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Want to invest in global bourses? Here are 5 things to know

Over the past year, many Indian investors have been investing in global stock markets, especially in the top US-listed equities, not only to get better returns but also for diversifying their portfolio.

April 06, 2021 / 05:00 PM IST

With the digital broking services coming of age in India, every Indian citizen now has the opportunity to ride the growth wave of highly desired and futuristic companies of the world’s leading economies like the US, especially in the areas of future mobility, artificial intelligence, healthcare, consumer staples, financials and many other areas.

Over the past year, many Indian investors have been investing in global stock markets, especially in the top US-listed equities, not only to get better returns but also for diversifying their portfolio.

Appropriate asset allocation ensures investors are able to sail through big swings in the markets, as has been witnessed since the outbreak of the COVID-19. However, there are still many investors who don’t have a clear notion about global investing and how to go about it.

Here are 5 things investors must know to have a clearer idea of what investing in global markets entails:

1. Who can invest

Investing overseas isn’t anymore for the privileged few only. Any Indian resident can start building a global portfolio with as little money as they would want to invest.

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However, under RBI’s Liberalized Remittance Scheme (LRS), the upper limit of overseas investment is capped at $250,000 per year.

2. Where to invest

Investors can either invest directly in stocks listed on global exchanges or also make an investment in an ETF or Exchange-Traded Fund.

ETF is a basket of assets like stocks, bonds, or commodities that are often designed to track an index, sector, or investment strategy. They are like mutual funds but can be traded on an exchange just like stocks.

3. How to diversify

Many stocks listed in global markets are priced very high, which can make stock ownership in that company out of reach for small investors.

One of the unique things about the US stock markets is that investors can own fractions of stocks, unlike our domestic markets.

An investor has the facility to trade in any fraction or dollar value in a listed company. For example, investors may buy fractional shares worth $10 in Amazon which cost more than $3,000, or buy 0.0001 shares of Tesla.

However, investors won’t get voting rights on the fractional shares that they own but dividends are distributed proportionally to the fraction of the share owned.

4. What are the tax implications

Tax implications of investing in US stocks are actually quite simple. There is no income tax on capital gains in the US for investors who aren’t Americans.

However, investors will have to pay capital gains tax in India, which will depend on the duration of the investment.

Short-term capital gains tax is applicable for investments held for less than 24 months, and long-term capital gains are imposed for longer-duration investments.

On any dividend payout for stocks listed in the US market, the tax liability for an Indian investor in the US would be a flat 25 percent.

This tax is withheld before the investor receives the dividend, which means that he receives 75 percent of the dividend amount as a cash payout.

However, since the US and India have a double taxation avoidance agreement, investors will receive foreign tax credits on the 25 percent US tax on dividend earnings, which can be utilised to offset their tax liability in India.

5. How much tax is collected at the source

The Finance Bill 2020 has introduced a tax collected at source (TCS) component on forex transactions. A 5 percent TCS is applicable on all remittances above Rs 7 lakh under RBI’s LRS.

TCS is applicable on spends on medical treatment, gifts, maintenance of relatives abroad, foreign education, and investment in real estate, stocks and bonds. The tax paid under TCS can be claimed back as a refund while filing the income tax returns.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Ashma Zaveri is the COO at MNCL Global Access.​
first published: Apr 6, 2021 08:34 am
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