How to Invest in Overseas Market
Mostly Indian investors happy to investing in domestic markets and avoid to invest in oversea market only few are enthusiasts and know the potential of the global markets, led by the US, surging during the post-pandemic recovery, investors were attracted towards them, both for returns and diversification benefits. During this period, certain domestic mutual funds, led by Parag Parikh Flexi Cap Fund, that maintained a steady international exposure provided superior returns. This also helped increase interest in the Indian investor about overseas investing. There are 3 major way to invest in foreign market for India citizen : – Indian International Mutual Fund Directly with Foreign Brokers GIFT City Way Via International Mutual Funds : – The most convenient route for investing overseas is international mutual funds. These funds helps million of investor to easy entry in foreign stock and provide professional expertise, instant diversification and ease of operation. These funds help investors to gain exposure not just to US equities but also to other geographies, such as Japan, Europe, China, etc. International funds are the best way to invest overseas for a majority of investors. They don’t entail the hassles of direct overseas investing. That means you don’t need a separate account and hence there is no additional paperwork. You can invest in them just like you would invest in any other fund. You invest in Indian rupees only and the currency conversion is taken care of by the AMC. Institutions get better rupee conversion rates than individual investors do, so that’s an added advantage. Further, you don’t have to worry about any LRS limits. There are no transfer charges. Buying and selling is easy, as you would do in any other fund. The only cost involved is the fund’s expense ratio. Via Foreign Brokers : – You can invest in overseas equity by opening an account with a foreign broker, such as Interactive Brokers and Saxo Bank. You can either approach the foreign broker directly or through an Indian broker or fintech firm that has a tie-up with a foreign broker. Indian bro- kers like ICICI Direct, HDFC Securities and Kotak Securities facilitate investing in US stocks. Both ICICI Direct and Kotak Securities have a tie-up with Interactive Brokers. HDFC Securities has a tie-up with Stockal. The web- sites of these Indian brokers answer most of the things that you would like to know about these direct accounts. Via GIFT City : – First of all you have to know What is GIFT City. Gujarat International Finance Tech (GIFT) City is a global financial and IT services hub which is being developed in Gandhinagar, Gujarat, to provide financial services to non-residents and resident Indians. What is GIFT IFSC ? Operationalized in April 2015 by the Indian government, International Financial Services Centre (IFSC) at GIFT City aims to make India a hub of international financial transactions, majority of which currently happen outside India. It plans to do so by providing a liberal tax regime for 10 years and a strong regulatory and legal environment, with an international dispute- resolution mechanism through Singapore International Arbitration Centre. Though the initial objective of GIFT IFSC was to provide a platform for getting investments into India, it has been further extended to facilitate resident Indians to invest overseas. The International Financial Services Centres Authority (IFSCA), established in April 2020 under the IFSCA Act, 2019, is a unified authority for the development and regulation of financial products, services and institutions in IFSCs. NSE IFSC : – NSE IFSC is currently testing out the investment process in an ‘innovation sandbox’ environment, initiated in March 2022, for a duration of nine months with the number of investors limited to 10,000. Rather than owning direct shares, here you invest/trade in NSE IFSC receipts, which are nothing but ‘unsponsored’ depositary receipts (DRs). These DRs are issued in a ratio such that they represent the ownership of one under- lying share of a particular US stock. For example, 50 DRs of Apple are equivalent to holding one share in the company. Thus, through DRs, one can invest in the fraction of a share. These DRs can be traded exclusively on NSE IFSC. HDFC IFSC Banking Unit (IBU), which has been appointed as the custodian in the current sandbox environment, will be creating the DRs. In turn, HDFC IBU has appointed Deutsche Bank AG, New York branch, as the US custodian. Whenever you buy NSE IFSC receipts on the exchange, HDFC IBU will instruct the US custodian to own the underlying shares as underlying assets. The US custodian will maintain a pooled account for holding these underlying shares. It will not maintain separate accounts for each of the receipt holders. NSE IFSC receipts will be traded in US dollars. They will be issued and governed as per the Indian law and will not be registered with, or governed by, the US Securities and Exchange Commission (SEC). However, the US custodian is regulated and authorised to pro- vide custody services to its counterpart HDFC IBU by the SEC and other US-based regulatory mechanisms. What is the Process to invest in overseas market : – All the transactions on the exchange are facilitated by brokers the same way you trans- act in other Indian securities. To get started: 1) Open your trading and demat account with an NSE IFSC registered broker. 2) Transfer funds from your Indian bank account to NSE IFSC registered brokers’ bank account. 3) Once the funds are credited to your broker’s account, you can invest in US stocks through NSE IFSC receipts. 4) The settlement cycle is T+3 (trading day plus three days). This means that receipts bought and held overnight can be sold only after three days and money from the sale will be available for use only after three days. Currently, NSE IFSC has 34 registered brokers. In the sandbox phase, only 50 select US stocks have been permitted for which the DRs can be issued and traded. Since NSE IFSC receipts are new financial instruments,
