High Net Worth Individuals (HNIs) may often find the domestic market limited in terms of investment opportunities that offer high returns. Investing overseas presents opportunities for greater diversification and extra earnings.
One of the benefits of investing overseas is that if you’re investing at a time when your domestic currency is depreciating, you could get significantly higher pre-tax returns. Conversely, an appreciation of your domestic currency could shave off a few percentages on your returns.
Let’s understand this with an example:
How to invest abroad
Assuming that you have the surplus funds to risk your money in investments abroad, what you need next is knowledge of specific investment instruments and prevailing market conditions in the country where you want to invest. You must also consider fluctuations in currency value.
The Reserve Bank of India allows individuals to remit up to $250,000 per year out of India under the Liberalised Remittance Scheme (LRS). This translates to approximately Rs 1.66 crore as per today’s currency rates. The RBI has also laid certain restrictions on remittances to specific countries, so you should learn about them beforehand.
That said, here are some investment opportunities you can pursue abroad.
Overseas Mutual Funds
There are mutual fund schemes available in India that invest in international markets. Most AMCs have such schemes wherein the largest part of their funds is invested in assets outside India. In effect, it allows Indian investors to indirectly purchase, say, a Nasdaq-listed stock like Amazon. You can invest in such schemes with Indian currency without any limit. The fund managers can manage currency fluctuations with their expertise.
Invest in equity market abroad
Some Indian stock brokers have tied up with foreign brokers for facilitating investment in international equity markets. You can open an overseas investment/trading account with an eligible broker by submitting the required documents such as a the application form along with your KYC documents, requisite documents for LRS declaration, Form A2 for remittances covering intermediary trade, FEMA declaration form, and authorization form for banks to act as your intermediary. The broker may ask you for more documents depending on specific norms. You can initiate investments by transferring funds to your trading account once it is functional.
Investing in overseas realty market
Under the LRS, there is a restriction on remittances of $250,000 per annum for an individual. This amount may not be enough to invest in some international realty markets. However, by including another member of your family to your plan, you could raise the limit to $500,000 and invest in realty abroad. You can also borrow money from banks to finance your purchase. If the lending bank is local, you also get tax advantages similar to those while buying property in India. It’s important to assess your risks, since housing markets in countries such as the US and UK have seen a lot of volatility in the recent past.
Other Investment Avenues
Other investment avenues such as Real Estate Investment Trusts (REITs), and investment in renewable energy assets are popular among HNIs. Such instruments allow HNIs to diversify their portfolio and hedge their currency risk as per their business requirements. HNIs also make investments in foreign companies via private equity through international investment bankers and consultants while adhering to the RBIs guidelines and FEMA.
There are vast opportunities available internationally for the intrepid investor. Some of these options are open to all and not restricted to HNIs. Each can invest as per his capacity and risk appetite. If you are keen to explore these options, then go ahead and start your research about your opportunities, currency risks, and local investment laws. You can also take the support of investment advisors to zero in on the best investment products for you.
The author is CEO, BankBazaar.com