US bonds, REITs & gold for Indian investors: worth it?

US equity is the default reason Indian residents use the LRS to invest abroad. But there are three other US-listed asset classes that occasionally come up: US Treasury bonds, US REITs (real estate investment trusts), and gold ETFs. Each has a real case, and each has Indian-specific friction that often makes it less attractive than it sounds.

This post walks through all three with honest analysis.

US bonds: the case against, mostly

What US bonds are

US Treasury bonds (and bond ETFs like AGG, BND, VGIT) are debt instruments issued by the US federal government or US corporations. They pay regular interest (called "coupon" payments) and return principal at maturity.

Bond ETFs hold a basket of bonds, paying out interest as monthly distributions.

Why someone might want them

Standard portfolio theory says equity volatility should be balanced by bond stability. The classic 60/40 portfolio (60% equity, 40% bonds) has been a foundation of US retirement investing for decades.

For an Indian investor: the US bond allocation could theoretically:

• Smooth equity volatility.
• Provide inflation-stable cash flow in retirement.
• Hedge against US deflation scenarios.

Why it doesn't work well in practice

Three structural problems for Indians:

Problem 1: Yield differential

	10-year yield (mid 2026)
US Treasury	~4.6%
Indian Government Securities	~7.1%

Indian government bonds yield ~250 basis points more than US bonds. For an Indian investor, holding US bonds means accepting a substantially lower yield than equivalent Indian instruments.

Problem 2: Currency volatility wrecks the "stability" thesis

Bonds are supposed to be the stable leg. But USD/INR has 5–6% annual volatility - more than US bond price volatility itself. Adding currency to a "stable" asset turns it into a volatile asset.

If you want true stability in INR terms, you need INR bonds - government securities, top-rated corporate bonds, PPF, or NPS.

Problem 3: Tax treatment is harsh

Indian tax on foreign bond income:

• Coupon (interest) payments: taxed as interest income at slab rate, not as the more favorable dividend / capital gains category. For 30% slab, that's 31.2% effective.
• Capital gains on sale: foreign equity rules apply (slab rate < 24 months, 12.5% > 24 months).
• No ₹50,000 interest exemption (which only applies to certain Indian instruments).

A 4.6% US Treasury yield, after Indian tax at 31.2%, is a net ~3.2% yield - barely above inflation, often below it.

Problem 4: PPF, EPF, NPS already provide your "bond-like" allocation

Most working Indians already have meaningful exposure to:

• PPF (8%+ effective, tax-free returns).
• EPF (8%+ post-tax returns).
• NPS Tier I (mixed, but bond portion yields well).
• Tax-free bonds (NHAI, REC, etc.) with 7%+ tax-free yields.

These instruments are already better than US bonds in INR terms. You don't need additional bond exposure - and if you do, INR-denominated debt funds are better.

The verdict on US bonds for Indians

Skip them. There's no scenario for a working Indian professional where US bonds outperform Indian fixed-income alternatives after currency and tax. Use PPF/EPF/NPS for the bond allocation; reserve LRS for equity. For those exploring foreign fixed income for other reasons, sukuk vs bonds for Indian investors walks through one more cross-border option.

The exception: if you're explicitly planning to relocate to the US in the future and want some pre-positioning of USD-denominated stable-yield assets. Even then, US treasuries directly (purchased at TreasuryDirect or via IBKR) might be marginally better than ETFs due to expense ratio.

US REITs: more interesting

What US REITs are

Real Estate Investment Trusts (REITs) are companies that own and operate real estate (residential, commercial, industrial). They pay out 90%+ of their income as dividends to shareholders.

US REIT ETFs (like VNQ, IYR, SCHH) give you exposure to a basket of US REITs.

Why someone might want them

For an Indian investor, US REITs offer:

• Exposure to US commercial real estate (office, residential, data centers, healthcare facilities).
• High income yield (REITs typically yield 3.5–5% in dividends).
• Lower correlation with US equity than direct stocks.
• Diversification beyond Indian real estate (which is your current home/portfolio bias).

