I am sure you have thought about investing in Google, Apple, Microsoft, Wal-Mart etc. Despite the fact that these companies are not listed on Indian stock exchange(s), Indian investors can still invest in them either directly or as part of mutual funds/ Exchange Traded Funds (ETFs).
How Much Can Indian Investors Buy Foreign Stocks?
The Reserve Bank of India (RBI) allows an individual to remit U.S. $250,000 per financial year (April-March) under the Liberalized Remittance Scheme (LRS), which can be used for investing abroad.
Liberalized Remittance Scheme – Under LRS, domestic investors are allowed to remit a certain amount of money during a financial year to another country. This money can be used to buy foreign stocks and debt instruments in overseas market. Apart from this, the remitted amount can also be used to pay expenses related to travelling, medical treatment or studying.
Process of Investing in Foreign Stocks – Call Your Broker!
- Open a trading account with a brokerage house (ICICI Direct, Kotak Securities etc.) that offer overseas trading facility. Domestic brokers have tied up with international partners to allow this.
- Submit duly filled separate account opening form along with know-your-customer (KYC) documents.
- For investing/trading in foreign stock markets, you are required to transfer money to the international partner of the domestic equity broker through whom the service is provided.
- Funds are transferred to the international partner as below:
- Submit application-cum-declaration form under LRS,
- Form A2 (this will be available with your brokerage house),
- Sign a form for Foreign Exchange Management Act (FEMA) declaration (this will be available with your brokerage house),
- Form authorizing the designated bank branch as authorized dealer (this will be available with your brokerage house),.
Once the funds are transferred, you can start buying and selling foreign stocks on the online platform.
Another Way to Buy Foreign Stocks
Global Mutual Funds/ Exchange Traded Funds
You can also buy international mutual funds. These funds are denominated in local currency and there is no limit to investing in these funds unlike direct investments which are capped at U.S. $2, 50,000. This is because payment for such funds is made in local currency and hence no foreign exchange flows out of the country.
International mutual fund – Schemes which invest a major portion of their assets in overseas markets including in stocks, commodities etc.
Exchange Traded Funds (ETFs) are investment products which allow domestic investors to take exposure to international indices. ETFs are passive investment instruments based on indices and invest in securities in the same proportion as the underlying index.
Top 10 Global ETFs and Mutual Funds Available in India
TAX ON CAPITAL GAINS
If an investor holds domestic equities for over a year, there is no tax on capital gains. However, there is no exemption on profits from foreign stocks. The investor will have to pay 20.60% tax on such gains.
For tax treatment of long-term capital gains from stocks and equity funds READ HERE: Capital Gains Tax | Dividend Income Tax in India