Many investors desire to invest in foreign stocks like Apple, Facebook, Wal-Mart, Google, and Microsoft despite the fact that these companies (or stocks) are not listed in Indian stock exchanges. However, there is a way to invest in foreign stocks from India. Actually, there are different ways! If you are not familiar with the process of investing in the foreign stocks from India then this guide will help you to understand how Indian investors can still invest in foreign stocks.
But, before we start discussing the process to invest in foreign stocks let’s talk about the limit of buying foreign stock for Indian resident.
How much can Indian Investors buy foreign stocks?
It is advised to hold some foreign stocks in a diversified portfolio. It is because of the performance of global equities which has out-performed the domestic times many times in both absolute and risk-adjusted terms. If you look at the historic performance of the last two decades then you will realize that the US market has outperformed the domestic market.
Even the financial advisors advised holding some foreign stocks. So, if it is that much beneficial then you need to know that how much you can hold on to foreign stocks.
The Reserve Bank of India allows an individual to remit U.S. $250,000 per financial year. In INR, it would be in crores. $250,000 is for an individual. So, if you have another member in your family then you can invest the U.S. $500,000. Now that you will be buying foreign stocks, you will be transacting in foreign currencies. For instance, if you are planning to invest in US Stock Market then you will be paying brokerage charges and other charges in US Dollars.
Note: – Just don’t forget that while trading in foreign stocks, you profits may vary (increase or decrease) as per the currency exchange rates. For example, when you bought the stock from US Stock exchange, it was at the exchange rate of $1 = Rs70. But, when you sold the stock after one year it was at the exchange rate of $1 = Rs64.
How to Invest in Foreign Stocks?
Now that you learned the buying limit of foreign stocks, here are 2 easiest ways to invest in foreign stocks from India –
Method 1: Open a Trading Account with your Broker – Direct Investment
The very first thing you have to do is to call your broker and open a trading account with your brokerage firm which has a tie-up with foreign brokers and provides the overseas trading facility. Next up, submit your filled separate account opening form along with your KYC (Know Your Customer) documents. After that, you would be required to transfer money to the international partner (foreign broker) of the domestic broker of yours through which the services are provided to you.
Now the process of transferring funds to the international partner is as follows:
- Submit application cum declaration forms under LRS (Liberalized Remittance Scheme),
- Form A2 (Available with your broker),
- Sign a form for FEMA (Foreign Exchange Management Act) declaration (Available with your broker),
- The form authorizing the designated bank branch as an authorized dealer.
Once the funds are successfully transferred you can start buying and selling the foreign stocks through an online platform.
Method 2: Buying Global Mutual Funds/Exchange Traded Funds – Indirect Investment
An alternative way to invest in foreign stocks from Indian is to buy global mutual funds or exchange-traded funds (ETFs). By buying international mutual funds one can indirectly invest in foreign stocks. Good thing is, unlike direct investment method, in indirect investment, the limit of investing in foreign stocks is not limited to the U.S. $250,000. Plus, the payments of the funds are made in domestic currency. On top of that, you won’t need to open an overseas account. Instead, you can simply buy mutual funds which trade in global equities.
International mutual funds are mutual fund schemes which invest in overseas firms. International mutual funds are also known by the foreign funds which invest a major portion of their assets in markets other than the ones they reside.
Exchange Traded Funds (ETFs) are investment products which allow domestic investors to take exposure to international indices.
Note: – If you are invested in direct equities then you know that there is no tax on capital gains for over the year but if you are investing in foreign stocks then you will have to pay 20.60% tax on such gains.
Final Thoughts: –
Investing in foreign stocks helps in diversifying the portfolio. With some foreign stocks in a portfolio, one can mitigate the risks of falling domestic market due to some local region. One can simply open the doors of bigger opportunities by investing in foreign stocks. Although these stocks will be listed on foreign stock exchanges so the factors and environment will be different. No doubt! Foreign stocks have potential but it comes at a risk.
Anyways, it totally depends upon you whether you should invest in foreign stocks or not.
If you have any query then please doesn’t forget to mention in the comment section below. We will be happy to answer all your questions.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.