Many Indian brokerages such as ICICI Securities, Axis Securities, Winvesta, Kuvera and even fund managers have been encouraging investors to look at overseas (mostly US) markets for new ideas. Despite the recent blip, the healthy returns over the past few years on the back of the rally in the shares of Amazon, Apple, Facebook, Netflix and other global majors make the American market attractive for Indian investors. So, how should you go about buying equity shares of companies listed overseas directly?
Needed, a broker account alone
You do not need a demat account to buy shares of companies listed in the US or other overseas markets. You only need a trading account. That’s because your shares are held by custodians in the US (or the country you choose to invest in).
Indian stock brokers are mandated to have tie-ups with foreign brokers for enabling overseas investment platforms. For example, ICICI Direct has tied up with Interactive Brokers. You can open an account online with an Indian broker by submitting your identity and address proofs using your PAN and Aadhaar. In-person customer verification can be done entirely online.
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What else can I buy other than shares?
You can buy shares, bonds and exchange traded funds (ETFs) using these platforms. As some shares are priced at high rates in absolute terms, you can buy fractional shares. The US is the largest ETF market in the world. According to ETFGI.com, a UK-based global tracker of ETFs, US-based ETFs got year-to-date net inflows of $226.27 billion, much higher than the $150.54 billion gathered in the same period in 2019. In fact, the US ETF market also offers fixed-income ETFs. The US ETF industry, as of end-July, was worth $4.60 trillion.
The US and India have a time difference. How do I place orders?
There is no need to stay awake during US market hours. You can place orders when the markets are closed. You can place market and limit orders to buy shares by logging into your account online. The settlement cycle for US markets is T+3; a stock bought on Monday, for instance, is credited to your account by Thursday. Fund movements into and out of the account take between one and four business days.
How much can I invest?
Under the Liberalised Remittance Scheme (LRS), you can send $250,000 abroad in a financial year without seeking approval from the Reserve Bank of India.
“Margin trading is not allowed and you cannot short sell,” says Swastik Nigam, founder and CEO, Winvesta. LRS prohibits remittance from India for margins or margin calls to overseas exchanges or an overseas counterparty.
“Investors can buy ETFs with physical commodity backing and no underlying leverage or exposure through derivatives,” says Anupam Guha, Head - Private Wealth Management, ICICI Securities.
If your broker allows you to invest in both Indian and overseas stocks, then the funds allocated to the Indian broking account cannot be used for purchasing shares overseas or vice-versa. You have to separately fund each account.
How do I research overseas stocks?
You have to identify shares of good companies at fair prices. “Though many Indians are familiar with goods and services provided by American companies and there is enough data available about these companies in the public domain, investors should carry out a basic fundamental analysis before investing,” says Vikas Gupta, founder and Chief Investment Strategist, Omniscience Capital.
Transaction platforms do offer some inputs. However, you have to check if it comes with additional costs. For example, ICICI Direct does not offer any research or recommendations on foreign securities. However, third party analyst ratings are made available to clients using news feed at no extra cost. Kuvera plans to offer advisory portfolios of stocks listed in the US.
Gupta recommends investing in curated portfolios based on well-defined methodologies.
What are the costs of international investing?
There are two types of costs you should be aware of. The first is the cost charged by your broker or transaction platform. Winvesta gives three trades free each month and thereafter charges $1 per transaction. There is no annual fee as such. However, there is a one-time third party tax-filling charge of $5 at the time of opening an account.
In the Global Starter option, ICICI Direct charges $2.99 per order and a subscription fee of Rs 999 per year. It has another Global advantage option in which the investor is charged one cent per share and a yearly fee of Rs 9999. Kuvera does not charge a brokerage, as yet.
You should compare the charges provided by brokers.
Do not ignore the second type of costs – not associated with brokers.
There is a cost of remitting your money abroad. “Remittance costs depend on the relationship you have with your bank and may be in the range of Rs 500 to Rs 2000 per transaction. Also, a bank may charge a premium while selling you dollars,” says Gaurav Rastogi, CEO, Kuvera.
Getting consolidated statements
Your Common Account Statement issued by depositories NSDL or CSDL will not have details of your international holdings. Your transaction platform will share daily and monthly statements that would have all your transactions. The same can be used for tax-compliance.
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