How Indians can invest in international stocks; key factors they must know

Investors must adhere to RBI guidelines and SEBI regulations when investing abroad

Indian investors are looking beyond domestic markets to diversify their portfolios and tap global growth opportunities. Investing in international stocks has become more accessible but newcomers must know the process. Here is how to invest in international stocks.

 

Understanding international stocks

 

One can invest via local brokers with international tie-ups, international brokers, or rupee-denominated mutual funds that invest in international markets.

 

Local brokers with international tie-ups:

 

Many Indian brokers have partnerships with international financial institutions, allowing their clients to invest in foreign stocks. Here's how it typically works:

 

- You open an account with an Indian broker that offers international trading.

 

 

- The broker facilitates the process of buying and selling foreign stocks through their international partner.

 

- You can usually place orders through the same platform you use for domestic trading.

 

- The broker handles currency conversion and ensures compliance with Indian regulations.

 

Examples of such brokers include ICICI Direct's GlobalInvest, HDFC Securities' Global Investing, and INDmoney.

International brokers:

 

This involves opening an account directly with a foreign broker that accepts Indian clients. Popular options include Interactive Brokers, Charles Schwab International, and TD Ameritrade.

Process:

 

- You apply for an account with an international broker.

 

- Complete their KYC (Know Your Customer) process.

 

- Transfer funds to your international trading account.

 

- Start trading on their platform.

 

Rupee-denominated mutual funds investing in international markets:

 

These are mutual funds based in India that invest in foreign stocks or other international funds.

 

Types:

 

- Feeder funds: Invest in existing international mutual funds

 

- Fund of funds: Create a portfolio of international stocks or ETFs

 

- Direct international equity funds: Directly invest in foreign stocks

 

Process:

 

- You invest in these funds just like any other Indian mutual fund.

 

- The fund manager handles the international investments.

 

All international investments are subject to an annual limit of $250,000 under the Liberalised Remittance Scheme (LRS) set by the Reserve Bank of India. It is also important to consider factors like currency risk, international tax implications, and the need for diversification when investing in foreign stocks.

 

Nikhil Behl, chief executive officer, Stocks vertical co-founder at INDmoney, explained what to keep in mind.

 

Historically, since investing directly in US stocks involves converting your money into dollars, Indian investors have enjoyed additional returns due to the strengthening of the dollar on top of their US equity market gains. This can add a significant boost over the long term and offers a level of currency diversification.

 

On the other hand, investors should also be aware of the costs associated, including forex conversion fees by the bank to remit money and standard brokerage costs for making an investment.

 

Taxation on US stocks depends on the holding period of the investment. If you hold the investment for more than two years, it qualifies as a long-term capital gain and is taxed at 12.5 per cent. However, if the investment is held for less than two years, it is considered short-term capital gain and is taxed at your applicable income tax slab rate.