Facebook and its $ 5-billion initial public offer (IPO) had been grabbing headlines during the past week. In rupee terms, this social networking website plans to raise approximately Rs 24,000 crore.
And, thanks to the Reserve Bank of India's annual foreign investment limit of $200,000 an individual, you can participate in this as well. But, you will have to approach a foreign broker holding the requisite licences and permissions who has tied with an Indian broking partner (like IIFL that has partnered with Interactive Brokers). You will also need a bank account in the foreign country for all transactions, as you would have to transfer funds from your domestic account to the foreign one, from where the money would be transferred to your online trading account, says Prateek Pant, head of wealth solutions, RBS Private Banking.
To comply with the know-your-customer norms, you would have to give documents such as a PAN card, address proof and financial dossiers to establish your net worth or net income and so on. More, you may have to provide $5,000 or so as a minimum deposit while opening the account. It could be higher if you plan on day trading. The account opening charges may vary from nil to around $20. Plus, there will be a quarterly account maintenance fee as well as brokerage fees. This entire account(s) opening process can take almost a month. However, the website has currently only filed its initial public offering papers with the Securities and Exchange Commission in the US and not declared a time line for coming out with the issue. So, even if you don't have the accounts in place, don't fret. You still have time.
| THE ONLINE RUSH Competitors on the web, peers on the exchange: Internet-based companies that listed in 2011 in US | ||||
| IPO issue size (mn $) | Allotment price ($) | Listing Price ($) | Current trading price ($) | |
| 352.80 | 45.00 | 83.00 | 79.88 | |
| GroupOn | 700.00 | 20.00 | 28.00 | 24.43 |
| Zynga | 1000.00 | 10.00 | 11.00 | 13.39 |
| Compiled by BS Research Bureau Source: Bloomberg | ||||
Taxation: Any capital gains incurred through trading in foreign securities will be taxable in India. In case of short-term capital gains (held for less than a year), they would be taxed at your slab rate. For long-term capital gains, the rate would be 20 per cent with indexation. However, Homi Mistry, partner, Deloitte, Haskins & Sells, says the rules with regard to indexation of capital gains on foreign securities are unclear. "The law is silent on this aspect. Also, it may be argued that the cost inflation index is based on the prices in India and may not be applicable to indexing such gains," says Mistry.
Should you go for it? For instance, valuations of Facebook are considered to be stretched. While the company's profits are less than half of Coal India's, its price is twice.
Another aspect to be considered with investing abroad is the exchange rate risk. If the Indian currency depreciates sharply against a foreign one like the dollar (as seen a few weeks before), though the share prices may have moved up, your gains might get wiped. Once the company is listed, one can look at index funds that track the index these companies are listed on or even exchange-traded funds, suggests Ashish Kehair, EVP & head, private wealth and international business, ICICI Securities.
