Are you thinking to invest in US or other foreign stocks from India? Looking for ideas on How to trade in International Market from India? Here we’ll discuss easy ways to invest in international stock market.
Any financial professional worth their salt would tell you, that the only way to reduce market risk is by diversifying one’s portfolio. And they would be a 100% correct, because of a really simple line of reasoning. Unless it is the end of the world (or 2020 an year full of uncertainties), it is highly unlikely that all industries in all sectors within all countries should face detrimental conditions. So, if diversification is the key to sound investing, why limit diversification right?
Why Should You Invest Outside India?
Here’s something to consider. The 10 Year Returns of Index funds like US’s S&P 500 Index has give a return of 13.6%, which if you’re new, is decent amount of return. At the same time, 5 year returns of NIFTY funds range around 8.39% return, but funds like Motilal Oswal NASDAQ 100 gave a return of about 17.53%.
Along with that there are countries which have become synonymous with a particular product like Swiss watches, or a particular industry.
Unites States is at the very epicenter of most of the technological innovations, Silicon Valley, and it would be strange that in 21st Century’s global economy, investors cannot benefit off of such specializations in products, essentially emphasizing on specializations and high grade products.
Now if that is not incentive enough, you might be interested in the fact that despite the occasional crisis, US indexes are less volatile to fluctuations than Indian markets, which are due to reasons beyond the scope of this discussion. But, what is in the scope if how much can you actually invest, so let’s get into all of it.
How Much Money You can Invest in Foreign Stocks?
As per the guidelines put forth by the Reserve Bank of India under Liberalized Revenue Scheme, one can invest upto $250,000 per person per year, which amounts to around Rs.1.7 crore. This can be done without requesting any special permissions, needless to say this limit can be extended under some cases.
This, however, also means that if there are two or three people in the family, you can invest up to $500,000 or even $750,000, since the terms dictate that limit is per person per year.
How to Trade in International Market? Invest in Foreign Stocks from India:
Remember, if you have a Demat and Trading Account in India, you can start doing trading and investing for companies listed on Indian Stock Exchanges i.e. NSE and BSE.
So, what about foreign company stocks listed in their respective countries? How can you buy those shares? What are the avenues available for trading in International Markets in India? Let’s hunt for the answers.
If you’re convinced and international portfolio diversification is something you want to do, the good news for you is that there are a ton of different avenues available to trade in international markets while in India. Broadly, however, they can be classified into two types:
Direct Investment in Foreign Stocks
A direct investment, in this case, simply means that the money that you invest directly goes into foreign assets, which can be of different classes. The important part is there is no intermediary except the stock broker.
So, the easiest way to start trading internationally from India is to open an Overseas Trading account with a domestic broker in India or a foreign broker.
You can do direct investments in one of two ways:
1. Trading in Foreign Markets through a Domestic Broker
This simply entails that you trade in foreign markets through domestic stock brokers, a ton of which have tie-ups and offer services of trading internationally. However, it should be noted that many such stock brokers in India might levy high charges and their clients are often subject to restrictions in the quantum or number of trades that they can place. The costs account for both brokerage and currency conversion charges so make sure you understand the documents thoroughly before investing. Notable brokers include HDFC Securities Ltd, ICICI Securities, Axis Securities, etc.
2. Trading in International Markets through a Global Broker
There are also available, stock brokers that operate globally and offer services of different international markets through a single terminal. A lot of such brokerage houses also have presence in India, and notable names include Charles Schwab, Ameritrade, Interactive Brokers, etc. You can have more details on international broking firms at Best Stock Brokers in USA
Indirect Investment in Stocks: Mutual Funds & ETFs
An indirect investment simply means that there is a presence of an intermediary that selects the funds and stocks to be invested in for you, except the stock broker itself. These can be global mutual funds and exchange traded funds, the portfolio basket of whose by default include assets of all classes varying over different geographical regions.
The primary benefit here is that unlike direct investment avenues, indirect investments don’t necessarily have a cap on a personal level, meaning to say that while the fund itself might have a cap, there is no limit to which an individual can invest in the fund. So, let’s discuss get an overview of these two alternatives as well:
1. Mutual Funds:
Mutual funds are probably the simplest and one of the easiest avenues in indirect investments. Over and above a certain level of asset security, mutual funds also provide with the option to treat the investment as per your individual needs, and select growth and dividend plans accordingly. Of course, all of this with the inherent advantage of having no need to open an overseas trading account.
Notable mutual funds include Reliance US Equity Opp. Fund DP (G), ICICI Pru US Bluechip Equity – D (G), Edelweiss Greater China Equity – Direct, Kotak US Equity Fund – Direct (G).
2. Exchange Traded Funds
Exchange Traded Funds or ETFs operate primarily along with the performance of the exchange, so needless to say this method requires a bit more research and analysis than mutual funds. However, various advocates have pointed out that over a period of time, very few funds ever beat the market, so this might have a desirable level of security if you’re patient enough.
International Trading: What to Consider?
Stock Trading, as it is, is complicated enough! International trading can get even more complex due to all those additional forms and paper works and charges, so if you’re a passive investor, you might want to choose indirect methods over direct methods. However, during international trading generally, there are things that should be accounted for, at least through best available estimates. These include things like taxes.
For example, capital gains made through foreign ETFs and mutual funds are taxed the same as debt based mutual funds in India, and gains that occur or deem to be occurred during three year period are considered in the slab of short term gains. No indexation, that is. While non-paramount, such considerations might help effective tax planning.
But, there is also an additional risk of currency exchange rate fluctuations. If the currency of the country that is selected for investment falls substantially during the period, against other currencies, then there is a huge likelihood that any gains earned through the asset are offset by such losses.
Trade in International Market from India
A number of Indians invest in foreign stocks. Apple, Google, Tesla, Facebook, Amazon, the hot favorites of investors across the globe. So, one is likely to get attracted for these or any other international stocks. The reasons could be any, be it your favored company, diversification, or an urge for better resources and standards in the international market, stock investors do get inclined towards the foreign market.
Undoubtedly, foreign investment opportunities might seem extremely enticing. It is precisely due to this reason why additional caution is required, because while there is every chance of increased gains, the risk increases proportionately as well. So, do thorough research before you plan to trade in international market from India. Feel free to share your thoughts!