There have been challenges with investments due to restricted investment possibilities, in particular given that the time of COVID-19. Industry professionals say household-bias has clearly stung investors in India, and given that the pandemic, when the domestic markets began struggling, the US markets stayed resilient and had been flourishing, which created investors spend really serious interest to overseas markets.
Until lately, only HNIs (High Net-Worth Individuals) and some other sophisticated investors had been in a position to invest globally, each due to the linked charges and complexities. Hence, only about .1 per cent of India’s economic wealth was diversified globally.
However, now with several platforms providing the choice to invest globally, providing hand-holding for portfolio allocation to investors, along with elevated awareness in worldwide investing, more and more investors are seeking at this space. Now with several such investment platforms, investors can quickly open their brokerage account, digitally.
Suresh Surana, Founder, RSM India, says, “Investment in foreign stocks is one of the best ways of if one wants to diversify the portfolio and also to invest in certain high performing foreign stocks. This is one way to participate in some of the global giants such as Microsoft/ Apple/ Google/ Tesla/ Amazon as well as conventional businesses. This results in reducing your country risk and currency risk since at present, most investments resident Indians hold are in India and in Indian rupees.”
However, when investing in foreign stock, there are specific factors an investor desires to be wary of
Country and Currency Selection – When investing in any foreign nation, investors need to have to realize the dangers linked with the nation exactly where the investee enterprise is based and the stock exchange by means of which the investment is getting created. Surana says, “There are geopolitical risks, macro-economic risks and company-specific sector or governance risk, which needs to be considered.”
Similarly, the currency danger of foreign exchange fluctuation is inevitable. Experts say the foreign exchange fluctuation could add to the earnings of the investor as effectively as may possibly consume into the earnings. Thus, it is recommended the general targeted returns must take into account such foreign exchange fluctuation danger even though investing in foreign stock. Surana says, “It is better to invest in currencies such as US$ or Euro unless you have a deep understanding of the particular currency or country.”
Liberalized Remittance Scheme (LRS) beneath FEMA for investment in foreign stocks by Resident Individuals – Under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI), portfolio investment in overseas foreign stocks or bonds is permitted in the case of resident Indians wherein remittance up to US$ 250,000 for each and every economic year is permitted.
Consideration of Tax Collection at Source (TCS) – Every Indian resident investor generating an investment in the foreign stocks beneath LRS are subjected to Tax Collected at Source (TCS) at 5 per cent if the quantity remitted exceeds the threshold of Rs 7 lakhs in a certain economic year. Such TCS would be collected by the authorized dealer bank beneath the LRS Scheme even though generating the remittance on the payment exceeding Rs 7 lakhs. Note that, the price of TCS may possibly be additional enhanced to 10 per cent, in case of non-availability of PAN or Aadhar. However, the quantity of TCS collected can be claimed by the investor at the time of filing his/her return of earnings in India.
Transaction Costs – The investor could also have to spend important transaction charges when investing in foreign stocks. Surana says “The transactions costs charged by the brokers for investment in foreign stocks is comparatively higher as compared to the transaction costs for investment in Indian stocks.”