Investing in foreign stocks can be an excellent way to diversify your portfolio and potentially increase your returns. However, it can also be overwhelming and intimidating, especially for Indian investors who are new to the global stock market. With so many options available, it can be challenging to know where to start, how to evaluate different stocks, and what steps to take to make informed investment decisions. Our guide is designed to provide Indian investors with a comprehensive and practical overview of the process of investing in foreign stocks. Whether you are a novice investor or a seasoned trader, this guide will equip you with the knowledge and tools you need to successfully invest in foreign stocks and achieve your financial goals.
Ways to Invest in Foreign Stocks
If you’re an Indian resident interested in investing in foreign stocks, it’s important to be aware of the regulations surrounding overseas investment. Specifically, the Liberalized Remittance Scheme, or LRS, sets a limit on how much an Indian resident can invest abroad each financial year, which runs from April to March. Currently, that limit is set at $250,000, and it applies to all permissible investments made through the Overseas Portfolio Investment (OPI) and Overseas Direct Investment (ODI) routes, as well as other purposes like medical treatment or education abroad.
The new regulatory framework includes a clear definition of OPI, which was not present in previous regulations, marking a notable change. This definition helps Indian investors better understand the scope of overseas portfolio investment and how it fits within the LRS limit. It’s important for Indian investors to stay up-to-date on these regulations to ensure they are investing within the allowed limits and avoiding any potential penalties or legal issues. In the following section, we will explore ways in which Indian investors can invest in foreign markets.
1. Investment In International Mutual Funds
For Indian residents who are interested in investing in foreign stocks but aren’t comfortable directly purchasing shares of foreign entities, international mutual funds can be an attractive option. These funds provide exposure to international markets and invest in foreign stocks on behalf of their investors.
Furthermore, several international exchange-traded funds (ETFs) are available, which grant access to prominent global indices such as Nasdaq. Importantly, investments in these funds would still fall under the LRS limit and do not require the half-yearly Form OPI filing that direct investments do, making them a convenient and easy way to diversify a portfolio with international exposure.
2. Exchange Traded Funds-ETFs
Investing in foreign stocks can be a great way to diversify your portfolio, but it’s not always easy to know where to start. While mutual funds can be an option, they aren’t for everyone. For investors who are unsure about direct investments but don’t want to invest in mutual funds, exchange-traded funds (ETFs) are a good alternative. ETFs differ from mutual funds in a few key ways, one of which is when they can be bought and sold. Mutual funds can only be traded when the market is closed, but ETFs can be traded at any time during the day. Additionally, investing in ETFs doesn’t require a trading account with international brokers; you can invest in them through local or international brokers, just like mutual funds. However, it’s important to be cautious when investing in ETFs and make sure that they are registered with SEBI to avoid scams.
One advantage of investing in ETFs is that they replicate the movement of the index, which reduces the training risk. Another advantage is that the expense ratio is significantly lower than that of mutual funds, making them a cost-effective way to invest in foreign stocks. Overall, ETFs are a convenient and accessible way for Indian investors to gain exposure to international markets without the complexity and risk of direct investment.
3. Direct Investment in Shares of Listed Foreign Entities
As an Indian resident, you can invest in shares of foreign companies listed on overseas stock exchanges, as long as you hold less than a 10% stake and do not have control over the foreign entity you’re investing in. This means that you can buy stocks of companies like Amazon, Apple, Microsoft, and Tesla by opening a Demat account with a foreign entity. These investments would fall under the overall limit of the LRS scheme mentioned earlier, and there is no need to file a half-yearly Form OPI under the new framework. To invest in foreign stocks, Indian residents can open an overseas trading account with an Indian broker that has a tie-up with international brokers like ICICI Direct, Kotak Securities, and more.
Alternatively, they can directly open an account with a foreign broker that has a presence in India, such as Charles Schwab, Ameritrade, or Interactive Brokers. With the right brokerage account, Indian residents can easily invest in foreign stocks and diversify their investment portfolios.
4. Invest Through NSE-IFSC
For Indian residents interested in buying direct US stocks, another option is to use the NSE International Exchange (NSE IFSC). This is a subsidiary of the National Stock Exchange of India that allows investors to trade in US stocks. To get started, you will need to open a trading and Demat account with an NSE IFSC registered broker. You can then transfer funds from your local bank account to the broker’s bank account. Once your broker’s account reflects the funds, you can start trading on the NSE IFSC US Stock platform.
This option offers a convenient and secure way for Indian investors to access the US stock market, without having to go through the process of opening an account with an international broker. It also provides an additional layer of regulation and oversight through the National Stock Exchange of India.
Investing in foreign stocks can be an exciting way to diversify your portfolio and potentially increase returns. With this guide, you now know the essential steps to take when investing in foreign stocks. At the end of the day, it’s important that you understand the risks of investing abroad and make informed decisions based on your financial goals. As long as you do your due diligence, there are plenty of opportunities for success.
For Indian investors new to the global stock market, investing in foreign stocks can offer a promising opportunity to diversify their portfolio and potentially boost their returns. Nevertheless, the abundance of options, including stock market courses, can be overwhelming and intimidating. It can be difficult to determine how to begin, how to assess various stocks, and what measures to adopt to make well-informed investment choices.