As per the IMF (International Monetary Fund), India’s PPP (Purchasing Power Parity) term is 7.98%, which indicated that the Indian investors have little contribution in the foreign market. Maximum Indian investors have nearly 100 percent portfolios in the Indian stock market and missing out on the world’s economic growth.
Diversification is very important while investing in the stock market whether it’s the Indian market or foreign market. There are very few investors in the Indian market who invest outside India’s borders and look for investing in foreign companies or markets. Before the lockdown was implemented worldwide the stock market around the globe was flourishing but due to the pandemic, many Indian investors reconsidered their diversification in their investments.
What are Foreign Stocks?
Stocks of the company that are based outside Indian borders. These foreign giant companies that are non-domestic make for big investments just like the blue-chip companies (Blue chip companies are well recognized, established, and operate profitably even if the economy is in adverse situations). The investors can set of scales of risk in their portfolio and take advantage of the foreign markets.
Top Reasons to Invest in Foreign Market
- Most eminent companies are in foreign countries like Google, Facebook, Amazon, Microsoft, Samsung, Twitter, and so on. These are global leaders and innovators whose products and services are used worldwide.
- If we take the example of the USA the market there is less volatile than the Indian Stock market.
- The market of the USA has good performance than the Indian stock market in terms of the dollar.
- Some countries are global leaders and global innovators but you need to analyze where to where not.
How to Invest In Foreign Stocks from India
Direct Method of Investment
- To invest in the foreign market you should have a trading account with brokerage houses that provide the facility of investing in foreign stocks.
- Some of the brokerage houses are:
- ICICI Direct
- HDFC securities
- Kotak Securities
- Reliance Money
Then you have to submit a duly filled form for opening separate account with KYC documents (Know Your Customer).
Then you have to transfer some amount of money to the international partner to the equity broker who is the service provider.
You need to have ID proof and Address proof (PAN Card, Aadhaar Card, Electricity bill, or telephone bill).
An application cum declaration form will be submitted under LRS (Liberalized Remittance Scheme).
A Form A2 will be submitted. (This form is available with your broker)
A form for FEMA (Foreign Exchange Management Act) will be signed.
Then you will sign a form authorizing the bank branch to act as an authorized dealer.
Now you are ready to trade in foreign stocks through an online platform.
Indirect Method of Investment
- The easiest and another way of investing in foreign stocks is international mutual funds as there is no limit for investing funds. Here you don’t need to open an overseas account for trading and it is cheaper as compared to the direct method of investment.
In India we have very few mutual funds who are trading in foreign equities:
- Kotak US Equity Fund-Direct
- Edelweiss Greater China Equity
- ICICI Pru US Bluechip Equity
- Reliance US Equity Opp. Fund DP
- The second easiest way of indirect investment is ETF (Exchange-Trade Funds). The prices of ETF fluctuate all day because it is traded throughout the day unlike mutual funds i.e. traded once per day. There is no requirement of exposure to the foreign market to access the ETFs.
Make sure that the ETF you are investing in should be registered with the SEBI (Securities and Exchange Board of India). For ETF you need to have a brokerage account with an Indian company or an international company.
Invest Amount as Per RBI Guidelines
As per RBI (Reserve Bank of India), the Indian investors are only allowed to invest up to $2, 50,000 per annum under the LRS (Liberalised Remittance Scheme). The limit of $2, 50,000 will also include the remittances you made during your foreign travel. A declaration will be required stating that the amount you remitted in the financial year is less than $2, 50, 000 and the amount remitted should be from your income sources.
In the era of the internet, it is easier for investors to invest in foreign markets and invest in big giant companies without any barriers. You need to take care of some risk factors like the currency exchange rate as you may face losses if the rate of the rupees falls.