International Stock Market Investing: All You Need to Know

Introduction

International stock markets offer investors a unique opportunity to grow their money internationally. It enables them to diversify their investment portfolios away from domestic borders. These financial markets allow people to buy/sell shares of companies headquartered abroad.

Smart investors have been wisely diversifying their portfolios by investing a portion of their money abroad and taking advantage of the Indian government’s Liberalised Remittance Scheme (LRS).

This scheme allows resident Indian individuals to send up to $2,50,000 abroad per financial year. Over the years, the RBI has consistently increased the limit of this scheme, which started at a meager $25,000 in 2004.

In these times of globalization, many investors in India have recognized the importance of diversification and adding foreign equities to their portfolios. This international exposure provides investors various benefits with the potential to earn higher returns in foreign stock markets. Have you begun investing abroad?

If you plan to invest abroad, learn about investing in the international stock market. It covers everything you need to know about foreign stock investing.

What is Investing in the Foreign stock market?

Investing in foreign stock markets is about buying/selling shares of companies listed on stock exchanges in countries other than your home country. It enables investors to invest in global markets, helps them mitigate risk, diversify their portfolio, and allows them to be a part of a company’s success story outside their country.

Reasons to invest in the foreign stock market

It has been more than 15 years since Indian investors were allowed to invest in foreign equities. International stocks sometimes present an array of growth opportunities unavailable to domestic companies. Several reasons would lure any investor into thinking about foreign stock investing. Here are the top 5 reasons:

• Better Portfolio Diversification
• Grow Exponentially, But Internationally
• Builds Local Wealth
• Less Volatile Markets
• Opportunity to Invest in Top Companies

How much can I invest in the international stock market?

There is no lower limit to investing in the international stock markets. However, there is an upper limit for investing abroad as per the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS). The RBI’s LRS mandates that any Indian citizen can invest up to $250,000 (approx. Rs 2 crore) only in a year.

If the investments are under this cap, individuals do not need to ask permission and invest without informing the RBI. Also, one should know that the investment cap of USD 250,000 covers all expenses of overall investments while investing in foreign countries.

Different charges while investing in a foreign stock market

Indian citizens interested in investing abroad should also be wary of the different kinds of charges levied on buy/sell transactions in foreign financial markets. For example, The RBI’s LRS mandates that a 5% TCS would be charged on remittances above Rs 7 lakh. The tax is levied on the amount above Rs 7 lakh, not the entire amount. Also, the Indian taxpayer can claim it as a refund during their income tax filing.

Furthermore, there are other charges while dealing in stocks abroad. For example, foreign exchange rates, bank charges, capital gains & dividend tax, and brokerage fees, among additional charges that depend on the regulatory bodies of the countries the investor chooses to invest in.

Risks associated with international stock market investing

There are several risks associated with investing your money in global markets. And as much as it is beneficial, it also comes with its share of risks and vulnerabilities. However, these are the crucial factors that you should consider:

Risks Associated with International Stock Market

• Fluctuation in Currency
• International Regulatory Changes
• Unstable Political Sphere
• Tax Complications

India & Indians Investing in the International Stock Market

As per the Reserve Bank of India (RBI), Indians invested $19,611 million in FY22, a significant increase from the previous year’s investment of $12,684 million. As per the data released by the Department of Economic Affairs in 2021, there were 8 crore Demat accounts in India, of which only 3 crore were active. Of them, only 30 lakh Indians were investing in foreign stock markets.

For Indians, Singapore remains their top investment destination, with US $ 1,138 million of the total investments. US and Mauritius held the second and third spot, accounting for US $780 million and US $ 124 million investments, respectively.

Investing in international markets comes with both pros and cons. On one hand, you get to invest in the top companies like Google, Meta, and Eli and Lilly, among others, and be a part of their success story. On the other hand, several geopolitical and multiple other risks are involved.

It ultimately boils down to two factors when you think about investing in foreign markets, i.e., how much diversification you need in your portfolio and your risk profile. If you can manage and balance these questions, you should sincerely consider investing beyond domestic markets. 

FAQs

Read more:  How Long-term investing helps create life-changing wealth – TOI.