|Investor's dream of overseas investments|
Thank you very much for raising an issue that has deep impact on the wealth creation of Indians.
There are great businesses out there in highly innovative and enterprising countries like the US, UK, Germany and so on.
As an Indian investor you have two choices as follows:
- Direct Investment in stocks trading on overseas stock exchanges.
- Investing through India based mutual funds that provide opportunities to own overseas companies through the mutual fund route.
Now let us examine the feasibility and pros and cons of both the avenues in detail.
Direct Investment in Overseas Stocks:
Investing abroad is feasible only when a country’s currency is convertible on the capital account. Indian ‘Rupee’ is still not totally convertible. However, the Reserve Bank of India (RBI) has permitted overseas investments by Indians in various classes of assets, including stocks up to a specified limit. It used to be US$ 200,000 per annum. I have to check what the latest limit is. This is a huge limit for an average Indian.
Having said this, I had personally explored the feasibility of investing directly abroad but found it practically not feasible for investors with limited investible means like me.
The hurdles were on account of:
Minimum Transaction value: Stock brokers lay down minimum transaction value ranging from US$ 1000–2000 which translates into a huge sum in India rupees.
Flat and high brokerage charges: Flat brokerage charges of US$ 10–20 were stipulated per trade/ transaction, which again is steep and unaffordable for Indian because of huge rupee-dollar exchange difference.
Steep Folio Charges for each scrip/ stock: The demat account (the account to hold stock in a de-materialised form) folio charge for each scrip, which is payable every year was again very high.
In conclusion, direct investment in stocks abroad is practically ruled out for small Indian investors.
Indirect Investment Through Mutual Funds:
I understand that a few funds who have set up shop in India are offering opportunities to invest abroad through the mutual funds route. Following are a few examples:
- Motilal Oswal Nasdaq 100 ETF
- ICICI Prudential US Bluechip
- Franklin Feeder US Opportunities
- DSP BlackRock US Flexible Equity
I am keen to explore this avenue but actually could not find the time to actually implement it.
Please read the interesting article “Be Indian, buy American” by Value Research.
In conclusion, it looks impractical for small Indian Investors to invest in stocks directly abroad but very much feasible through the mutual funds route.
Suggested Further Reading:
To summarise it is indeed feasible to invest in overseas stock markets and one should certainly invest overseas to partake in global opportunities as well as a diversification or de-risk strategy.
With Best Regards,