Global Investing: An Indian's Guide To International Markets

India's rapid economic growth has attracted investors worldwide, but what about Indians looking to invest globally?

There are several ways for Indians to invest in foreign stocks and take advantage of the lucrative opportunities available in foreign markets. Firstly, Indian fund houses with foreign tie-ups provide an easy way to access foreign stocks without the hassle of currency risks. Secondly, funds of funds (FoF) mutual funds allow investment in international stocks while also providing a cushion against volatile Indian markets. Thirdly, direct investment in international funds is possible up to $250,000 per year under the RBI's Liberalised Remittance Scheme. Fourthly, exchange-traded funds (ETFs) can be bought and sold throughout the day, providing exposure to a basket of international stocks. Finally, investing in foreign stocks through Indian brokers with tie-ups or directly through foreign brokers is another option.

However, investing in foreign stocks carries risks, including currency exchange fluctuations and higher brokerage charges.

Investing in foreign stocks through Indian brokers with foreign broker tie-ups

For example, if you have an account with ICICI Direct, you can invest in global markets using their broker partner, Interactive Brokers LLC. These full-service brokers allow you to invest in foreign stocks using their platform.

Step 1: Open a 3-in-1 Account

Open a 3-in-1 account that links your savings, trading, and demat accounts. Many Indian brokers offer this type of account, which streamlines the process of investing internationally.

Step 2: Understand the Fees and Commissions

Before investing, be sure to check the fees and commissions charged by your broker for international transactions. These charges can vary, so it's important to understand them before proceeding.

Step 3: Buy Fractional Shares (Optional)

With some brokers, you can also buy fractional shares, which allows you to invest in expensive stocks like Amazon or Google without purchasing a full share. This can be a cost-effective way to gain exposure to these companies.

Step 4: Start Trading

Once your account is set up and funded, you can start buying US stocks directly through the platform's online or app interface.

It is important to remember that there are some restrictions with this method. These restrictions can vary depending on the brokerage firm, but they may include limitations on certain investment vehicles or the number of trades you can make, so it's important to understand the limitations before proceeding. Additionally, the cost of investing can be high due to brokerage and currency conversion charges, so be sure to understand all the associated costs before proceeding.

Advantages of Investing Through Indian Brokers with Foreign Broker Tie-Ups:

• Simplified process: Indian brokers with foreign tie-ups make it easier to navigate the complexities of international investing.
• Access to popular stocks: You gain access to well-known global companies like Apple, Google, and Microsoft, allowing you to participate in their growth while diversifying your portfolio beyond the Indian market.
• Diversification: Investing in foreign stocks helps mitigate risk by reducing your exposure to any single market, especially when investing in a strong economy like the US.

Disadvantages of Investing Through Indian Brokers with Foreign Broker Tie-Ups:

• Higher costs: The fees and charges associated with international investing through Indian brokers can be higher than domestic investments, including brokerage and currency conversion fees.
• Limited trading options: Some brokers may restrict certain investment vehicles or the number of trades you can make, so it's important to understand the limitations before proceeding.

In conclusion, investing in foreign stocks through Indian brokers with foreign broker tie-ups offers a convenient way to access global investment opportunities. However, it's important to carefully consider the associated costs and restrictions before proceeding. By understanding the advantages and disadvantages of this approach, you can make a more informed decision about whether it aligns with your investment goals and strategy.

Opening an account with a foreign broker

Indian residents can open an overseas trading account with a foreign broker that has a presence in India, such as Charles Schwab, Ameritrade, or Interactive Brokers. This option is suitable for those who want direct control over their international investments and are comfortable with the higher costs and more complex requirements of international trading accounts.

The first step is to choose a reputable foreign broker that allows Indian citizens to open an account. Research their requirements and fees carefully, as these can vary significantly between brokers. Some brokers may require a minimum deposit, and there may be additional costs such as currency conversion fees. It is also important to understand the trading platforms and tools offered by the broker, as well as the level of customer support provided.

Once you have selected a broker, you will need to complete their account opening process, which typically involves filling out an application form and providing various documents for Know Your Customer (KYC) and regulatory compliance. Be prepared to provide proof of identity, address, and other relevant information. Some brokers may also require you to submit additional forms, such as a Foreign Exchange Management Act (FEMA) declaration or forms related to the Liberalized Remittance Scheme (LRS).

After your account is approved and opened, you will need to fund it by transferring money to the broker. This can usually be done through a bank transfer, but be sure to follow the specific instructions provided by your broker. Keep in mind that there may be limits on the amount of money you can invest internationally, as per the LRS guidelines.

With your account funded, you can start investing in foreign stocks, bonds, ETFs, and other financial instruments offered by the broker. It is important to carefully consider the risks involved, including currency exchange rate fluctuations and the potential for higher brokerage fees. Additionally, remember that there may be tax implications, and you may need to report your foreign investments and any capital gains or losses on your income tax return.

Investing in foreign stocks through new startup apps

Overview

Indian residents can invest in foreign stocks through new startup apps, offering access to global investment opportunities. These apps provide an easy and affordable way to diversify portfolios and seize international market opportunities. However, it's important to carefully consider the merits and demerits, regulatory requirements, and tax implications before investing.