The Indian tax angle

REITs are taxed as US foreign equity for Indians:

• Dividends: 25% US withholding under treaty + Indian slab rate − FTC.
• Capital gains: 12.5% LTCG > 24 months, slab < 24 months.

But there's a wrinkle. REITs pay higher dividends than typical equities (3.5–5% vs. 1.3% for VTI). This means:

	VTI	VNQ (REIT ETF)
Annual dividend yield	1.3%	~3.8%
US WH (25%)	~0.33% drag	~0.95% drag
Indian tax (after FTC for 30% slab)	0.05% additional	0.16% additional
Total dividend tax friction (annual)	~0.4%	~1.1%

REITs have 3x the dividend tax friction of broad equity ETFs. Over decades, this compounds to a meaningful drag.

When REITs are worth it for Indians

Two cases:

Case 1: You want commercial real estate exposure that India doesn't offer

US REITs cover sectors that Indian REITs (Mindspace, Embassy, Brookfield) don't:

• Data center REITs (Equinix, Digital Realty).
• Healthcare REITs (Welltower, Ventas).
• Specialty REITs (cell towers, timber, self-storage).

If you have a thesis on these specific sectors, US REITs are a way to get exposure.

Case 2: You want income that's USD-denominated for a future expense

If you have known USD-denominated expenses in retirement (international travel, foreign education for kids), REIT dividend income gives you cash flow in USD terms.

When REITs aren't worth it

If you're pursuing pure capital appreciation or building a generic diversified portfolio: skip them. The dividend tax drag eats too much of the return. VTI delivers similar long-term total returns with much less tax friction.

Picks

If you do want US REIT exposure:

• VNQ (Vanguard Real Estate ETF): 0.13% expense ratio, ~3.8% yield, broad US REITs.
• SCHH (Schwab US REIT): 0.07% expense ratio, similar yield, no mortgage REITs.

Allocation if including: 5–10% of US equity portion, no more.

Gold: the most-asked-about, often-misunderstood

What gold ETFs are

Two categories:

• Physical gold ETFs (e.g., GLD, IAU): hold physical gold bullion in vaults. Each share represents a fraction of an ounce.
• Gold miner ETFs (e.g., GDX): hold stocks of companies that mine gold. Different risk profile (more equity-like).

For most retail use cases, physical gold ETFs are what you want.

The Indian context

Indians have a long, complicated relationship with gold. It's:

• Cultural (jewelry, weddings, gifting).
• Inflation hedge.
• Currency hedge.
• Investment.
• Status symbol.

There are also several Indian gold investment vehicles:

• Sovereign Gold Bonds (SGBs): government-issued, redeemable in gold value, 2.5% annual interest, capital gains tax-free if held to maturity. Note: the government stopped issuing fresh SGB tranches (the last was Feb 2024) and has confirmed no new tranches, so SGBs are now only buyable on the secondary market — existing bonds remain valid and tax-free at maturity.
• Indian gold ETFs (e.g., HDFC Gold ETF): listed on NSE, trade in INR, expense ratios ~0.5%.
• Physical gold and jewelry: traditional, but with making charges and purity issues.

US gold ETFs vs. Indian gold ETFs vs. SGBs

	US gold ETFs (GLD/IAU)	Indian gold ETFs	Sovereign Gold Bonds
Expense ratio	0.40% (GLD) / 0.25% (IAU)	0.4–0.6%	None
Returns	Gold price (USD)	Gold price (INR)	Gold price (INR) + 2.5% interest
Currency	USD	INR	INR
Indian tax (LTCG)	12.5% (foreign equity, over 24 months)	12.5% no indexation, over 12 months (units bought on/after 1 Apr 2025)	Tax-free if held to maturity (8 years)
Compliance	Schedule FA	Standard ITR	Standard ITR
Liquidity	Excellent (GLD/IAU)	Good	Limited (secondary market thin)

Where you can still get them (existing SGBs on the secondary market), SGBs remain the best gold structure on paper:

• Tax-free at maturity.
• 2.5% annual interest on top of gold price appreciation.
• Government-backed.
• No expense ratio.

