Who would not love to buy stocks of overseas companies? But is it possible to buy one?
Stocks of companies like Google, Microsoft, Apple are dream buys for any investor. But not many people know how to buy their stocks sitting back in India.
The success story, and growth prospects of companies like Apple, Google, Microsoft in United States are fantastic. It is almost like a dream to have our hands on these such stocks from India.
How can we buy stocks of such fantastic overseas companies? I personally dream to buy stocks of GOOGLE & TESLA MOTORS at undervalued price.
But we being a resident Indian, how we can buy stocks of TESLA, Facebook etc? Is there a way for resident Indians to buy stocks listed in United States?
Yes there is a way. In this article we will discuss just that.
When I look at the fundamentals of some American companies it generates mouth watering temptation to buy their stocks. This is why I decided to do a small research of how an Indian can buy stock of companies in USA?
There is a procedure that allows us (Indians) to buy overseas stocks. It is also true that the procedure is not so easy. We will discuss here two ways; (1) A comparatively easy way and (2) A difficult way.
For sure buying stocks of overseas companies is not as easy as buying stocks of Indian companies. But we should be happy that at least there is a possibility.
I was happy to find two possibilities, and I would share it with my readers.
But before proceeding, lets answer one basic query asked by my fried…
One day my friend asked me this question, “there are quality companies in India, why would we want to buy overseas stocks?”
The answer is simple, it will further diversify ones investment portfolio.
And what better way to diversify than including Google’s and Microsoft’s in my portfolio. Diversifying with overseas stocks is ideal.
India soon is going to be the third largest economy after America and China. Why India is so sure to take the third spot? Because the internal-demand in India alone can make it the world’s biggest economy.
The fundamentals are in place, but India’s readiness to take that coveted spot of number three is not in place. At present India lacks both social and infrastructure ability to retain number three spot. India is gearing up for change.
But the speed is slow and which further gets worse due to rampant corruption. India has some fast catching-up to do. Other emerging economies like China, South East Asia, South America, Russia, etc will soon push India out of the competition.
Fear of loosing to competitors always exists. There will be both good days and bad days. Better strategy is to be ready for both.
Investment diversification is one such wise step. Overseas companies will help give more stability of returns to investment portfolio.
#1. Open a bank account in overseas location
Yes this is the first step. If you want to buy stock of overseas companies, you will have to have a bank account in overseas location.
But is it legal and possible for an Indian individual to open a bank account in overseas location?
Yes, this is allowed as per Liberalised Remittance Scheme (LRS) of Reserve Bank of India (RBI). As per LRS, an individual can open a bank account in a foreign country.
But the money that is remitted into the foreign bank account must be utilised as per guidelines of the RBI. You are not free to use the money the way you want. There are restrictions imposed by the RBI.
Few allowable transactions that one can make using the funds in foreign bank account are as below:
1) Purchase of property
2) Buy and hold shares of overseas companies
3) Buy debt instruments (like bank deposits)
4) Buy units of mutual funds
But how a resident Indian can open a bank account in say USA?
The easiest option is to approach an American bank having a branch in India. Few American banks that have branches across India are Citibank (45 branches), Bank of America (5 branches), American Express Banking Corporation (1 branch) and J.P.Morgan Chase (1 branch).
These banks, having branches in India, will help one to open a bank account in USA. Taking special care while filling the KYC document of the foreign bank is advisable. This will limit and remove any future apprehensions of the Indian tax authorities.
Once the bank account is operations, next step will be to open an online trading account with the same bank.
As the online trading account will be used to buy stocks in USA, this is allowed as per LRS.
How to fund the overseas bank account?
One can do this by transferring funds from ones own Bank Account held in India. Care should be taken that funding of foreign bank account takes place using normal banking channels.
It is advisable that, prior to opening an overseas bank account, inform the bank about your intentions. You must process to open the bank account only if they agree provide you the services of online trading account.
Is there is a limit into how much one can invest in overseas stocks? Yes there is a limit. As per LRS, one can transfer only $250,000 USD in one financial year. Hence one cannot invest more than Rs.1.6 Crore ($250,000 x Rs.65/$) in a year.
Following USA based stock brokers allow resident Indians to open an trading account in USA and buy stocks listed in NYSE, NASDAQ. But I must say that they are filthy expensive.
- Interactive Brokers – They allow Indian Individuals who are resident on India to open a trading account. But their charges are like this: Minimum deposit in Cash or Equity is $5000. Minimum fee as brokerage is $10,000 per month.
- Ameritrade – Their website say that if one is not a resident of USA, and if they have a valid passport, they can open a trading account.