Platforms for Investing in Foreign Stocks

Several platforms cater to Indian residents looking to invest in foreign stocks. Here are some popular options:

• AngelList: The world's largest angel investing platform, AngelList offers access to deals through syndicates that work with startups. The minimum investment is usually $1000, and accreditation may be required.
• Republic.co: Focused on the US market, Republic is one of the largest crowdfunding platforms, helping companies raise over $200 million across 250+ deals. Investments start at $10.
• Seedrs: UK's premier crowdfunding platform, Seedrs has facilitated over £1 billion in investments across 1400 deals. Investments start at £10, and the platform provides access to UK and European deals.
• OurCrowd: OurCrowd is an Israel-based platform for accredited investors, offering deals from various countries, including Israel, the US, Canada, the UK, India, and more. Investments are accepted in USD only.

Steps to Start Investing

• Choose a Platform: Decide on one or more platforms that align with your investment goals and preferences. Sign up and familiarize yourself with their processes.
• Find Investment Opportunities: Explore the deals and opportunities presented by the platform. Conduct thorough due diligence before making any investment decisions.
• Fund Your Investment: Use a Winvesta Multi-Currency Account (MCA) to fund your investment. This account allows you to legally remit funds and distribute them across multiple opportunities.

Advantages and Disadvantages

Advantages:

• Diversification: Investing in foreign stocks helps diversify your portfolio by reducing country and currency risk. It allows you to invest in global blue-chip companies and seize international market opportunities.
• Access to Global Opportunities: You can invest in companies like Apple, Google, Microsoft, and Tesla, which are not listed on Indian stock exchanges.

Disadvantages:

• Higher Costs: Investing in foreign stocks typically involves higher charges and brokerage fees, as you will be transacting in foreign currencies.
• Currency Exchange Risk: Profits are subject to currency exchange rate fluctuations, which can impact your returns.
• Regulatory and Reporting Requirements: Overseas investments by Indian residents are subject to regulations and reporting requirements, such as the Liberalized Remittance Scheme (LRS) and tax considerations.

Key Considerations

When investing in foreign stocks through startup apps, keep the following in mind:

• Understand the Risks: Startup investing carries risks, including capital loss, illiquidity, lack of dividends, and dilution. Ensure you thoroughly research each investment opportunity.
• Compliance with Regulations: Familiarize yourself with the Indian exchange control regulations and the Liberalized Remittance Scheme (LRS). Ensure you comply with the limits and reporting requirements for overseas investments.
• Tax Implications: Be aware of the tax implications of overseas investments, including capital gains tax and Tax Collected at Source (TCS) on remittances above INR 7 lakh under LRS.

Buying Indian mutual funds/ETFs with global equities

There are a few ways to invest in foreign stocks from India, one of which is to buy Indian mutual funds or ETFs with global equities. This is the easiest approach to investing in foreign stocks. The main advantage of investing through mutual funds is that you won't need to open any overseas trading account. Furthermore, compared to direct investment in foreign stocks, investing in mutual funds/ETFs is cheaper. For example, some popular mutual funds that trade in global equities are:

• ICICI Pru US Bluechip Equity – D (G)
• Motilal MOSt Oswal NASDAQ 100 ETF
• Reliance US Equity Opp. Fund DP (G)
• Edelweiss Greater China Eqty-Direct
• Kotak US Equity Fund – Direct (G)

However, it is important to note that the Securities and Exchange Board of India (SEBI) has restricted mutual funds from investing in international stocks. According to a SEBI circular issued on June 3, 2022, mutual funds can make overseas investments subject to a maximum of USD 1 billion per fund house, within the overall industry limit of USD 7 billion. Therefore, investors can currently only buy Indian Fund of Funds (FoFs) that invest in international ETFs.

How to Invest in International Mutual Funds

Investing in international mutual funds is similar to investing in any other equity mutual fund. The money is invested in rupees, and in return, units of the funds are allocated to investors. The fund manager then takes the money and invests it in the stocks of companies that are listed on exchanges outside of India. There are two ways in which the fund manager can invest your money in foreign stocks:

• Directly purchasing stocks and building your portfolio
• Investing in an existing global fund that already has a pre-designed portfolio consisting of stocks of foreign companies

However, these funds are administered by Indian mutual fund companies and regulated by the SEBI.

Investing in foreign stocks through Indian fund houses with foreign tie-ups

To find Indian fund houses offering these opportunities, look for names like "Emerging Market" or "Europe Focus". These names indicate that the mutual funds have invested in foreign stocks via a local market. The movement of these stocks can be tracked by monitoring the NAV of the mutual fund purchased in India.

Another option for foreign share trading is to consider funds of funds (FoF) mutual funds, which purchase units in international stocks. This approach not only provides insight into economic changes in international markets but also offers a buffer against volatile performance in the Indian stock market. By investing in foreign stocks through a fund of funds, investors can hedge against a falling Sensex.

It is important to note that investing in international funds directly requires significantly more investment. According to the Reserve Bank of India (RBI), Indian residents can invest up to $250,000 in direct foreign investments each year without any permissions under the Liberalised Remittance Scheme (LRS). While there is an annual cap on the total amount invested, there is no limit within the international fund itself.

When investing through Indian fund houses with foreign tie-ups, individuals can easily open a trading account with an international broker. In the United States, a foreign mailing address is not required to open an account with an international broker.

It is crucial to be aware of the risks associated with international trading accounts, including higher expenses and the risk of currency exchange. International trading accounts typically have higher margin money requirements and brokerage charges than Indian brokers. In the United States, for example, brokerage charges range from 0.75% to 0.9% per trade.

By being mindful of these risks, investors can make informed decisions and maximise the benefits of investing in foreign stocks through Indian fund houses with foreign tie-ups.

Frequently asked questions