What Are Different Ways To Invest In International Equities?

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Different Ways To Invest In International EquitiesHave you ever thought of investing in globally leading innovative companies such as Apple, Google (Alphabet), Facebook, Amazon, Netflix, Microsoft, and Tesla? These international companies have greater growth potential and moreover, they are not listed in Indian stock exchanges like Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).

If you hold a dematerialized account (Demat) in India, you can trade or invest only in companies listed on Indian stock exchanges, right? Wrong. You can always buy the shares of an international company that is not registered in India and trades in a foreign stock exchange.

Investing in the international financial markets can widen the horizon of your investments. You can reap the benefits of boundless investing, that too, in your favourite companies. Moreover, in the Digital Age of high-speed internet connectivity and advanced smartphone technology, investing in international markets is not a difficult endeavour.

This article will explore 4 simple ways to invest in international stocks. Before that, let’s look into the reasons why Indians want to invest in International stocks in the first place.

Why Do Indians Love International Stocks?

There are more than 5,500 listed companies in the Indian equity market. There are many Indian companies that can give tight competition to International companies. International companies like Google, Apple, Facebook, Amazon, Cisco, and Tesla hold multi-billion-dollar cash, highly qualified professionals, and bring big innovations in their respective sectors.

Anyway, are these heavy capital resources and innovations being the sole factors that attract Indian investors towards international stocks? The answer is a straightforward ‘no’.

Here are the major reasons why many Indians love to invest in stocks trading in the US or other foreign stock exchanges.

  • Darlings of this generation: The international companies like Apple, Google, Facebook, Amazon, and Tesla are darlings of this generation and people love to invest in their favourite companies.
  • A Diversification effort: Investing in international markets and stocks helps diversification in a portfolio. Investments in a foreign stock or market can mitigate the risk of the downturn in the Indian equity market owing to some regional economic or political reasons. Apart from diversification, investing in foreign stocks would provide greater stability in a portfolio.
  • A limitless investing opportunity: International markets are a boundless investment arena with better profitable investment opportunities.

Now, let’s look at the 4 simple ways to invest in foreign stocks.

  1. Through a trading account with an Indian stock broking firm that collaborates with other international stock broking firms.

Many full-service Indian stockbroking companies like ICICI Direct, Reliance Money, HDFC Securities, Axis Securities, and Kotak Securities collaborate with international stockbroking firms like Interactive Brokers LLC. You can easily open your overseas trading account with the international stockbroking partner of your Indian stockbroker and invest in foreign stocks.

  1. You can directly open a trading account with an international stock broker

A few international stockbroking companies like Interactive Brokers, TD Ameritrade, and Charles Schwab International Account allow Indian citizens to directly open a trading account and to trade or invest in international stocks and funds.

Interactive Brokers LLC has an office in India. You can make a visit, and after getting all your queries answered, directly open your overseas trading account from the comfort of an office.

  1. Through financial mobile applications

Many start-up investment firms like Groww, Vested Finance, and Webull have launched financial mobile applications that allow Indians and Non-Resident Indians (NRIs) to invest in foreign stocks.

  1. Indirect international investments through Indian Mutual Funds or Exchange Traded Funds (ETFs)

There are a number of Mutual Funds and ETFs that invest in international equity markets. These funds are not only the easiest way to invest in foreign stocks but also the cheaper way to do it. You don’t need an overseas trading account to invest through these funds.

ICICI Prudential US Bluechip Equity, Motilal Oswal NASDAQ 100 ETF, and Nippon India US Equity Opportunities Fund are some of the popular mutual funds and ETFs that trade in global equities.

Some of the Indian stockbrokers like Zerodha are planning to set up facilities for their clients to directly invest in US and other international markets with no minimum investment. These yet-to-be launched facilities show the Indian stockbrokers’ efforts to cater to the rising enthusiasm of the Indian retail investors on international investments.

Crucial Factors To Consider Before Taking A Plunge Into International Investments

International investments don’t come without any flaws or drawbacks. Here are a few crucial factors to consider before you invest in foreign stocks.

  1. Higher Brokerage

When it comes to international investments, you will be transacting in foreign currencies. For instance, if you are investing in the US financial market, you have to pay the brokerages and taxes in the US dollar. Therefore, the brokerage, taxes and account maintenance fee may be a little higher compared to the brokerage, taxes and the maintenance fee of domestic trading accounts.

  1. Currency Risk

You should take into consideration the currency risk associated with international investments. Let’s make the idea clear with the help of an example.

When you bought a stock in the US stock market at the current currency exchange rate of $1= ₹74. However, when you sell the stock next year, the Indian currency may get stronger, and the currency exchange rate becomes $1 = ₹69.

If that is the case, you have to bear the loss of the change in the currency rate along with the profit or loss of the stock’s sale.

  1. There is a limit for overseas investments by an Individual resident Indian

The Reserve Bank of India (RBI) notification in the Liberalised Remittance Scheme (LRS) points out a limit for an individual resident Indian for overseas investments. The limit is set at $250,000 per year. With the current exchange rate ($1= ₹74), this amount turns out to be roughly 19 million Indian rupees. Anyway, if you have four family members, you can invest 4 x 19 million Indian rupees. That constitutes around 76 million Indian Rupees.

  1. The macroeconomic trends in international markets.

Besides the above-mentioned factors, you also need to keep in mind the unpredictable macroeconomic trends in international markets like the regional government policies along with political and economic trends that may affect the prices of foreign stocks.

Final Words

Stock market investments are always considered risky, but they can generate higher return in the long run than traditional fixed return generating investments. To reduce the investment risk, it’s very important to diversify your portfolio among various stocks in different sectors rather than investing in just one stock or sector.

Investing in foreign stocks, without doubt, can generate higher returns and helps to diversify your portfolio. But you should also keep in mind that the Indian economy is one of the fastest growing economies in the world and most of the international markets are a little stagnant. It is always better to invest in an economy where growth takes place.

Justin Raj

Alpha Research Team



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