Saturday, September 3, 2016

What are the Hurdles to Invest and Earn Dividends from Foreign Markets?

Following are the general reasons why people prefer to save and invest and earn returns and dividends from their own country:
  1. Familiarity and ease of transaction: People are more familiar with the general economic environment, laws, taxation and so many other related aspects prevailing in their own country. Even the service providers like banks, stock brokers, insurance agents and so forth are also well versed with the systems of the native country. So it is more easy to transact in one own country.
  2. Legal Restrictions/ Hurdles: Many countries, including our own India till recently, have legal restrictions in investing abroad, primarily to conserve foreign currency reserves. Even in India until a few years ago there were restrictions, which were eased. Unless revised subsequently, Indians were permitted to invest only up to US$.2.50 lakhs per annum abroad. Even when this is legally permitted, because of political sensitivities surrounding issues like laundering of black-money abroad, even genuine investors may face harassment from various authorities.
  3. Costs and Minimum holdings constraints: Once I was seriously exploring purchasing shares in the US, sitting in India. It is quite possible, technically. There are online brokerage firms that permit you to buy on US stock exchanges, but there were many minimum criteria that were impractical for a small investor from India. Suppose there is a minimum trade fee of $10 per transaction it translates into a whopping Rs.670 flat for one transaction that is totally unaffordable. There are many minimum criteria like ledger folio charges, minimum investment amount and so on which make it practically unviable for small Indian investors.

Having said this, Goldman Sachs, a foreign mutual fund operating in India is offering certain limited access to overseas markets through their 'Exchange Traded Fund (ETF)' products. Please see the picture below.

Similarly, a few other funds also may be offering avenues for limited investing abroad.

In conclusion, it is not impossible for investors to make investments and earn dividends and returns from overseas markets, but a few practical hurdles restrict scale of such transactions.

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