I’m sure every one of you must have been curious about investing in stocks such as Apple, Facebook, Tesla, Microsoft, Alphabet, etc since we use many of their products in day to day life. But when you log into your trading account, you never find any of these stocks, ever wondered why? The reason for this is because they are not listed on the National Stock Exchange(NSE) or Bombay Stock Exchange(BSE). These are one of the most renowned companies in the world but what do they have in common? They are all companies based out of the USA. That is why they are listed on the New York Stock Exchange (NYSE) or NASDAQ which are stock exchanges based on the US.
There are many other big companies that are not American such as Sony, Toyota Motor, Samsung, Volkswagen, etc which come under Fortune Global 500 companies but we cannot invest in them directly from our brokerage companies simply because they aren’t listed in any of our stock exchanges.
So if you ever ponder about how to invest in these stocks from India, we got you covered as we are going to explain all the different ways to invest in foreign stocks sitting at home in India.
Why should we invest in Foreign Stocks?
There is not one but many reasons why we should invest in Foreign Stocks. I’ll try to explain a few of them below –
1. Investing in Foreign Stocks gives superior returns
If you had invested $ 1000 or Rs 49,650 back in May 2009 into the SENSEX index, your investment would have yielded Rs 1,24,120 ($ 1800) after 10 years. But instead, if you had invested the same amount of $ 1000 or Rs 49,650 into the US Stock market, that investment would have yielded Rs 2,04,470 which is $ 2960.
The primary reasons why the US stock market outperforms the Indian Stock market are as follows –
- DOW Jones Industrial Average (DJIA) which is a stock market index that measures the stock performance of select 30 large companies listed on stock exchanges in the United States generated returns of 196%, while SENSEX generated returns of 150%.
- The value of INR has depreciated compared to the USD. The USD to INR exchange rate has reduced by 39% over the past 10 years. Over time, it decreases your monetary valuation of investments significantly.
Now, if we factor in USD while calculating returns, the SENSEX returned only 80% over 10 years. This puts SENSEX way behind DJIA when returns are compared.
2. Equity Market Cap of other countries is huge compared to India
As you can see from the image below, India’s equity market cap is merely 1% compared to the whole world whereas countries like US and Japan have 55% and 8% respectively.
Let us suppose, you are invested in both the Indian market as well as the US market. Now, if a regional problem occurred in India, the Indian stocks will suffer but US stocks will continue to grow because they will not be affected by this problem. Thus, you mitigate your risks by not putting all your eggs in one basket.
4. Bigger and better companies
Foreign companies have way better resources, facilities, talent, and investments compared to Indian companies. Thus, they are able to grow at a faster pace than Indian companies.
How to invest?
Now that we have discussed various reasons why you should invest in foreign stocks, you must be curious. So here are few ways to invest in Foreign Stocks –
1. Investing via Indian Brokerages having a tie-up with a foreign broker
Multiple full-service Indian brokerages have a tie-up with foreign brokers such as HDFC Securities. ICICI Direct and Axis Securities have a tie-up with Saxobank which is a Danish investment bank. All you need to get started is to complete your KYC and pay the account opening fees. Investing via them is very easy but the problem with these brokerages is that they are very expensive and many are simply not able to afford it.
2. Investing via Vested
Vested is a US Securities and Exchange Commission Registered Investment Adviser. It is a startup app that helps Indians invest in Foreign Stocks from North America, Europe, Latin America, Australia, Africa, South East Asia, and East Asia. They enable users to invest in stocks, ETFs(Exchange Traded Funds) and custom made portfolios called “vests”. Investing via Vested is very safe because they use DriveWealth, a US-based SEC-registered broker who are their broker partner holding the shares for you. They have also been featured at MoneyControl, Economic Times, Financial Express, etc so they are well-reputed.
You can open an account from Vested by clicking on this link – investolingo.com/vested
3. Investing via Mutual Funds/ ETFs
Last but not the least, we come to investing in foreign stocks via Mutual funds. This method is probably the easiest of them all because all you need to do is just pay without researching around or opening a new overseas trading account. These mutual funds/ ETFs invest directly into Global markets. Also, you don’t require high capital to start investing because their minimum investment amount is very less as compared to other methods.
To know more about how to invest in mutual funds, click here – How to Invest in Mutual Funds
Some of the Mutual Funds/ ETFs we recommend are –
- Motilal Oswal NASDAQ 100 Exchange Traded Fund
- Motilal Oswal S&P 500 Index Fund – Regular Plan
- ICICI Prudential US Bluechip Equity Fund
- Edelweiss Greater China Equity Off-shore Fund – Direct Plan – Growth
- Kotak US Equity Fund – Direct Plan – Growth
Capital gains made from investments into foreign stocks and ETFs are taxed in the same way as debt mutual funds in India. Profits from 3 year holding period are treated as short term gains and taxed at your tax slab rate. Profits after a 3 year holding period are treated as long term and are taxed at 20% rate.
We would also like to point out that many Indian brokerages are also planning to roll out International investment opportunities such as Zerodha and Upstox. We are very excited about them and once these features are launched publically, we would update our guide.
Investing in International Stocks will diversify and widen your investment portfolio and in the age of the internet, the border is not a blockage at all. All you need is some patience and interest and you are well on your way to becoming an international investor.