The Indian capital market is expanding at a fast pace. As most of the investors who enter the stock market aim to get capital appreciation of the shares, which means buying low and sell high. It allows them to get high amount of capital appreciation. Traditionally traders buy the stock of the local companies through their respective national exchange. But they are also interested in buying the shares of overseas companies, especially in the case of India.
There is an upward trend catching up with Indian investors to buy foreign stocks, especially that of US Companies such as Facebook, Google, Amazon, Netflix and so forth. As per the RBI Guideline, under the Liberalised Remittance Scheme (LRS) any resident of India can invest abroad up to $250,000 per year in the foreign markets. It may be either equity or debt. But to trade in foreign equity, an investor needs to open a trading account in India. To do so, an investor needs to follow these procedures:
- First, they must open a trading account with a brokerage house, whether it’s with ICICI Direct and Kotak Securities. Both offer overseas trading facility.
- Then, an investor needs to submit the duly filled separate account opening form apart from KYC documents.
- Afterwards, he/she has to transfer the money through the international partner of the domestic equity broker through whom the service is provided.
- Funds are transferred to the international partner as follows:
- The investor needs to submit the application-cum-declaration form under LRS,
- Take the Form A2 from your brokerage house.
- Further sign a form of the Foreign Exchange Management Act (FEMA) declaration.
- Now sign the form authorize to designated bank branch as an authorized dealer.
- Afterwards, he/she can start buying and selling of funds after transfer of funds.
But there are certain things must be considered before starting an overseas trading:
- Only up to $250,000 can be invested in foreign markets: As per the RBI Notification, under the LRS Scheme only a limited amount of money up to $250,000 can be invested. Taking the current dollar exchange i.e. $1= 68, now the total amount will be equal to Rs 1.7 crore.
- High Charges: While investing in the foreign stocks, he/she must remember the fact that while trading in the respective country stock market, one needs to pay the brokerage in US dollars. Hence, stock brokerage will be higher compared to the Indian stock exchange.
- Currency exchange rate fluctuations: Since, an investor invests in foreign market, hence their profit and loss get impacted by currency exchange rate. For instance, suppose if he/she invests in the US equity market at a time, when the currency exchange rate is $1= Rs 68 and after a year later it has fallen to Rs 60. That’s a loss of about 11.76%.