Meet Vaishnavi – a 31 year old IT professional. After completing her masters, she started working with an American company. She has been working for the past seven years now. Her profession allows her to earn a steady stream of income, which satisfies her monetary needs.
Though Vaishnavi understands the basics of financial markets, she knows that her professional life would not allow her to track companies individually. That is why she has chosen a mix of equity mutual funds and fixed deposits to park her savings. However, the returns of her equity portfolio during the year 2019 are unsettling. Numerous news articles about an impending recession are not helpful either.
Though she is not ardently fond of jewellery, she considered moving out of equity for a while and investing her balance salary in gold. However, the higher-than-ever gold prices seem to indicate that she has missed that bus. This has led Vaishnavi to think about ways to diversify beyond equity and fixed deposit. The news article about the volatile nature of the Indian market and the relative stability of the American market is at the back of her mind.
She realizes that the Amazons, Microsofts, Alphabets, and Teslas of the world remain absent from her portfolio. While the Indian benchmark index, NIFTY, has delivered a negative return (-0.60%) since 1st January 2019, the American NASDAQ and S&P 500 indices have delivered returns of 18.67% and 15.93% respectively.
The thought of investing in International markets has not skipped Vaishnavi’s mind. If you, like Vaishnavi, want to participate in equities outside the Indian markets, here is an easy-to-understand guide.
There are two basic ways to go about investing in International markets:
1. Investing in International Mutual Funds:
This is the easiest way to invest in International stocks.
Let us first get an understanding of mutual funds out of the way. If you do not have the time to research and analyze companies, you would require a professional who can do these tasks for you. This is what a mutual fund manager does. You give him your money, he studies companies’ performance and accordingly invests your money in particular companies. You get returns from the company whereas the fund manager gets paid in the form of the fund management fee.
International Mutual Funds are simply the funds that invest your money into global assets. As the market value of the global assets rises in value, your investment value increases.
All the reputed Asset Management Companies (AMCs) in India offer International funds. For example, Motilal Oswal NASDAQ 100 Exchange Traded Fund, Franklin India Feeder – Franklin U.S. Opportunities Fund, Edelweiss ASEAN Equity Off-Shore Fund, or ICICI Prudential US Bluechip Equity Fund. The following table shows the top ten best performing International Mutual funds for the past five years.
The way to invest in these funds is as easy as online shopping:
Identify the fund that you want to invest in. (You may want to devote significant time for this step or consult a financial advisor as it is crucial to know where your money is finally flowing.)
Visit the website of the Asset Management Company (e.g., to buy ICICI Prudential’s mutual fund, visit their website https://www.icicipruamc.com/). You may opt for a lump-sum investment or a fixed amount every month through a Systematic Investment Plan (SIP).
Submit the Know Your Customer (KYC) information. This is basic information about you, including your name, mobile number, address, and PAN card details along with their documentary evidence. After all, an AMC cannot accept money from someone they don’t know! (Note that a PAN card is compulsory for investing in Mutual Funds. If you don’t have a PAN, visit NSDL’s website for online application of PAN.)
Select the fund of your choice from the list of funds. (A single AMC has a long list of funds on offer, but you have already done your homework in Step 1)
Select a nominee who will inherit the fund value. Most AMCs require you to submit the PAN details of the nominee too.
Enter your bank details.
Create a Login ID and Password. This will enable you to log in to the website and check your fund’s value. Many AMCs now have dedicated apps that allow you to check your investment value.
Make the payment. And voila, your money just flowed into foreign stocks!
2. Investing through an Overseas Trading Account:
This is the Do It Yourself (DIY) approach, similar to opening a DEMAT account. It is best suited to investors who are in the know of stock markets and can pick stocks wisely.
A few brokerages like ICICI Direct have tied up with their International counterpart (Saxo Bank in case of ICICI Direct) to offer overseas trading accounts. The way this works is that your money goes to the International brokerage house (Saxo Bank) and the Indian brokerage house (ICICI Direct) offers the International brokerage firm’s (Saxo Bank’s) platform to its customers. Once you activate an Overseas Trading Account, you can easily invest in equities across multiple stock exchanges spread across many countries.
One needs to be cautious here as these transactions are governed by rules of the Reserve Bank of India (RBI) and Foreign Exchange Management Act, 1999 (FEMA). Under the current regime of the Liberalised Remittance Scheme (LRS) according to these norms, there is a limit of USD 2,50,000 per person which can be remitted (transferred abroad) out of India.
The steps to activate an Overseas Trading Account are:
Fill the Account Opening Form for the Brokerage firm that offers an Overseas Trading platform.
Submit KYC details (name, mobile number, address, PAN) along with their proofs to the Brokerage firm.
Pay an account opening cheque in favour of the Brokerage firm.
Remit funds to your overseas account.
The account gets activated, and you receive a username and password from the International brokerage house.
Login to your trading account and start investing!
Cost of International Trading
Trading in International stocks through an overseas trading account may be costly due to several charges involved in such a service. To begin with, one needs to pay a flat fee for opening the account. The brokerage house and the International brokerage firm also charge transaction fees for each buy/sell.
Additionally, there is a conversion fee involved for converting your investment from one currency to another. Unless you are investing a significant sum and earn substantial profits, the second DIY approach is bound to turn out to be costly owing to multiple charges. Therefore, the mutual funds’ route is more suited if you are a passive investor with small to medium sized investments.
A key difference between investment in an Indian and foreign company is the tax on dividends. While dividend earned from Indian companies is exempt up to Rs. 10 Lakhs, the dividend income from foreign companies is taxable.
(This article is purely intended to be informative. The companies mentioned are merely illustrative. No part of the article should be perceived as investment advice. Invest wisely!)