Global brands such as Apple, Netflix, Microsoft, Google, and Facebook are an integral part of our daily lives and reflect their widespread influence on our lives. Indians tend to own products from these famous international companies, from smartphones to cars to consumer electronics.
As India's consumer-driven economy continues to thrive, its young population is fueling demand for these international brands, making Indian consumers a key source of revenue for global brands.
India remains one of its largest markets outside its home country, generating billions of dollars in profits. From an investment perspective, have you ever considered becoming a shareholder in these brands and benefiting from their growth?
Please also read: What are the KYC criteria for opening a demat account?
Investing in stocks of international companies has never been easier. There are multiple options to diversify your portfolio by investing in stocks of international companies, allowing you to take advantage of global growth opportunities.
In this article, we will delve into the demat account route and avenues to invest in these stocks through mutual funds and ETFs.
Account route dematting
To trade Indian stocks directly, the only way to open a demat account as a Registered Depository Participant (DP) is by submitting all the required documents. Most DPs now offer multiple options to retail investors, allowing them to invest in stocks, bonds, and mutual funds through a single account.
This simplified approach reduces the inconvenience of managing multiple accounts with different investment vehicles. However, it is important to note that regular demat accounts do not allow direct access to international stocks as most depository participants (DPs) do not offer this facility.
Also read: Demat Account: Should I choose a full-service broker or a discount broker?
Nevertheless, certain brokerage firms such as Kotak Securities, HDFC Securities, and ICICI Direct offer retail investors the opportunity to invest in international stocks through their tie-ups with foreign brokerages.
For example, if you are interested in investing in US stocks, you should open an overseas trading account with one of these brokerages that are affiliated with US brokerages. After opening an account, you can transfer funds to your overseas demat account and start investing in US stocks just like a regular demat account.
If you decide to invest in US stocks, it is important to carefully proceed with the foreign exchange procedures under the RBI Liberalized Remittance Scheme (LRS).
Please also read: How does a demat account facilitate derivatives trading?
As an Indian citizen, you are allowed to invest up to $250,000 per year. It is important to note that this limit includes not only stocks, but any foreign investments or expenditures.
Before we get into details about investing in US stocks, we need to convert Rupees to US Dollars.
Second option
In addition to opening a demat account with an Indian brokerage, you also have the option of opening a demat account with a foreign broker such as Interactive Brokers, TD Ameritrade, or Charles Schwab to invest directly in US stocks.
You do not necessarily need to have a U.S.-based address or citizenship to open a trading account with a U.S. brokerage firm or trade on a U.S. stock exchange.
Investment trust route
If you don't want to go through the process of opening a separate offshore brokerage account to invest in U.S. stocks, you may consider investing through a mutual fund instead. Many of the Indian fund houses offer mutual funds that specialize in investing in stocks of international companies.
Please also read: Demat Account: What is short selling and how does it work?
Listed investment trust route
Investing through exchange-traded funds (ETFs) is also an option to consider. ETFs are investment trusts that trade on stock exchanges like individual stocks. His numerous ETF options focused on international stocks give you the opportunity to gain exposure to global markets through these diverse investment vehicles.
FAQ
What are the benefits of investing in international stocks?
Investing in international stocks offers diversification benefits, access to global growth opportunities, and exposure to leading companies in a variety of sectors. This allows you to spread your risk across different markets and currencies, potentially increasing your portfolio's returns over the long term.
What are the trading hours for international markets?
International markets have specific trading hours based on time zones. For example, the New York Stock Exchange (NYSE) and Nasdaq are open from 7 PM to 1:30 AM IST. Understanding international market time is very important for investors who plan to trade or monitor their investments.
How do brokerage fees for foreign stocks compare to domestic stocks?
Brokerage fees for international stock transactions may vary depending on the brokerage firm and the specific market traded. Brokerage fees for international transactions are typically higher than those for domestic transactions due to additional regulatory requirements and currency conversion costs.
Am I exposed to exchange rate risk when exchanging dollars to rupees for international stock investments?
Yes, exchanging dollars to rupees exposes investors to currency risk. Fluctuations in the exchange rate between the United States Dollar (USD) and the Indian Rupee (INR) may affect the value of investments denominated in different currencies. Investors should be aware of currency risk and consider hedging strategies to manage exposure.
Can I buy fractional shares of US stocks?
Yes, many brokerage platforms now offer the option to purchase fractional shares of US stocks. Fractional shares allow you to invest in higher priced stocks with less capital, giving you diversification and access to a wider range of investment opportunities in the U.S. market.
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