Investing in a stock of a trillion-dollar company by market capitalization or one of the most happening company in the world that is changing the dynamics of the auto industry can be very exciting.
Yes, I’m talking about investing in the shares of Apple and Tesla. Currently, along with Facebook, Amazon, Google, commonly referred to as FAANG stocks, are the best multi-baggers stocks in the world, giving out returns in the range of 10-20 times of the investment in the last five years.
Similarly, there are many other stocks of companies with huge growth potential that are traded in the foreign stock exchanges, which can become the next best multi-bagger of the decade.
Then, why not diversify your investment portfolio to seize the bigger opportunity and maximise profits by investing in the foreign equity market. Sounds exciting, right?
Let’s check out the options we have to invest in stocks of foreign companies from India.
How to Invest in Foreign Stocks?
There are two ways through which you can invest in foreign stocks from India, Direct investment mode and Indirect investment mode.
Direct Investment Mode
In this mode, you have to open an overseas trading account with a domestic broker or foreign broker operating in India. Most of the brokers only give access to investing in the US stock market.
As per the new guidelines by the Reserve Bank of India, Indian residents can invest up to $250,000 overseas per year in foreign stocks without permission.
However, through this mode, you have to adhere to various rules and regulations for investing in foreign stocks, like the number of trades, fund transfer, taxation laws, compliance, etc.
Also, trading in foreign stocks can be very expensive due to the factors like trading fees, fluctuation in currency rates, and wire fees involved in fund transfer that increases the cost of investing. Therefore, it is best to invest in foreign stocks compared to trading.
Indirect Investment Mode
In the indirect mode of investing, you can use the medium like mutual funds and ETFs for investing in foreign stocks.
Many mutual fund houses in India offers an investment opportunity in foreign stocks with a lesser barrier to entry and easy to track.
For example, Edelweiss US Technology Equity Fund, Edelweiss Greater China Equity Off-shore Fund, Nippon India US Equity Opportunities Fund, etc.*
The funds have generated above-average returns compared to returns generated by large-cap or mid-cap mutual funds that invest in the Indian market.
You can also invest in ETFs focused on investing in foreign stocks like Motilal Oswal Nasdaq 100 ETF.
*funds mentioned are not an endorsement
Invest in Foreign Stocks: Direct Mode VS Indirect Mode
Like in the Indian market, where stock prices are affected by multiple domestic factors, similarly foreign stocks are also affected by developments in their domestic market and area of operation.
For example, the US market is largely affected by Federal Reserve’s monetary policy, non-farm payroll data, geopolitics, and other government policies.
For an Indian investor, it is difficult to track and analyse all the factors correctly. And, the time difference between the two countries also makes it hard to track the daily market movement seamlessly.
Therefore, investing through indirect mode is best suited for Indian investors as the investments are managed by professional fund managers who have the expertise in dealing in foreign markets. Also, the costs and limitations are fewer.
For example, less paperwork and you can invest more than $250,000 or Rs 2 crore per year in international mutual funds.
In this age of hyper globalization, where no company in the world is betting on a single market to drive growth, then why should you restrict your investments in a single geographic location.
By investing in foreign stocks or international funds, you can diversify and widen your investment horizon to take advantage to gain massively from the growing foreign markets. However, before investing, consider all the aspect of investing in foreign stocks and invest as per your long term financial objective.