.

This is what UCITS solves.

UCITS (Undertakings for the Collective Investment in Transferable Securities) is a European regulatory framework, primarily domiciled in Ireland and Luxembourg, that governs how funds are structured, what they can hold, how they report, and the liquidity and diversification standards they must meet.

For an Indian investor, the European domicile is not incidental. It is precisely what keeps these instruments outside US estate tax jurisdiction while maintaining full exposure to US and global markets.

This is why the first step in building a global portfolio isn’t choosing assets. It’s choosing the right structure to hold them.

Relevant reads:

• What are UCITS ETFs?
• Why Indian Investors Should Choose UCITS Over US ETFs
• UCITS ETFs vs US ETFs

Step 2: Decide your currency before your assets

Once the structure is in place, the next decision is currency.

But before going deeper, it’s important to separate two things that are often confused. The currency you transact in is not the same as the currency exposure you hold.

If you’re investing in a UCITS ETF tracking the S&P 500, whether you buy it in USD, GBP, or EUR does not change what you own. The underlying exposure remains US equities.

Your returns will be driven by how those companies perform, not by the trading currency of the ETF.

What does matter is the currency exposure of the underlying portfolio.

As an Indian investor, investing globally typically means allocating away from INR. Over time, this has added to returns.

The rupee has depreciated against the dollar by roughly 4–5% annually over long periods. This reflects a consistent inflation differential between India and developed markets. So if a portfolio generates a 10% return in dollar terms in a year where the rupee depreciates by 5%, the INR return is closer to 15%.

That additional return is not alpha. It is a structural outcome of holding assets outside your domestic currency.

Step 3: Start with risk, not percentages

Once the currency decision is in place, the next question is what to own.

Most investors immediately reach for percentages: 60% equities, 20% bonds, 20% commodities.

Resist that instinct.

Percentages are an output. The starting point is simpler: how much drawdown can you actually tolerate, and for how long?

A globally diversified portfolio with high-conviction positioning (commodities, emerging markets, value equities) can fall 15–20% in a bad quarter before recovering. If that level of drawdown would cause you to exit, the allocation is wrong, regardless of long-term returns.

The best portfolio does not work if you cannot stay invested in it.

In practice, most investors building a global allocation fall into one of three profiles.

1) Conservative

Investors with shorter horizons, upcoming liquidity needs, or large capital allocations where downside matters more than upside.

This profile tilts toward investment grade bonds and lower-volatility equity exposure.

2) Moderate risk

Investors with a 3–5 year horizon who want meaningful global exposure without taking full market risk. The allocation balances developed market equity, emerging markets, and a stabilising sleeve, without strong directional bets.

3) High risk

Investors with 5+ years who accept volatility as part of the process and want the portfolio to reflect strong views.

This profile takes more concentrated positions like commodities, emerging markets, factor tilts and accepts periods of underperformance in exchange for higher long-term potential.

Each of these profiles translates into a different starting point for how much of your portfolio sits in equities versus stabilising assets.

Step 4: Add what equities cannot give you

Once your equity allocation is defined, the next question is not how to refine it further. It is what to add alongside it.

Most investors try to diversify by adding more equity exposure - a second geography, a different index, another theme. This creates the appearance of diversification, but in practice, most equity exposures move together when it matters.

Real diversification comes from adding asset classes that behave differently.

Commodities are the clearest example.

A diversified commodity index: covering precious metals, industrial metals, energy, and agricultural commodities through a single UCITS instrument does not move in line with equities across most market cycles. It responds to different drivers: inflation, supply shocks, and geopolitical events.

This does not replace equities. It changes the behaviour of the portfolio.

In periods where equity markets are under pressure, commodities can act as a stabilising force. In inflationary environments, they can become a source of return when financial assets struggle.

Step 5: Decide what kind of equity you actually own

Once you’ve decided how much of your portfolio sits in equities, the next question is what kind of equity exposure you want.

Broad market, growth, and value behave very differently across cycles.

Broad market exposure: the S&P 500 or MSCI World is the default for most investors. It requires the least conviction and the least ongoing monitoring. If you don’t have a clear view on the market cycle, this is where you start.

Growth exposure: Nasdaq 100, mega-cap tech has been the dominant trade for much of the last decade. It is also the most crowded, the most sensitive to interest rates, and the most vulnerable when capital rotates. If you already have growth exposure through your India portfolio or prior global investments, adding more is not diversification.

Value exposure: US value factor ETFs, for example, have started to show improving relative momentum as concentration in mega-cap growth begins to unwind. For a fresh allocation, tilting toward value within your US sleeve gives you dollar exposure while reducing overlap with the same names.

Emerging markets deserve a separate mention. A broad EM UCITS ETF covering China, Taiwan, South Korea, Brazil, and India offers something developed markets do not: participation in a potential re-rating as valuations converge.

Step 6: Do you need bonds, or do you already have them?

The starting point is not whether a “balanced portfolio” should include bonds. It is whether your overall portfolio across India and global already has enough defensive allocation.

For most Indian investors, the answer is often yes.

Fixed deposits, EPF, PPF, debt mutual funds - when viewed together, already create a meaningful fixed income base. Adding a bond sleeve within the global portfolio on top of this can be redundant.

In that case, the global allocation can afford to be more equity and real asset focused without making the overall portfolio aggressive.

Commodities sit differently from bonds and should be thought about separately.

They are not primarily defensive. They tend to perform in specific environments - particularly when inflation is persistent, supply constraints are binding, or equity markets are under pressure.

For an Indian investor, there is an additional layer: commodities are globally priced in dollars. A commodity allocation through UCITS provides both commodity exposure and dollar exposure.

The decision here is not about completing a template. It is about identifying what the portfolio already has, and what it still needs.

Build the equity core first. Then ask: what role is missing?

If stability is already covered through domestic assets, adding more bonds globally may not add much.

If inflation protection or diversification is missing, real assets may matter more.

Step 7: Manage the portfolio over time

Building the portfolio is the part most people focus on. Managing it over the years that follow is where most of the real decisions and most of the mistakes actually happen.

These are the questions that come up in practice.

• Rebalancing: how do you adjust allocations without triggering unnecessary tax events?
• Remittance: how do you separate the timing of LRS transfers from investment decisions?
• Decision-making: how do you distinguish between a real change in thesis and short-term noise?
• Tax and reporting: what needs to be tracked across currencies, remittances, and holding periods?

Should you build it yourself or have it managed?

Everything in this guide has been written to be useful regardless of what you decide to do next.

The framework (structure, currency, risk, allocation, and ongoing management) does not require you to work with an investment adviser. A thoughtful, engaged investor with time can apply it independently, open a global brokerage account, select a small set of UCITS instruments, and build a perfectly respectable global portfolio.

So the question is not whether one approach is inherently better. It is where each approach works, and where it doesn’t.

The question is not which approach is better in the abstract. It is which one fits your time, your temperament, and the size of the decision you are making.

A ₹50 lakh allocation that you track actively and rebalance thoughtfully can work perfectly well as a self-directed portfolio.

A ₹2 crore allocation that requires coordination across remittances, tax, and rebalancing may benefit from structured execution and ongoing discipline.

Neither answer is universal. But at this point, you have enough of the framework to ask the right question and to recognise whether the answer you arrive at is realistic.

About Paasa

Paasa is a SEBI-registered global investing platform that combines access to international markets including UCITS ETFs with an advisory layer that helps Indian investors navigate portfolio construction,