- Charles Schwab – They provide the facility of opening an international trading account with them. But they require a minimum of $25,000 USD to open a Schwab A/c.
To sum it up, as a normal middle class Indian, I do not see a point in investing in overseas stocks (mainly USA) through this route. Investing in foreign stocks looks more of a hassle than an advantage.
I personally would prefer other options to invest in foreign stocks. I will leave this option for filthy rich Indians. Anyways I do not think they will either use this route. They have Panama…:)
#2. Online Trading A/c in India cannot buy overseas stocks
I am not sure, but perhaps there are no brokerage firms in India who can also trade in foreign stocks.
There are some hints on internet which says that some Indian Brokerage Firms having collaboration with foreign brokerage firms, provides this facility.
But I searched in websites like Kotak Securities, ICICI Direct, HDFC Securities, Axis Direct etc but I could see not reference of this service.
I am sure, these banks must also be having cost concerns in having tie-ups with any foreign brokers (like in USA).
Online Trading A/c and Demat Account what we have in India are very inexpensive. Comparing this costs with service providers like Interactive Brokers and Charles Schwab, the cost looks insanely high.
#3. Buy overseas stocks indirectly – through mutual funds
Through Mutual Funds it is possible to buy stocks of overseas companies. Such mutual funds which invests in overseas stocks are primarily funds of funds. These ‘funds of funds’ invests in those mutual funds which buy stocks of overseas companies.
Though there are mutual fund companies which also buy overseas stocks directly but such funds are less.
In India there are nearly 30-35 international mutual funds which invests directly or indirectly in overseas companies.
But when I saw the Asset Size of these mutual funds, it was not very encouraging. The biggest fund was Franklin US Opportunity Fund with Asset Size of Rs. 566 Crore.
Is it big or small?
Just for the sake of comparison, compare this Rs.566 Crore with Asset site of one HDFC Top 200 Fund. The Asset Size of HDFC Top 200 is Rs.14,452 Crore.
Seeing this, I would like to comment that, Indian investors has still not matured enough to invest in international mutual funds.
But the trend is growing. People are now opening-up, and they know that it is better to increase their exposure into global markets as well.
Government shall also take steps to encourage people to buy stocks of overseas companies. Presently returns of such funds are treated as returns of debt funds, hence taxable.
Some top mutual funds which invest in stocks in USA are as below:
1) Asset Size: Rs.566 Crore – Franklin India Feeder Franklin US Opportunities Fund – This mutual fund predominantly invests in Franklin US Opportunity Fund. Means this is a Fund of Funds. Franklin US Opportunity Fund invests in small, medium and large cap US stocks. The Return generated by this mutual fund in India in last 5 years is 16.24% per annum.
2) Asset Size: Rs.173 Crore – DSP BlackRock US Flexible Equity Fund – This mutual fund predominantly invests in BlackRock Global Funds US Flexible Equity Fund. Means this is also a Fund of Fund. Franklin US Opportunity Fund invests in US etc stocks. Portfolio composition of BR US Flexible Fund is as shown below. The Return generated by this mutual fund in India in last 3 years is 9.22% per annum.
3) Asset Size: Rs.150 Crore – ICICI Pru US Bluechip Equity Fund – This mutual fund predominantly invests in stocks listed in NYSE and NASDAQ. The portfolio composition of this fund is as shown below. The Return generated by this mutual fund in India in last 3 years is 15.63% per annum.
Buying stocks of overseas companies is not easy. Though RBI has made it possible to buy overseas stocks, but cost wise, it doesn’t look a great alternative for investing.
International stocks brokers who allow Indian residents to buy stocks listed in USA, charge fees which are exorbitant for an average Indian investor. So I will perhaps never use this route to buy stocks in USA.
Though I have not done a very deep research, but prima facie it looks like no Indian brokerage firms can provide the facility of trading stocks listed in USA/abroad. Even if they provide, I am sure the cost part will not be profitable.
The only option that looks more reasonable is, investing through international mutual funds. But the long term returns of these mutual funds are also not very encouraging. These returns, or even better, we can get from BSE/NSE based equity mutual funds.
Though I would love to buy stocks of Google, Microsoft, Amazon, Tesla etc, but unfortunately, this trading option is looking more of an infatuation than business. If an Indian is not able to make good returns by investing in overseas stocks, why they will invest in them?
Online stocks trading is over expensive. It will surely hit the net returns. International Mutual funds are not great either in terms of returns they generate.
Hence my humble submission is that, leave those glamorous stocks of America. Our Indian stocks can give you much higher returns.
Have a happy investing.