Sharekhan Blog

How to Invest In Foreign Stocks?

  • Jan 29, 2024

Companies now have the option to invest in any economy thanks to globalisation and the availability of cross-border investment.You can also utilise smart investing to expand your portfolio and increase your returns from the foreign share market as an Indian investor by purchasing foreign equities. But first, let's clarify what foreign stocks actually are.

What are Foreign Stocks?

Foreign stocks are those that are issued by foreign corporations or that are headquartered in India. Comparable to domestic blue-chip corporations, these enormous nondomestic companies are excellent investment opportunities.

By investing in foreign stock exchange, a person can manage the risk in their portfolio and benefit from the profitable prospects found in other markets. Here are three methods Indian investors can use to purchase international stocks.

Indian Fund Houses With Foreign Tie-Ups

Foreign partnerships with Indian fund houses may sound overly hard, but the procedure is simpler. With the least work, Indian stock marketers can invest in international currencies or acquire foreign stocks. Look for phrases like "Emerging Market" and "Europe Focus" to get started with chances like these, which let you invest in overseas businesses through the local market.

Investing in funds of funds (FoF) mutual funds via an international demat account is an additional gimmick. These investments, made in international stocks, provide marketers with a buffer if the SENSEX or Nifty declines. Despite the epidemic and the current state of the failing market, several multinational corporations have performed better.

Direct Investment

Investing directly in international funds provides a more direct way to buy international shares online. However, it demands a significantly larger commitment.

The Reserve Bank of India (RBI) states that Indian citizens can make direct foreign investments up to a maximum of $250,000 annually without obtaining approval. This is under the RBI's LRS (Liberalised Remittance Scheme). There is no ceiling on the overall amount of money invested in any particular year, but there isn't one on the international fund itself.

Opening a trading account with an international broker is simple. Open accounts with foreign brokers from the US do not require a foreign mailing address, at least not in the US.

Exchange-Traded Funds

Exchange-traded funds provide the third avenue for foreign exchange share trading. The typical ETF's price changes throughout the day. All day long, it is purchased and sold.

This is different from mutual funds, which are bought or sold approximately once a day following the market's closing. Exchange-traded funds that provide the necessary exposure to a basket of foreign companies are available for purchase on international indices.

You do not need to be exposed to international markets to access these funds. All you need is an overseas demat account. Exchange-traded funds are another investing option that Indian brokers provide straight from a local market.

Do not forget to confirm that the ETF you want to buy is listed with the Securities and Exchange Board of India. Purchasing exchange-traded funds (ETFs) lowers an investor's training risk because they mimic an index's movement.

Furthermore, compared to mutual funds, ETFs have a substantially lower fee ratio. You will need a brokerage account with an international or Indian company to invest in ETFs. But to access these funds, all you need is this.

Charges Involved When Investing In Foreign Stocks

When looking into how to purchase US equities from India, you should be aware of the following fees:

  • Tax Collected at Source: Under the Reserve Bank of India's Liberalised Remittance Scheme (LRS), 5% TCS (Tax Collected at Source) applies to all remittances over Rs 7 lakh. This only applies to the portion over Rs 7 lakh, not the entire amount. When the person submits an income tax return, they can claim the TCS as a refund.
  • Rate of Foreign Exchange: The prices and the quantity of units allocated may change depending on the foreign exchange rate in effect at the time of purchase or withdrawal.
  • Dividend Tax and Capital Gains: Indian citizens are subject to a 25% dividend tax rate in the US. The investor does not have to pay tax on the same income twice because of the Double Tax Avoidance Agreement (DTAA), which allows credit for taxes paid overseas. Your US investments are not subject to capital gains tax. However, you must pay taxes in India on your capital gains.

Points To Remember When Investing In Foreign Stocks From India

  • If you have the time and experience to thoroughly examine the US market and economy and make a well-informed decision, open an overseas trading account.
  • Compared to domestic assets, investing abroad carries a higher cost. Pay attention to account fees, brokerage fees, currency conversion fees, and other expenses. Therefore, make sure you fully comprehend all fees.
  • In the US market, investing is more economical than trading. This is because excessive fees can potentially reduce traders' typical marginal returns. You can obtain respectable post-charge profits by investing over the long term.
  • Consider the relevant taxes under the tax legislation of the US and India.
  • Start small and raise your investment as you learn more about the US markets.

Final Words

Foreign stocks are excellent investments, and investing in them is not difficult. Furthermore, using several brokerage apps, you can directly invest in foreign currency in minutes. It will, therefore, be a simple process. There are two alternative options for investing in overseas stocks: exchange-traded funds or Indian fund firms linked to foreign stocks.

Team Sharekhan
by Team Sharekhan

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