Companies like Apple, Google, Facebook (Meta), Netflix, and Amazon profoundly impact our daily lives. However, these companies are out of reach for most investors since they are not listed on Indian exchanges. Thanks to the Liberalised Remittance Scheme (LRS) introduced by the government and the Reserve Bank of India (RBI) in August 2022, it has been made easier for Indian investors to invest in foreign stocks.

However, even with the RBI scheme, most retail investors are unsure how to start investing in foreign and international stocks. So, to help you find your way to foreign stock markets, here are ten ways on how to invest in foreign stocks directly and indirectly. But first, let’s learn more about the benefits of international investments.

Benefits of Investing in Foreign & International Stocks

Foreign stocks, especially those listed on US exchanges, are some of the largest companies in the world. Their stocks are very popular and offer excellent returns, especially for investors with a long investment horizon. Besides the possibility of higher returns, foreign stocks allow investors to diversify their portfolios and lower capital risks. They also enable investors to earn profits in a foreign currency, which benefits Indian investors. This is because the Indian currency has a favourable conversion rate when compared to US dollars for Return on Investment (ROI) calculation. These are some of the most common benefits of investing in foreign and international stocks.

10 Ways To Invest in Foreign & International Stocks From India

1. Domestic Brokerages:

Professional brokerages in India, like Sharekhan have tie-ups with international brokerages. This allows investment platforms to offer international stock investment opportunities to retail investors directly on their platform. Investors can sign up on the platform and have the opportunity to invest in foreign stocks on US exchanges directly from the Sharekhan platform. However, to be eligible for overseas trading, you may need to fulfil additional formalities and verifications.

2. International Brokerages:

Few international brokerages have a presence in India, and they offer both online platforms and physical offices where investors can open international trading accounts. These accounts allow investors to directly buy and sell international stocks from the US or other international exchanges. The best part is that these international exchanges do not require investors to be foreign citizens; Indian citizens can easily open and operate international DEMAT accounts with these brokers.

3. International Exchange Traded Funds (ETFs):

International ETFs are an indirect method of international investments. ETFs are issued by Indian fund houses, which ensures investors can easily invest in these funds without the need for special accounts. ETFs are indirect investments mainly because investors purchase units of the ETF and not the shares of the company directly. This simplifies taxation and the problems of currency conversion significantly. International ETFs can also be traded, which allows investors to have greater control over their investment compared to mutual fund schemes. You can invest in international ETFs on Sharekhan.

4.International Fund of Funds (FoFs):

Although FoF investments may seem complex, they are just like any other mutual fund investment. However, you get additional benefits because your single investment amount is invested in multiple mutual fund schemes, allowing you to maximise your returns. You also get the benefits of portfolio diversification with a single investment, which also helps hedge the risks of your investment. There are several international FoFs in India based around different regions, themes, countries, and even continents. You can easily invest in them using investment platforms like Sharekhan.

5.International Mutual Funds:

International mutual fund schemes are very convenient international investment options for retail investors. You can easily set up Systematic Investment Plan (SIP) investments in these schemes and create a healthy diverisfied investment portfolio over a long investment horizon. International mutual fund schemes are safe and less volatile compared to individual stock purchases as these funds are managed by market experts. You can easily invest in international mutual fund schemes on the Sharekhan platform.

6. Indian Depository Receipts (IDRs):

As an investor, what if you don’t want to invest in foreign companies through foreign stock exchanges? What if you want to invest in foreign stocks but through Indian stock exchanges like National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) in Indian currency? Well, Indian Depository Receipts are a great way for investors to do exactly that. IDRs allow foreign companies to raise capital from Indian investors without listing their stocks on the domestic stock exchange. As a retail investor, you can invest in an IDR and purchase foreign company stocks without needing to convert currency. However, it should be noted that foreign companies need to issue IDRs before you can invest in them, so they are not available at all times.

7. Global Depository Receipts (GDRs):

Much like IDRs mentioned above, GDRs allow companies to raise capital from foreign investors without listing their stocks on the country's domestic stock exchanges. For example, Tata Motors listed 7 million GDRs in 2018 on the Luxembourg stock exchange. The company raised $124.5 million from the GDRs and didn’t require Tata Motors to list their stocks on the domestic stock exchange. As Tata Motors is an Indian company, you don’t need to invest in its GDRs. However, you can invest in the GDRs of other international companies on foreign exchanges through online investment platforms like Sharekhan.

8. American Depository Receipts (ADRs):

ADRs are issued by depository banks in the US that hold a certain portion of shares of a foreign company. This allows American investors to invest in foreign companies without having to navigate foreign exchanges and currencies. Even Indians can invest in ADRs with online investment platforms like Sharekhan.

9. International Investment Platforms:

With the rise of mobile app investment platforms, several startups have made it easier for Indian investors to invest in international stocks. These startup apps allow investors to invest directly in foreign stocks and take care of all the formalities involved in the process, making it seamless.

10.Portfolio Management Services:

Portfolio management services are useful for High Net-worth Individuals (HNIs) to manage their funds and investment portfolio. This is a personalised service, which offers investors their own fund managers and market experts. Together with these experts you can formulate the best ways to invest in foreign stocks for portfolio diversification or other reasons as per your investment requirements.

Risks Associated With Foreign Investments

When you are investing in the domestic stock market, factors like political tensions, economic factors, and market shifts can affect the performance or success of your investments. The same risks apply when you are learning how to invest in foreign stocks from India. However, domestic affairs are easier to keep up with since you are already living in the country. Keeping up with the cultural, social, political, and economic affairs of a foreign country is harder and requires thorough efforts from the investor. In fact, you will also need to keep track of currency exchange rates at all times to ensure you get the best return on your investments. These are some of the most common risks associated with foreign investments.

The Serious Truth About Investing in Foreign Stocks From India

As per the Liberalised Remittance Scheme (LRS) issued by the RBI, Indian investors are allowed to invest only up to $250,000 per financial year in financial or real estate assets out of India. This limit also encompasses any expenditure incurred during private visits out of India, medical expenses abroad, educational expenses, and even the cost of maintaining family members abroad. Considering a USD to INR exchange rate of ?83, the $250,000 overall annual limit comes to just over ?2 crore. So, make sure you are aware of your investment and expenditure limits before investing, as failure to adhere to the LRS limits can attract penalties and fines.

Conclusion

Investing in foreign stocks has its pros and cons, so make sure you make informed decisions about your investment and take professional financial advice if required before investing. Brokerage platforms like Sharekhan can help you invest in foreign and international stocks from India, so ensure you sign up for a Forex currency trading account today.