How to Invest in International Stocks?
Created on 13 May 2021
Wraps up in 5 Min
Read by 5.5k people
Updated on 14 Jan 2023
Do you wish to take your investment portfolio global? Want to grab a pie of tech giants like Apple and Facebook? Here's your ultimate guide to international investment.
Foreign brands always seem enticing, and so do foreign companies. We know you, too, want to internationally diversify your investment portfolio. But, perhaps you aren't aware of how to buy shares of the companies not listed on Indian stock exchanges? Well, don't worry. We've got you covered.
In this article, you will get to know the ways of investing in international stocks.
Why do Indians prefer International Stocks?
International stocks are basically the shares of companies that are beyond the purview of the domestic share market. Meaning, you can't find these companies listed in Indian stock exchanges. However, these companies are traded in the stock exchanges of foreign countries, say, NYSE, Nasdaq or SGX, etc.
Anyway, the important question is, when we have over 5000 Indian companies to invest in through our domestic stock exchanges, why would one prefer to go global? Well, here are some reasons why people all around the globe (and not just Indians) prefer international stocks:
- Popular companies: From browsing on Chrome to mailing through Gmail to enjoying videos on YouTube, all of us are caught in the vicious web of Google. Experts believe that Google knows more about you than you know yourself. Considering the immense popularity of these stocks, why wouldn't anyone want to invest in them, eh? So, people prefer to invest in their favourite companies. And that's possible by investing in international stocks.
- Diversification: It is a saying, "Never put all your eggs in one basket." Diversification is possible through investing in mutual funds, debts, gold, etc. But it gets one step ahead when you invest in international stocks. Consider the worst possible scenario. If all the Indian shares start falling, what will you do to generate positive returns? Invest in foreign stocks. Pretty obvious, right?
- To seize opportunities: If you look at the price of Tesla, you will realize how powerful the international markets are. It went from $162 to $629 in just one year. A massive 288% return. That too from a blue-chip company! On the other hand, the average returns in India are just 15 to 20%. Hence, foreign stocks help in hunting for better opportunities in international markets.
What Should You Consider while Investing in Foreign Stocks?
If international stocks had no cons, everyone would have invested there. But that's not the case. It is due to the following disadvantages:
- Higher charges: In India, you can invest without paying any brokerage through discount brokers like Zerodha. Also, the other charges incurred are relatively cheaper in Indian markets. But they are high in foreign markets.
- Currency Risk: If you invest in foreign stocks, you have to face currency risk, besides the market risk. In case you don't know, it is the risk of returns caused due to fluctuations in currency. For example, a reduction in the rupee helps you to earn relatively higher returns when compared to US investors. But the opposite will happen if the value of the rupee increases. It may reduce your returns.
- Upper limit: According to RBI, an Indian resident can invest up to $250k overseas annually. Considering $1= Rs 73, you can invest Rs 1.82 Cr overseas. Sufficient for a retail investor like us, isn't it? But that'd be a meagre sum for a high-net-worth individual.
Just so you know, recently, there was a once-in-a-blue-moon incident where the share price of one international stock reached the highest permissible level of the concerned stock exchange. Any guesses?
Quite weird, isn’t it?
Methods to Invest in International Stocks
By now, you have your answer to the original question, "Can we invest in international stocks?". Well, you may be wondering why we started with the pros and cons when we could have commenced it with a simple 'Yes'. Here's the reason: you should always be aware of what you stand to gain/lose before jumping into any investment avenue.
Anyway, you can invest in international stocks through the following methods:
- Indian broker tie-up with a foreign broker: Like us, full-service brokers realize the importance of foreign stocks. That is why they have tied up with foreign brokers to enable their customers to invest in international stocks. For example, HDFC Securities has tied up with Stockal Inc to facilitate you to invest in global markets.
- Opening account with foreign brokers: Some international brokerage firms allow Indian investors to quench their thirst for higher returns by investing in global stocks. You will be surprised to know that one of the brokers named 'Interactive Brokers' has a registered company in India. You can even visit their office (only after the situation improves) in Maharashtra to get your account opened.
- Investing through Startups: This year will be remembered as a golden year for startups. We got six unicorns in just four days! One of those unicorns, Groww, helps you to invest in international stocks. Similarly, Vested Finance and Webull can give you the experience of investing in foreign stocks.
- Investing in Mutual Funds with global equities: You should have noticed that foreign stocks are not very popular in India, even though they give higher returns. It is so because people don't have adequate knowledge about these companies. And that's where mutual funds come to the rescue.
Investing in mutual funds that consist of global equities is considered the easiest and hassle-free method to invest in international stocks. Also, you don't have to pay a hefty amount to invest in these mutual funds. So, it is a cheaper and better alternative to invest in foreign stocks, if you are not much aware. For example, ICICI Prudential US Blue-chip Equity Fund and Kotak Global Emerging Market Fund are considered as good mutual funds dealing in global equities.
The Bottom Line
Indian stocks are second to none. But investing in international stocks has the edge over the Indian counterparts in terms of returns and diversification. Also, the majority of you wouldn't hesitate to invest in the FAANG companies. Would you?
But you have to be cautious of the various risks and charges that come with this opportunity. What's more, you can invest up to a specific limit only, which is sufficient in most cases, though. You can proceed with the direct route or the indirect route of mutual funds. But remember, always invest within your 'circle of competence'.
Know what you own and why you own it.
Anyway, have you diversified your portfolio internationally? Whether yes or no, let us know your reasons in the comments below.
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