The catch as of 2026: with no fresh tranches being issued, you can only buy SGBs second-hand on the exchange, where liquidity is thin and units often trade at a premium. For ongoing fresh allocation to gold, Indian gold ETFs (and the newer gold mutual funds) are now the practical default.

US gold ETFs only make sense if:

1. You want USD-denominated gold (rare).
2. You want intra-year liquidity in size.

For nearly all Indian retail investors: skip US gold ETFs. Use existing SGBs if you already hold them or can buy them well-priced on the secondary market; otherwise an Indian gold ETF.

The "gold as hedge" question

Gold is sometimes pitched as a recession hedge or inflation hedge. The data is mixed:

• Gold has been a decent inflation hedge over very long horizons (multi-decade).
• In 5–10 year windows, gold can underperform inflation badly (1980s–2000s).
• Gold has shown some negative correlation with equities in crises, but not always.

If you want a "crisis hedge" allocation, 5–10% of net worth in gold (preferably SGBs) is the standard recommendation. More than that becomes a concentrated bet on a single commodity.

A combined recommendation

For an Indian investor wondering whether to add bonds, REITs, or gold to their LRS-based portfolio, here's the structural answer:

Asset	LRS-based US version	Indian version	Recommendation
Bonds	US Treasury / corporate bond ETFs	PPF, EPF, NPS, debt funds, tax-free bonds	Use Indian alternatives; skip US bonds
REITs	VNQ, SCHH	Indian REITs (Embassy, Mindspace)	US REITs only for sector-specific theses (data centers, healthcare); otherwise Indian
Gold	GLD, IAU	SGBs (no longer issued; secondary market only), Indian gold ETFs	Existing SGBs if available, else Indian gold ETFs; skip US gold ETFs

In all three cases, the Indian alternative is structurally better for an Indian resident than the US version. Use LRS for what it's structurally good at - equity exposure to US-listed companies - and use Indian instruments for the categories where India offers tax-advantaged or yield-superior options.

What about US-listed alternatives that can't be replicated in India?

Some strategies do require LRS-based access:

• Private equity / venture capital (via interval funds or BDCs): Indian retail investors don't have analogous access. Use LRS for these.
• Specific commodity ETFs (uranium, lithium, etc.): not available via Indian platforms.
• Sector-specific REITs as discussed.
• Foreign-currency-denominated bonds for explicit USD pre-positioning if planning to emigrate.

These are niche. For 95%+ of Indian retail investors, the answer for non-equity asset classes is "use Indian instruments, not LRS-based US equivalents."

A worked portfolio

For someone with ₹1 cr of investable assets, a structurally sensible allocation:

Asset	Amount	Vehicle
Indian equity (large/mid/small)	₹40 lakh	Nifty 500 + Mid-cap fund
US equity	₹25 lakh	VTI + QQQM
International developed equity	₹5 lakh	VEA
Indian fixed income	₹15 lakh	PPF + EPF + tax-free bonds
NPS Tier I	₹5 lakh	NPS auto choice
Gold	₹5 lakh	Existing SGBs / Indian gold ETF
Indian REITs	₹3 lakh	Embassy / Mindspace
Cash buffer	₹2 lakh	Liquid fund
Total	₹1 cr

Note what's not in this portfolio: US bonds (replaced by PPF/EPF), US gold ETFs (replaced by existing SGBs or Indian gold ETFs), US REITs (replaced by Indian REITs).

The LRS exposure is purely equity, where the structural reasons to use LRS are strongest.

The summary

For Indian retail investors:

• US bonds: skip. Use PPF/EPF/NPS for fixed income.
• US REITs: only if you specifically want sector exposures that Indian REITs don't offer.
• US gold ETFs: skip. Use existing SGBs if available (no fresh tranches are being issued), otherwise an Indian gold ETF.

LRS is a precious resource (USD 250k/year limit, 20% TCS friction above ₹10 lakh). Spend it on the asset class where it has the strongest structural benefit: equity in companies that don't exist on Indian exchanges, across the 15 global markets we cover. Don't waste LRS on bonds, REITs, or gold where Indian alternatives are better.